Gold got a triple whammy this week but is showing resilience around $1,200 per ounce.
My input to the Weekly Kitco Gold Survey:
My vote is up. Target gold price $1,205 per ounce . Target Silver price $17.0 per ounce.
A triple whammy for gold this week pressured by falling commodities, less-dovish comments by ECB Mario Draghi and the almost certainty of a Fed rate hike next week following today's strong employment report. Comex gold is presently trading at $1,201.7 per ounce. Dipping to a 5-week overnight low [$1,194.5], the yellow metal is showing good resilience by holding its head above the key $1,200-level after suffering a 2% loss for the week.
Comments by China's Premier Li Leqiang at Monday suggesting a lower GDP target and less restrictive control of their currency kicked off a commodity retreat led by oil which fell below $50 per barrel. Copper, already in a downtrend, fell to new lows by Thursday. Gold, now positively correlated with both*, felt the gravity of declining commodities.
Mario Draghi's confidence in the European economy and expressing, "no anxiety of the euro breaking up" relieved worry about upcoming European elections favoring far-right candidates. This in turn bearishly dropped gold in euros to below trend support Thursday [see graph below].
The better-than-expected U.S. employment report boosted Treasury yields and stocks this morning causing additional pressure on gold. The yellow metal has now lost all gains relative to the S&P 500 for 2017 [see Chart to Watch below].
However, with all these bearish influences, gold has not declined as much as its commodity cousins and is buoyed some by by increasing inflationary pressures in the U.S. and abroad. Most importantly, there is still concern about a surprise outcome in France elections or miscalculation in dealing with hot spots such as North Korea. Gold is likely to regain ground above the $1,200 level.
Additional things to watch:
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 has brought China foreign reserves to a 6-year low. Premier Li Leqiang's lowering of the China GDP target to 6.5% and an upcoming Fed rate hike suggest a relaxation of this vigorous defense is likely. This morning, the yuan has strengthened a bit but volatility is higher (1-month volatility** is still a low 0.23%) trading at 6.9083 USD/CNY.
Have a good weekend!
*one-month correlation of gold with oil & copper is +0.73 & +0.48 respectively.
** by comparison the euro & yen 1-month volatilites are roughly 0.4% & 0.8% respectively.
Mining Employment Up!
Here's some great news, "Employment in mining increased by 8,000 in February, with most of the gain occurring in support activities for mining (+6,000). Mining employment has risen by 20,000 since reaching a recent low in October 2016."
Although this includes all the folks that extract wealth from the earth, including oil & gas, it is a welcome relief to see the mining employment bottom in the rear view mirror!
Gold Price Outlook 2017
Gold started the year nicely and should remain in my newly revised range of $1,180 to $1,320 per ounce*. Average gold price for 2017 should print above $1,200 per ounce. This morning gold fell to $1,194.5 but has since recovered around the key $1,200-level.
An important gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of 2015 and reversed to a bullish trend, peaking February 11, 2016. It bottomed again December 20, 2016 trended higher but has now bearishly reversed. Confirming a double-bottom in the coming months would be a significant positive for the lustrous metal; latest developments are less positive - we must stay above the December bottom! (see chart below).
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 is somewhat worrisome that gold in euro terms broke below uptrend support Thursday (circle on chart) - something to monitor carefully.
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