Gold Fails to Hold $1,338; Copper Clobbered - What's Up?

Remote Command Post
North Ranch, Eureka, Nevada

Friday, September 15, 2017 AM

Morning Miners,

Nothing lasts forever - the summer gold and copper rally is over. Nuts.

But take heart, we've seen this movie more times than a few of us would like to remember. In the next episode yellow and red metals will hear the bugles of the global cavalry and prices shall rise again. Maybe soon. Maybe later...

Let's first review the summer scorecard. Even though Fall Equinox is still a week away, I don't think we'll beat these stalwart numbers. 

Intraday highs on the Comex futures exchange (all December contracts):

Gold $1,362.4 per ounce September 8, 2017

Silver $18.290 per ounce September 8, 2017

Copper $3.1785 per pound ($7,007 per tonne) September 5, 2017 

Copper has taken a beating with a recent "avalanche" of inventory and renewed fears that China demand is slowing yet again. Metals maven Janet Mirasola of Sucden Futures NY reports that an additional 100,000 tonnes of the red metal were added to warehouses just this week. Comex copper is once again below $3 per pound trading at $2.9505 - more than 7% below its September high.

Gold, for the reasons noted in my Kitco report below, is trading at $1,328.9 per ounce - encouragingly only several percent off its high.

Gold, although weaker this week against domestic stock markets making new all-time highs, has a foundation of global uneasiness about North Korean missiles, terror and U.S policy direction. This should keep prices elevated for the time being. Inflation may become a concern if it causes central banks to become more hawkish (gold does poorly if interest rates rise faster than inflation expectations).

Comex copper should return above $3 per pound if "synchronous" global recovery remains intact. China's currency remains very strong, Europe and India are humming, and rebuilding Houston and Florida should give an eventual lift to our own GDP. Inventories will adjust with time. We may have to wait until next year to see a second sustained rally in the red stuff.

LME Moly Oxide remains on snooze alarm at $7.26 per pound. This is disappointingly short of $8 after climbing to $7.94 for much of May. Since moly oxide is primarily a byproduct of copper mining, the copper glut is not helping this situation. However, General Moly (GMO) shares still remain around $0.46 holding on to the gains from an upgrade to "buy" earlier this month from Zack's Investment Research, Inc. 

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 $1,320 per ounce. Target Silver price $17.6 per ounce.

Gold is in a slump; inflation is in the air. 

Closing the week with a North Korean missile launch over Japan, poor U.S. industrial production and retail data, and a terrorist attack in London have not restored much shine to the yellow metal. Trading at $1,328.9 per ounce this morning on all this news is a notable fall from Thursday's $1,338.2 high. 

Gold has lost buoyancy from its fellow metals with copper down more than 7% for the week on an "avalanche" of inventory and fears that China is slowing again. There is a suspicion of continued hawkishness among central bankers with the euro zone scoring a healthy 2% wage growth, the U.S. CPI ticking up in August and the Bank of England raising rates. 

This suggests gold has further to fall with a likely drop to the $1,320- level next week. Silver should find comfort at $17.6 per ounce.

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 2017 and continues to strengthen. This morning, the yuan is trading a bit weaker than last week at 6.5426 USD/CNY, 1.7%  above a low (i.e. a stronger level) for the year of 6.4345. Yuan volatility is picking up above major currency levels (1-month volatility* 0.91%).

Have a great weekend!

* by comparison the euro & yen 1-month volatilites are  0.72% & 0.70% respectively; Comex gold 1-month volatility is greater at 3.14%.

Weekly Summary  for September 15, 2017 AM  (something new!)

(click on table for larger size)

My latest column in Kitco News, Montreal:

The Gundlach Indicator R.I.P. - Gold, Copper & Interest Rates (Kitco News, August 23, 2017)

McEwen Mining (MUX) $2.45 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) $0.461 per share; Moly oxide (LME) $7.26 per pound

General Moly and its Largest Shareholder, AMER, Strengthen Strategic Partnership (Press Release, August 8, 2017)

Mt. Hope Project's Supplemental EIS Published in Federal Register, Moving Project Towards ROD (Press Release, July 20, 2017)

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)

Gold Price Outlook: Second-Half 2017

Gold started the year nicely and should remain in my latest revised range of $1,200 to $1,400 per ounce*. Average gold price for 2017 is expected to print above $1,200 per ounce with a chance to see $1,400 given an adverse outcome for the President Trump's agenda, the initial financial impact of super storms Harvey and Irma or geopolitical 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 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 headed lower on the prospects of the ECB taking a more hawkish stance on monetary policy. It  had a nice rally following President Trump's "fire and fury" comments with an established trend higher. Gold in yen has mostly trended higher since the U.S. election. Gold in euro, however, has retreated from its recent peaks.

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 proves a healthy sign. Gold valuations relative to copper are elevated and recovering from a recent descent lower.

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. A fall below $1,230 is very bearish; prices above $1,260, bullish; above $1,300, very bullish.

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:

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 July 7, 2017 (0.4989). We must stay above the December low (0.4973)! Currently this AM the AUSP is 0.5329, maintaining a bullish breakout from the July low but now stalling just below the top of its range bound meander for 2017.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.