Strong Copper, Weak Dollar, Gold Swoons to $1,236 - What's Up?

Lone Mountain Afternoon

Eureka, Nevada

Friday, June 30, 2017 AM

Morning Miners,

A mini-flash crash in London to $1,236 per ounce and highly nuanced words from European Central Bank President Mario Draghi* were enough to batter and bruise our favorite metal this week. The latter and other comments by major central bankers also plummeted the U.S. dollar. Currently Comex gold is trading at $1,241. The red metal is our metallic hero to close June soaring toward the important $6,200 per tonne-level ($2.81 per pound). Comex copper is presently trading at a respectable $2.71 per pound. The $6,200 goal was Goldman Sachs' 3-month target - a level briefly touched in mid-February. On May 8, Comex copper dipped to $2.4850 so this is good news.

LME Moly Oxide remains at $7.26 per pound disappointingly short of $8 after climbing to $7.94 for much of May. $8 per pound is a key level for General Moly (GMO) to secure additional funding for Mt. Hope from AMER.

Here's how I saw the weekly price action as told to the Kitco News Weekly Gold Survey:

My vote is down. Target gold price $1,230 per ounce. Target Silver price $16.5 per ounce.

Gold had a horrible week.

Starting Monday with a mini-flash crash to $1,236 in London proved a bad omen for gold. It retested that level yesterday plumbing 1,239.7 on the Comex. The yellow metal fortunately moved up to $1,241 in morning trading so far containing loses to 1% for the week. Although this price recovery may seem encouraging, it is scored against a backdrop of a beaten U.S. dollar and roaring copper prices that posted more than 3% gains.

A sobering fact for the weekly score sheet: gold lost considerable value compared to key commodities, the broader Bloomberg commodity index, U.S. equities and major currencies euro and Japanese yen - reminiscent of 2013 cross-asset loses [see Weekly Summary Chart].

The primary culprit is the prospect that four of the world's five largest central banks moving to tighten monetary policy. This has set off a sell-off in global bonds and clobbered the U.S. dollar - the DXY has fallen below 96 to score a low of 95.47 today. Tighter policy, higher bond yields with only tame inflation is kryptonite for our lustrous hero. I believe the 3-week downtrend will extend to next week with prices falling below this week's lows to test the key-$1,230-level. A further fall to the May Comex low ($1,217.8) would be ominous indeed.

One encouraging sign is softer inflation in Europe printing 1.3% for June compared to 1.4% in May. If this has the effect of moderating the recent nuanced stance by ECB Mario Draghi [that was interpreted hawkish*], gold should survive the recent pullbacks and re-affirm strong support in the low-$1,200 range.

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 and has surprisingly strengthened lately. Volatility has also picked up from recent calm.  This morning, the yuan is trading even stronger than last week at 6.7792 USD/CNY (1-month volatility*** 0.26%).

Have a great weekend!

* Draghi Tried to Be Cautious But Spooked the Market Anyway (Bloomberg News, 6/28/2017);
This month's intraday Comex gold high was $1,298.8 per ounce; the May 9th low is $1,217.8

** Goldman Commodity Analysts Ask: How Did We Get It So Wrong? (Bloomberg News, 6/29/2017)

*** by comparison the euro & yen 1-month volatilites are  0.75% & 0.89% respectively.

Weekly Summary  for June 30, 2017 AM  (something new!)

(click on table for larger size)

My latest column in Kitco News, Montreal:

The Gundlach Conundrum: $1,000 Gold by Year's End? (Kitco News, June 21,2017)

My commentary in the Summer 2017 Mining Quarterly:

Bottoms Up! (6/8/2017. Elko Daily Free Press)

Online Edition (pages 77-80): Summer 2017 Mining Quarterly

McEwen Mining (MUX) $2.625 per share

Gold Bar Project on Track, McEwen Rocks; Gold Bounce Next Week? (Eureka Miner, 03/03/2017)

McEwen Mining & Gold Bar Thumbs Up for 2017! (Eureka Miner, 12/30/16) 

General Moly (GMO) $0.35 per share; Moly oxide (LME) $7.26 per pound

Marcum Microcap Conference  (Press Release, 6/16/2017)

What's Up with General Moly (GMO)? EM Talks to CEO Bruce Hansen (Eureka Miner, 1/27/17)

Summer 2017 Mining Quarterly - It Rocks!

Summer 2017 Mining Quarterly

[SPECIAL NOTE: Marianne Kobak McKown will no longer be with the Elko Daily Free Press after this week. She was hired as the executive director of the Committee Against Domestic Violence and will start July 1. She will be missed by this report and the mining community, the best of luck on her new journey! Elko Daily Free Press column: Waters retires from CADV, 6/29/2017]

Marianne Kobak McKown has done an excellent job again bringing a new Mining Quaterly in time for summer. It has a new size format with glossy pages that really make images pop! There are great stories and updates on Goldstrike/Cortez, Florida Canyon, RheoMinerals, Newmont and McEwen Mining's Gold Bar Project north of Eureka.

Veteran Adella Harding has several columns on the rise in Nevada gold production and mining claims as well as new exploration. My column on commodity prices also discusses good news on mining employment nationally and updates from Barrick and Newmont locally:

Bottoms Up! (6/8/2017, Elko Daily Free Press)

Online Edition (pages 77-80): Summer 2017 Mining Quarterly

Hats off to Marianne, Adella and crew!

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).

There is a sobering possibility of a serious gold correction later this year if you believe some of the observations and interest rate projections of bond guru Jeffrey Gundlach of DoubleLine Capital. Here's my analysis on why this may be the case:

The Gundlach Conundrum: $1,000 Gold by Year's End? (Kitco News, June 21,2017)

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 is worrisome that gold in euro terms broke below uptrend support March 9 and then again after French elections (i.e. defeat of Le Pen) and is now headed lower on the prospects of the ECB taking a more hawkish stance on monetary policy . Gold in yen has mostly trended higher since the U.S. election.

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 were stabilizing near historically less extreme levels which proved a healthy sign. Gold valuations relative to copper were elevated but are now falling.

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 although that is being tested lately. A fall below $1,230 is very bearish.

Gold below $1,200 per ounce-level is, however, 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:

Commentary: Gold ain't just whistling Dixie; The U.S. dollar has peaked and commodities have bottomed – a bullish case for gold in 2017

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 chart to watch for 2017. Click on the image for a larger size:

Gold-to-S&P 500 Ratio

An important gold ratio 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 0.5112, in the lower level of a range bound meander for 2017.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted