"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Friday, June 2, 2017

Gold Just Shy $1,280 On Mixed Jobs Report - Rat Rod for 2017?

Don't Let Looks Fool You - Damn Quick at 6,000 feet!
Annual Drag Races, Eureka, Nevada

Friday, June 2, 2017 AM

*** UPDATE *** Comex gold closed Friday at $1,280.2 per ounce; intraday high scored $1,282.2

Morning Miners,

I love a sleeper. The Rat Rod featured in the headline photo took many by surprise at the Eureka Annual Drag Races over Memorial Day Weekend. The young man (left) drove this beauty from Wells, Nevada to put many fancier machines on the trailer. He clocked low 12-seconds in the quarter with top speeds of 110-plus miles per hour. All this is at 6,000 feet, pardner!

This year gold has a similar story. In a rising interest rate environment with the prospects of strong U.S. economic growth, many experts thought the yellow metal would have a dismal year. As we enter the second-half of 2017, gold nearly broke $1,280 per ounce this morning while stock markets made new highs and interest rates plummeted (10-year Treasury dipped to 2.144%). If the Lustrous One is this year's Rat Rod, there should be some more bullish surprises ahead.

Comex copper wobbles at $2.5875 per pound, down 1% from last Friday on China worries. Moody's debt downgrade of the world's second largest economy and falling iron ore prices are red flags for the recovering demand narrative. Moly oxide remains unchanged at $7.94 per pound after its big jump three weeks ago.

My input to the Kitco News Weekly Gold Report:

My vote is up. Target gold price $1,280 per ounce. Target Silver price $17.4 per ounce.

Like the U.S. labor report this morning, gold's performance is mixed. Jobs added were lower than expected but the unemployment rate fell to to a 16-year low at 4.3%*.

Although up for the week on a weakening U.S. dollar, Comex gold failed to break $1,280** by a few cents on weaker-than expected gains in U.S. jobs added with downward revisions for previous months. However, the jobs report did give the yellow metal enough boost to stay abreast with U.S. stocks which made new record highs this morning.

Gold raced ahead of key commodities copper and falling oil scoring a value peak with the latter not seen since November of last year. Its gains compared to the Broader Bloomberg Commodity Index were greater than 2.5% [see Weekly Summary below].

Gold lagged major currencies euro and yen, but not significantly. Upward trends relative to both remain intact [see currency chart below]. I believe the bullish trend established since the May 9th low** will continue next week with gold taking another shot at $1,280.

Additional Note:

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. The yuan has stabilized below 7 USD/CNY for most of 2017. Continuing low volatility suggests the yuan remains a currency yawn.  This morning, the yuan is steady, trading at 6.8136 USD/CNY (1-month volatility*** slightly up from last week at 0.39%).

Have a great weekend!

* Labor report highlights as reported by Bloomberg News; 138,000 jobs added (versus 182,000 expected), unemployment rate 4.3% (versus 4.4% expected). More details (Bloomberg):

  1. Participation rate, or share of working-age people in the labor force, decreased to 62.7 percent from 62.9 percent
  2. The U-6 or underemployment rate fell to 8.4 percent, lowest since November 2007, from 8.6 percent; rate includes part-time workers who’d prefer a full-time position and people who want a job but aren’t actively looking
  3. The measure known as part-time for economic reasons fell by 53,000 people to 5.22 million Private employment rose by 147,000 (forecast was 175,000) after a 173,000 increase; government payrolls fell by 9,000
  4. Factory payrolls fell by 1,000, construction was up 11,000; retail payrolls declined 6,100, the fourth straight drop; and leisure and hospitality employment rose by 31,000
  5. Average work week for all workers unchanged at 34.4 hours (forecast was 34.4 hours)
  6. Wages declined in manufacturing, utilities and professional and business services; pay rose in retail, construction, information

** Today's high (so far) is $1,279.2 per ounce; May 9th low is $1,217.8

*** by comparison the euro & yen 1-month volatilites are  1.25% & 1.03% respectively.

Weekly Summary  for June 2, 2017 AM  (something new!)

(click on table for larger size)

My latest column in Kitco News, Montreal:

My commentary in the the Spring 2017 Mining Quarterly:

Online Edition (pages 44-46): Spring 2017 Mining Quarterly

McEwen Mining (MUX) $2.56 per share (Close)

General Moly (GMO) $0.3000 per share (Close); Moly oxide (LME) $7.94 per pound

An unofficial source told me today that a much anticipated Nevada Supreme Court decision regarding water rights has been moved from April 4th to May 1st.

...and he drove it to the race from Wells, NV
Annual Drag Races, Eureka, Nevada

Gold Price Outlook: Second-Half 2017

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 evolving U.S. trade policies, political or geo-political shocks (e.g., North Korea, Syria).

Gold has gained ground on the embattled euro and yen. Post-election, gold in euro and yen terms is up and safely above 2013 lows (chart below). It was somewhat worrisome that gold in euro terms broke below uptrend support March 9 and then again after French elections (i.e. defeat of Le Pen) but has since stabilized. Gold in yen has consistently trended higher.

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. Political and geo-political events together with concerns about the timing and efficacy of the new administration's policies have restored glitter to gold in 2017.

Gold below $1,200 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

My commentary in the Spring 2017 Mining Quarterly reaffirms an average price above $1,200 per ounce with a potential run at $1,400:

Click on the image for a larger size:

Gold in euro & yen terms with good margin above 2013 lows

Chart to Watch

Here's a new chart to watch. Click on the image for a larger size:

Gold-to-S&P 500 Ratio

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 then bearishly bottomed yet again March 15, 2017. We must stay above the December low (0.4973)! Currently this AM the AUSP is 0.5258, surprisingly resilient given that S&P 500 is setting new all-time highs this morning.


Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted

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