Eureka, Nevada
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Friday, October 27, 2017 AM
Morning Miners,
The European Central Bank (ECB) threw a lifeline to gold this week.
ECB President Mario Draghi announced that their quantitative easing program, the printing of euros to buy bonds, would be pared back but last longer. Interest rates would remain unchanged. In the U.S. better-than-expected GDP and other positive economic data increased expectations for more aggressive tightening of our monetary policy while Europe continues on the path of expansion. The divergence of policies is gold's friend creating a floor for prices which I believe is somewhere above $1,250 per ounce.
Comex gold price dropped 1% this week dipping briefly to $1,263.8 per ounce but rose 0.8% against the embattled euro. As long as someone continues to print money, gold has a life jacket. The next test will be on Halloween when the Bank of Japan is expected to announce their monetary policy. The consensus is continued accommodation similar to Europe and opposite from the United States - more support for our favorite metal.
Now that spells support not necessarily rally, pardner. Gold in this environment behaves as another currency unless something scary happens in the geopolitical arena. Divergence in central bank thinking kicked the U.S. Dollar Index (.DXY) to 3-month highs as the euro slumped to 3-month lows. Strong dollar is a headwind for gold and the metal complex. For more about gold, please read my input below to the Kitco News Weekly Gold Survey.
Here's our scorecard on where we stand for the last-half of the year:
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 $3.2595 per pound ($7,186 per tonne) October 16, 2017
Comex copper is presently trading at a $3.0820 per pound, now sharply below this month's high. Improving global growth has kept the red metal climbing but now it faces a stiff U.S. dollar headwind (it bears repeating that the OECD now predicts 45 economies will grow this year and the IMF has stepped up global 2018 GDP from 3.6% to 3.8%). All eyes are on China to see how growth prospects shape up now that their upbeat 5-yearly Congress has concluded. Copper prices are less sensitive to supply side excess as LME inventories continue to decline:
It is instructive to keep our eyes on the Comex inventories which, albiet lower in total, appear to be leveling off:
And, again the chorus of our very tiresome molybdenum song, "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."
General Moly (GMO) has fallen to the $0.31-level per share. The company received their AMER Tranche #2 funding on Monday, October 16.
Here is an interesting interview with CEO Bruce Hansen which appeared in Metals News:
General Moly, Inc. (NYSE MKT and TSX: GMO): Mt. Hope Project in Nevada, One of the World's Largest and Highest Grade Molybdenum Deposits, Bruce Hansen, CEO and CFO (Metal News, 10/15/2017)
And General Moly's latest MolyBits on the many uses of molybdenum:
MOLYBITS (10/19/2017)
My Input to Kitco News
My vote is down. Target gold price $1,260 per ounce. Target Silver price $16.5 per ounce.
Gold's price resilience is noteworthy in the face of a daunting U.S. dollar rally, better-than expected U.S. GDP and other economic data that almost ensures that the U.S. Federal Reserve will continue a trajectory of higher rates.
Although gold in U.S dollar terms is down 1% for the week around the $1,268-level, it is up 0.8% in euro terms after ECB's Mario Drahgi announced a lower-for-longer QE policy with no raise in interest rates. Gold is also outpacing copper for the week by nearly 2% weathering the dollar storm much better than its metallic companions.
Gold relative to the record-setting S&P 500 is at a new low this morning as market participants abandon safe havens for equities against a backdrop of global optimism and strong U.S. earnings reports. However, expansionary monetary policy in Europe and Japan as the U.S tightens should set a floor for gold in U.S. dollars, especially with stubborn geopolitical concerns still hiding in the shadows synchronous global recovery.
I believe it likely that the yellow metal will test $1,260 per ounce next week but remain above $1,250 for 2017. Silver should find some relief at $16.5 per ounce.
A key test is watch how much higher the 10-yr Treasury yield goes now that it is above 2.4%, a tipping point identified by bond traders for higher yields to come. If yields stall, gold remains on solid ground. If geopolitics flare up, gold could easily head north to $1,300 territory again.
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 generally grown stronger. The yuan is notably weaker than last week at 6.6534 USD/CNY and now 3.4% above its low (i.e. a stronger level) for the year of 6.4345. A 1-month yuan volatility of 0.42% is in the ballpark of major currency levels - a healthy sign for the Chinese currency (1-month volatilities of euro, yen and gold*).
Have a great weekend!
* the euro & yen 1-month volatilites are 0.50% & 0.63% respectively; Comex gold 1-month volatility is 0.79% [Note: gold volatility was reported earlier to be elevated which it is not]
Weekly Summary for October 27, 2017 AM
* the euro & yen 1-month volatilites are 0.50% & 0.63% respectively; Comex gold 1-month volatility is 0.79% [Note: gold volatility was reported earlier to be elevated which it is not]
Weekly Summary for October 27, 2017 AM
(click on table for larger size)
My latest column in Mining Quarterly (as reprinted in the Elko Daily Free Press):
A Tectonic Shift in Markets (Elko Daily Free Press, September 12,2017)
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) $1.9299 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) $0.3123 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: Fourth Quarter 2017 (Revised)
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 now expected to print above $1,250 per ounce with a chance to see $1,400 given an adverse outcome for President Trump's tax reform plan or geopolitical shocks (e.g., Iran, 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 since early-July. The ECB's more dovish tone this week has returned some mojo to the gold-in-euro uptrend
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 at historically less extreme levels which proves a healthy sign. However, gold valuations relative to copper are again in decline posting a new low for the year of 401 pounds per ounce on October 18th and again on the 25th. Falling below 400 is bearish for gold.
Political and geopolitical 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 $1,260 is bearish; below $1,230, very bearish. A rise above $1,300 is bullish; above $1,362, very bullish.
My target price for next week is at the border of scary at $1,260 per ounce.
(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:
Gold in euro & yen terms with good margin above 2013 lows
Note for currency buffs: Value parity in the above chart occurs when the EUR/JPY cross rate is 139.24; something to watch for - presently 133.76 yen per euro and above where it was last week.
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 again July 7, 2017 (0.4989) and October 20, 2017 (0.4972). Currently this AM the AUSP is 0.4935...very scary.
Cheers,
Colonel Possum & Mariana
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