Eureka, Nevada
Friday, March 23, 2018 AM
Latest Mining Quarterly! (Checkout story on McEwen Mining's Gold Bar Project)
Next Week: Target gold price $1,340 per ounce. Target Silver price $16.5 per ounce.
Morning Miners!
Whoa - what a week!
In case you were busy yesterday doing something useful and less stressful than watching markets, domestic stocks fell down the mine shaft and global markets panicked overnight. Commodity Maven Janet Mirasola of Sucden Futures Inc. started her report with a line from a popular 1970 hit, "War":
Today's Cap’n Obvious Edwin Starr said “War, huh, yeah. What is it good for. Absolutely nothing” – The rumblings of a global trade war came before the collapse of US equity markets yesterday where the DJIA lost 724 pts, the S&P 500 68 and the NASDAQ 178 in an across all assets rout that sent traders and investors rushing to reduce risk from their portfolios.
The panic has continued through Asia where the MSCI Asia Pacific Index fell 2.5% while the Nikkei was hardest hit as it collapsed 4.5%. Shanghai Shares as expected were hit hard falling 3.39% but recovering from deeper intraday losses. Euro bourses are falling along with global equity futures off the early opening as they catch trade war fears and investors look to reduce risk. Only the Black and Shiny Ones have managed to hold onto recent gains as gold retains some of its old “safe haven “ status while oil dances to its own inventory tune.
Well, at least our favorite metal is happy.
Allen Sykora featured a portion of my weekly report in the Kitco News Weekly Gold Survey
"Briefly cresting the important $1,350 level this morning, the yellow metal made substantial advances in U.S. dollar price as well as value compared to equities, commodities and major currencies,” said Richard Baker, editor of the Eureka Miner Report. “Only oil outpaced the lustrous one on a percentage basis.”
and,
Meanwhile, Baker looks for a pullback even though he also points out that the news flow this week “reminds market participants the wisdom of holding a little gold in their portfolios.”
Still, Baker said, “I think it likely that some of this safe-haven enthusiasm will wane by next week as scary headlines transition to more moderate outcomes. Gold will consolidate around $1,340 and silver should find footing at $16.50 per ounce. In the case of heightened anxiety, gold may indeed challenge the $1,360 plateau.”
My full report is included below. Thankfully, U.S. stock markets are recovering some of their losses this morning; copper is on the edge (see "Scorecard" below) [Oh-oh, stock markets have reversed to the downside adding to yesterday's losses. Comex gold is hovering just below $1,350; Comex copper is now below $3 at $2.9940 per pound, 12:07 p.m. Eureka time].
Inflation Watch
Prior to the big sell-off, inflation expectations were down from 3-1/2 year highs and have not broken trend support (dotted line, click on chart for larger size):
10-year Inflation Expectations
Note: In the above chart inflation expectations peaked at 2.14%; on March 7 they were 2.13%, Wednesday, 2.09%.
Interest rates and inflation numbers going forward are greatly influenced by central bank policy worldwide. My latest Kitco commentary discusses what some of the moving parts are as well as useful indicators - watch the U.S. Dollar Index (DXY) and euro/yen cross rate:
The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)
Several of the charts in this column are updated below.
Have a fun weekend!
Croesus Mine Today
Eureka, Nevada
Scorecard
Here's our scorecard on where we stand for the last six months:
Intraday highs on the Comex futures exchange:
Gold $1,370.5 per ounce January 25, 2018 (April 2018 contract)
Silver $18.160 per ounce September 8, 2017 (Continuous chart))
Copper $3.3335 per pound ($7,349 per tonne) December 28, 2017 (May 2018 contract)
Comex copper is presently trading at $3.0065 per pound (6,628 per tonne), 9.8% below December's high. Improving global growth has kept the red metal above the key $3 per pound level with an added boost from passage of Tax Reform and expectations for U.S. infrastructure spending. Now we are perilously close to that level with Comex copper dipping briefly to$2.9820 this week.
Chinese post-Lunar holiday remain in a dire mood with copper futures down year-to-date on the Shanghai Futures Exchange (SHFE).Janet Mirasola reported further this morning, "The Red One, almost a commodity proxy for China continues to fall breaking below its 200-day moving average ($6677) this morning to a low so far of $6623 dragging its basket of base metal mates along for the ride."
China growth was resulted in a GDP 6.9% for 2017 compared to 6.7% for 2016. The GDP projection for 2018 is 6.5%, down but still fairly robust.
China's industrial output climbed 7.2 percent in the January to February period from a year ago, faster than the 6.2 percent rise in December. That was also above the 6.6 percent increase economists had forecast.
Recent U.S. import tariffs on steel, aluminum and other Chinese exports cloud the outlook for metals. Also, indefinite tariffs, investment restrictions and possible visa restrictions on Chinese travelers are now being contemplated by the Trump Administration.
