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

DISCLOSURE

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 22, 2018

Gold Recovers $1,270 on Euro Strength; General Moly New Drill Program at Mt. Hope

Near the Center of the Universe
Eureka Post Office, Nevada

Friday, June 22, 2018 AM



Target Gold Price: $1,280 per ounce Target Silver Price: $16.5 per ounce.

Morning Miners!

If you're a European, there's at least two things to be happy about this morning. Buying gold in the euro currency has been a winning bet since mid-March and a just released economic number is better-than-expected suggesting the European economy may be stronger than many thought. Understanding the relation between these two facts shines a light down the gold mine shaft that reached the $1,260-level yesterday.

Much is tied to the recent strength in the greenback - the U.S. Dollar Index (or DXY or "Dixie") peaked above levels not seen since last November yesterday (95.53). Part of this strength has been a faltering euro currency since the the euro comprises a large share of the index (57.6%). A weak euro is a headwind for gold which, like most commodities, is denominated in U.S. dollars. If you're lucky enough to buy gold in euros, a weak euro is a tailwind.

Today the European Purchasing Manager's Index (PMI) Survey was surprisingly strong. The Index survey queries those in the manufacturing industry and is often used as an sentiment on overall economy. A number of 50 indicates the economy is expanding - Europe's PMI scored an impressive 54.8 for June. This strengthened the euro, weakened the dollar and bounced gold off its low to the $1,270-level again (Comex gold is trading at $1,270.3 as I write this).

An often more important factor in comparing currencies is the monetary policy followed those nation's central banks. Last week, the European Central Bank (ECB) announced that it would not cut interest rates for at least a year while the U.S. Federal Reserve has been raising rates for 2-1/2 years. This divergence in policy has boosted the value of the U.S. dollar and generally weakened the euro.

If the European economy improves this opposing dynamic may change. Let's see, American economy is pretty strong now too, pardner. For a more detailed explanation please read my
input to the Kitco News Weekly Gold Survey and look at the divergence in the currency charts below...

...or just go fishing. Gold in U.S. dollar terms is solid and that European may start to think about taking some profits on his gold bet.

Have a relaxing weekend - you deserve it!


Latest Mining Quarterly!

General Moly New Drill Program at Mt. Hope

Looks like more holes in Mt. Hope - starting to look like Swiss cheese! About two months of activity:


LAKEWOOD, COLORADO, June 21, 2018 – General Moly, Inc. (the “Company” or “General Moly”) (NYSE American and TSX: GMO), the only western-exchange listed, pure-play molybdenum development company, is commencing an initial exploration drilling program in the next few weeks focused on the previously identified copper-silver-zinc-mineralized skarns, immediately adjacent to the Mt. Hope molybdenum (“moly”) deposit in central Nevada.

The 10-hole drilling program is designed to confirm and extend the high-grade copper-silver target (“Cu-Ag Target”) defined by historical drilling and to test for extensions of horizons (“bedding replacement” in geologic terms) of zinc mineralization. The Cu-Ag Target lies below the zinc mineralized horizons, which had been historically mined.

This $0.8 million first phase drill program is expected to take approximately two months with drill assay results expected in the fall 2018. The aggregate footage of the planned 10 holes is estimated at 9,400 feet. Planned intercepts are at least 100 feet of spacing at the targeted depth...(more, with above link)


Inflation Watch

Inflation expectations made a new 2018 high April 23rd above a  trend line of higher lows (middle dotted line, click on chart for larger size). After a sharp dip last on May 29th, expectations recovered but now appear to be leveling off.


10-year Inflation Expectations

Note: In the above chart inflation expectations peaked at 2.14% February 2nd but were surpassed April 23rd at 2.18%. May 29th dramatically broke the trend line of higher-lows falling to 2.04%. This decline recovered to 2.12% and has been flat since last Wednesday. New trend line of higher-lows is shown in dark blue; older trend lines, in light blue. Note that present trend now extends to the June 21, 2018 low.

