Gold hangs tough near the key $1,250-level this week while markets are on track for a good first quarter. Comex gold year-to-date is up 8.3%. My input to the Weekly Kitco Gold Survey:
As the first quarter closes the S&P 500 is on track to have its highest quarterly gain since 2015. Global and domestic stock markets have reacted positively to an improving world economy and the promise of U.S. tax reform, deregulation and infrastructure spending. China manufacturing recorded its best manufacturing expansion in more than 5 years. All of this positive data has a supported a rebound in metal prices and the broader commodity indexes.
However, there is a darker side to 2017 that has supported gold price above the $1,200-level, depressed U.S. Treasury rates and stalled inflation expectations. This includes a perception of delays in executing U.S. economic reforms and fiscal stimulus which has dampened the "risk-off" attitude earlier in the year. In Europe, Brexit implementation and upcoming elections in France and Germany continue to cast a shadow on rosier economic expectations.
Comex gold is near flat for the week at $1,247.8 per ounce in early morning trading (June contract, gold intraday high for the week was Monday at $1,261). The yellow metal lost value compared to oil, copper and the Bloomberg Commodity Index. However, gold made gains in terms of euro and Japanese yen, bullishly staying above positive trend support for the quarter (see chart below). A surprise FN victory in France or miscalculation in dealing with hot spots such as North Korea could drive the yellow metal considerably higher in the coming months.
The fate of the Chinese yuan remains a key tell for gold and copper - a material drop in valuation could boost gold and depress copper prices. Aggressive liquidity tightening by the People's Bank of China (PBOC) has eased, stabilizing the yuan below 7 USD/CNY. However, defending their currency brought China foreign reserves to a 6-year low earlier this year. Premier Li Leqiang's lowering of the China GDP target to 6.5% and the Fed rate hike suggest a relaxation of this vigorous defense is ongoing. This morning, the yuan has strengthened slightly and volatility is still quite low trading at 6.8830 USD/CNY (1-month volatility* is 0.21%).
Have a great weekend!
* by comparison the euro & yen 1-month volatilites are roughly 0.9% & 1.4% respectively.
Gold started the year nicely and should remain in my revised range of $1,180 to $1,320 per ounce*. Average gold price for 2017 is expected to print above $1,200 per ounce with an outside chance to see $1,400 given an adverse outcome for European elections, evolving U.S. trade policies or geo-political shock.
Gold has gained ground on the embattled euro and yen. Post-election, gold in euro and yen terms are up and safely above 2013 lows (chart below) and are both above pre-election levels. It was somewhat worrisome that gold in euro terms broke below uptrend support March 9, but it has since recovered.
An important gold ratio to watch is gold-to-S&P500 or AUSP (see "Chart to Watch" below).
Gold ratios relative to copper and oil are stabilizing near historically less extreme levels which is a healthy sign. Geo-political events and/or a bump in inflation expectations could restore glitter to gold in 2017.
Gold near my low-range of $1,180 per ounce-level is a tempting "buy."
(please do your own research, markets can turn on you faster than a feral cat!)
*My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly:
Storms Never Last: Positive News for Gold, Oil & Copper
Here's a new chart to watch. Click on the image for a larger size:
Colonel Possum & Mariana