Copper stored in LME and Nymex warehouses are now 0.55 million tonnes - net copper inventories have risen slightly for the week.
LME inventories built stronger as we started the new year, but are now lower and leveling off:
It is instructive to keep our eyes on the Comex inventories which are behind the LME and falling (232,138 versus 321,900 tonnes):
My Input to Kitco News
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 $1,340 per ounce. Target Silver price $16.5 per ounce.
This is a week that reminds market participants the wisdom of holding a little gold in their portfolios.
As domestic and global equities plunged on resurgent fears of trade wars, real wars and a more hawkish-sounding U.S Federal Reserve, gold shined. Briefly cresting the important $1,350-level this morning, the yellow metal made substantial advances in U.S. dollar price as well as value compared to equities, commodities and major currencies. Only oil outpaced the lustrous one on a percentage basis.
As a bullish indication. it is important to note that gold in yen terms jumped nearly 2% even as the Japanese currency strengthened below the 105-level under the shadow of a looming U.S./China trade dust-up. In the commodity space, bellwether copper ominously threatened to fall below $3 per pound-level. Gold in relation to the red metal picked up a stunning 6% in value.
I think it likely that some of this safe haven enthusiasm will wane by next week as scary headlines transition to more moderate outcomes. Gold will consolidate around $1,340 and silver should find footing at $16.5 per ounce. In the case of heightened anxiety, gold may indeed challenge the $1,360 plateau.[see Summary Chart & last graph below, Chart to Watch].
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 stabilized below 7 USD/CNY for 2017 and has been trending steadily stronger in the new year. The yuan is slightly stronger than last week at 6.3125 USD/CNY and above the February 7th low (i.e. even stronger level) of 6.2540. A 1-month yuan volatility of 0.27% is in the ballpark of major currency levels - a healthy sign for the Chinese currency (1-month volatilities of euro, yen and gold*).
* the euro & yen 1-month volatilites are 0.48% & 0.52% respectively; Comex gold 1-month volatility is a low 0.67%.
Weekly Summary for March 23, 2018 AM
Weekly Summary for March 23, 2018 AM
(click on table for larger size)
Yearly Summary for 2017
(click on table for larger size)
Comex gold gained nearly 14% for the year but was outpaced by Comex copper that enjoyed a 32% uptick in price. Comex silver lagged both for a respectable 7.2% gain. Overall, gold gained 12% on the broader Bloomberg Commodity Index (BCOMTR:IND) which includes everything from crude oil to things that oink. In terms of major currencies, gold in terms of yen advanced almost 10% but slipped 0.4% relative to the strengthening euro.
Although gold slipped 5% in value relative to the S&P 500 it was not a bad year at all for the yellow metal!
Gold Price Outlook for 2018:
My revised gold range for 2017 was $1,250 to $1,400. We closed 2017 comfortably above $1,300 at $1,309.3 (February contract).
Let's assume 2018, like 2017, is a mix of buoyant market expectations and rising rates with occasional geopolitical, political and economic shocks. Gold will feel the headwinds of the former and enjoy price spikes in times of market stress. I believe this will secure a price floor in the $1,200 to $1,250 range with highs challenging but not exceeding $1,380 per ounce.
2018 will prove a less bullish period for gold than last year unless interest rates return to 2017 levels and copper prices fall - a less likely scenario given the recent rise of the 10-year Treasury together with U.S. growth and synchronous global growth expectations. Inflation will be another key factor to monitor, it has been on the rise (see chart above in discussion).
The difference between interest rates and inflation expectations drive gold price; if the former leads the latter, there could be stiff headwinds for the lustrous metal. A trade war that results in slower growth and higher inflation could be potentially very bullish for gold.
Here's a good beer bet for 2018: Gold will fall below $1,220 before rising above $1,380. We ended 2017 n the middle of that range with prices just above $1,300 - a fair starting point.
Which side of this bet you take depends on whether you have a half-empty or half-full view on interest rate direction and economic prospects, both global and domestic.
Important charts to watch remain the gold-to-S&P500 or AUSP (see "Chart to Watch" below) and gold in terms of major currencies euro and Japanese yen (directly below). An explanation of the charts below is given in my latest Kitco column:
The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)
Click on the image for a larger size:
Gold in euro & yen terms with good margin above 2013 lows
Gold euro/yen spread widens again in 2018
Gold euro/yen spread widens again in 2018
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 129.82 yen per euro as the gold euro/yen spread remains wider than earlier in 2018.
Here's a chart to watch for 2018. 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 (0.4973) trended higher but then bearishly bottomed again in July, 2017 and more recently December, 12, 2017 (0.4661). Currently this AM the AUSP is 0.5090, bullishly above the key 0.5-level.
Cheers,
Colonel Possum & Mariana
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