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!

 Old Glory
Eureka, Nevada

Scorecard 

Here's a scorecard on where we stand with some of our favorite metals. 

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 $3.0195 per pound ($6,657 per tonne), retreating to 9.4% below December's high with lowered expectations for higher prices. Improving global growth has kept the red metal above the key $3 per pound. Initial trade war fears dipped the red metal below this mark but copper is now back above $3. Revived trade war tensions have sent the red metal lower from recent highs and copper is now nearly in correction territory (i.e. down 10%).

Total copper stored in LME and Nymex warehouses is higher than last week at 0.535 million tonnes.

LME inventories bounced in decline: 


It is instructive to keep our eyes on the Nymex inventories which are behind the LME and falling (LME 308,975 versus Nymex 226,637 tonnes):


My Input to Kitco News 

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

Target gold price $1,280 per ounce. Target silver price $16.5 per ounce.

After its perilous drop yesterday to $1,262.4 per ounce, Comex gold has recovered to the $1,270-level. Where next is best answered by observing yesterday's reversal in the U.S. Dollar Index* (DXY). After nudging above November's high, the DXY has fallen a full 1% this morning aided by a better-than-expected Euro-zone [Purchaser's Manufacturing Index] PMI giving the euro currency much needed mojo.

If euro recovery continues, gold should regain $1,280 territory next week with silver following to $16.5 per ounce.

There are suspicions that this week's yellow metal retreat may have also been accelerated by Venezuela selling more gold reserves. Given the bounce from Thursday's low, the big seller in the market may have headed for the exit.

On a weekly basis, gold has outpaced most commodities except oil but fared less well against major currencies.

By the numbers, gold is up +0.3% relative to the broader Bloomberg Commodity Index (BCOM) and a notable +3.5% relative to copper. The lustrous metal fell behind the euro -1.0% and Japanese yen -1.2% but stayed roughly even with troubled equities (+0.2% compared to the S&P 500). [see Weekly Summary Chart]

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. There has been talk from China that currency devaluation may be used as a tool in a U.S./China trade war, just talk for now. Something to watch: the yuan has been weakening since mid-April.

The yuan stabilized below 7 USD/CNY for 2017 and started stronger in the new year followed by a weakening trend. The yuan is weaker than last week at 6.4979USD/CNY and putting a lot of daylight above the March 26th low (i.e. much stronger level) of 6.2342. A low 1-month yuan volatility of 0.57% is now comprable to major currency levels - something else to watch compared to 1-month volatilities of euro, yen and gold.*

* the euro & yen 1-month volatilites are 0.71% & 0.54% respectively; Comex gold 1-month volatility has elevated to 1.05%

Weekly Summary  for June 22, 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 Revised Outlook for 2018:

My 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. My revised forecast was a floor price of  $1,285 with highs challenging but not exceeding $1,380 per ounce. Now that gold tested $1,262.4 on an intraday basis Wednesday 6/21 (August contract) the floor may unfortunately be closer to $1,250. 

2018 will prove a less bullish period for gold than last year with higher interest rates in the U.S.  Inflation will be another key factor to monitor, it has been on the rise but now may be moderating (see chart above in discussion). 

The difference between interest rates and inflation expectations drives 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 the beer bet for 2018: Gold will fall below $1,220 before rising above $1,380. We ended 2017 in 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. Now that I've dropped the floor to $1,250, the playing field is starting to look more level for the half-empty and half-full folks in 2018.

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)

Note the resumed divergence of the euro-yen spread in both charts. 

Click on the image for a larger size:


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

Note upside trend of higher lows for gold in U.S. dollars for 2018 (dotted blue line).


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 128.16 yen per euro as the gold euro/yen spread ticks up (above chart).

Chart to Watch

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) and June 15, 2018 slightly lower (0.4599). Currently this AM the AUSP is 0.4606 bearishly below the key 0.5-level and only marginally above the recent low.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.

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