The Eureka Miner: Gold Giddy-Up $1,661; U.S. Becomes Pandemic Epicenter

Whiskey Flat (2009)

Eureka, Nevada

Friday, March 27, 2020 AM

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UPDATE (Friday 3/27/20 closing prices)

Comex April gold $1,654.1 per ounce

Comex May silver $14.53 per pounce (down 23.5% from 2/24/20 high, $19.005/t-oz)

Comex May copper $2.1720 per pound (down 24.9% from 1/16/20 high, $2.8930/lb)

Nymex WTI crude oil $21.33 per barrel (down 66.9% from 1/8/2020 high, $64.39/bbl)

S&P 500 closed down 4.34% at 2,541.47 This is down 25.1 % from the all-time intraday high of 3,393.52 set 2/19/2020 - both feet into Bear Country.

"I cannot overstate the potential harm the coronavirus can do to the world economy." (Eureka Miner, January 31, 2020)

"WARNING: Too quiet on the copper front? Red metal at currency-like volatility!" @Eurekaminer March 4, 2020 [Comex copper has since fallen into bear country]

John Hopkins University & Medicine Coronavirus Resource Center

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Follow the ole Colonel on twitter @Eurekaminer

Next Week Target Gold Price: $1,680 per ounce, Target Silver Price: $14.80 per ounce

My latest Kitco News commentary: Copper, gold & the coronavirus (2/18/2020) [summary of recent commentaries given at the bottom of the blog]

Renowned Commodity Journalist Debbie Carlson just explained a new way to invest in gold:

A $1.2 Billion Fund Makes the Case for Gold (Debbie Carlson, Barron's, 3/26/2020)

An easy-to-understand overview on gold (32 slides, read explanation below each slide): History of gold and which countries have the most

Morning Miners!

Here's a sobering fact to start Friday morning:

The coronavirus outbreak reached a somber milestone in the U.S. on Thursday (March 26) — the nation now has more coronavirus cases than any other country in the world. There are now at least 82,174 cases of the new coronavirus disease, COVID-19, in the United States, according to worldometer, a website that tracks coronavirus cases. That's higher than the case count in either Italy (which has 80,589 cases) or China (which has 81,285 cases) - Rachael Rettner, LiveScience, 3/26/2020).

For Friday, the numbers have grown to 104,126 for the U.S. with 1,696 deaths. To put this in perspective, the ole Colonel calculates that the U.S. growth rate doubles every 2.88 days based on a weekly jump from 19,367 to 104,126 cases [UPDATE: Friday-to-Friday closing numbers]. The Nevada numbers are 621 cases with 10 deaths. Don't be lulled by the relatively small numbers, Nevada started later than the current nation's hot spots.

Stay safe my friends.

Comex June gold touched $1,661 per ounce earlier today is is presently trading at $1,652.9 [Weekly Charts below reflect data below taken earlier today]

Here's how I explained my gold and silver outlook to the Kitco News Weekly Gold Survey this morning:

A few obstacles to gold price moving higher were cleared this week: 1) although up this morning, the U.S. dollar has come off its highs and will no doubt face increasing pressure from the multi-trillion dollar relief package from Congress with more aid promised in the future*, 2) the liquidations depressing precious metals have eased although this morning's sharp equity decline may signal a smaller round is underway, 3) the interest environment has again turned quite bullish for gold with overseas interest rates becoming more negative, the U.S. 10-year real rate once again negative and U.S. yields plumbing negativity on the short-end (3-month T-Bill).**

With the U.S. quickly becoming the new epicenter of this horrific pandemic, the uncertainty facing the economies and markets will propel gold to $1,800 per ounce, perhaps higher. I believe it likely that Comex gold will see at least $1,680 per ounce next week with embattled silver following to $14.80 per ounce.

* The U.S. Dollar Index (.DXY) was 102.82 last Friday, 98.35 today

** 3-month T-Bill -0.06%, 10-year U.S. real rate +.74%; 10-year bonds: German Bund -0.49%, France -0.10% and Japan -0.01%;

Renowned Commodity Journalist Debbie Carlson just explained a new way to invest in gold:

A $1.2 Billion Fund Makes the Case for Gold (Debbie Carlson, Barron's, 3/26/2020)

This morning, Comex copper is below the key $2.5-level at $2.1745 per pound. This chart illustrates Copper's plight compared to gold:

Copper drops, gold pops

China, which still represents copper's highest demand, is on the mend. Here is my China Indicator updated through this morning (see above 2/18/2020 Kitco column). A low number is good. A bottom occurred after the signing of the Phase I deal of 0.3011. This AM the indicator sits at 1.08214 below the coronavirus peak of 1.8399 set February 11 but now above the 5-year average (0.78). The covid-19 pandemic is stabilizing in China, but let's keep an eye on the recent move higher (click on chart for larger size)

China 2-rho Divergence Indicator

I've been actively tweeting market news/events during the week so please follow me at @Eurekaminer. I usually tweet Sunday night on the Monday Shanghai Futures Exchange (SHFE) for a heads up on copper & gold prices in the Year of the Rat.

Remember, you can register with the Centers for Disease Control and Prevention (CDC) for updates by e-mail. Look at the situation summary tab on their website for updated U.S. infections and deaths.

How Bad Could 2020 Be?

Update 3/31/2020: Goldman Sachs' Chief Economist Jan Hatzius now sees second quarter U.S. GDP decline dropping -34% (previous estimate -24%) but then two large GDP gains in the third and fourth quarters. Mid-year unemployment estimate is now 15% versus a previous estimate of 9%.

Here are the annualized quarter-on-quarter growth rates:

Q1: -9% (previous -6%)

Q2: -34% (previous -24%)

Q3: +19% (previous +12%)

Q4: +10%

He is known for his accurate economic forecasts including the 2008-2009 Financial Crisis.

Weekly Summary

Here is a weekly summary chart of gold and my 16 favorite market variables. They are grouped in categories "Commodities", "Interest Rates", "Indexes" and "Currencies" of 4 variables each. Over time, each variable has played some part in the gold story. It is prudent to monitor all 16 to understand the key price drivers that are currently active for the yellow metal. Importantly, this is not a unique collection of variables but one that works well for the ole Colonel

Because The Eureka Miner is a morning report, Friday AM prices are compared with the closing prices of the previous week (click on charts for larger size):

This weekly chart of comparative value tracks the value of gold relative to key currencies, commodities and indexes :

Silver Watch

Comex silver is below $15 per ounce showing sharp recovery from recent lows (see Weekly Summaries above).

Please check this out if you get the silver bug:

How to Invest in Silver (Debbie Carlson, U.S. News & World Report, August 1, 2019)

How to smartly buy gold and silver:

How to Mine Physical Precious Metals for an IRA (Debbie Carlson, Barrons, Sept. 8, 2019)

The gold-to-silver ratio (GSR) set a new high Wednesday, 3/18, of 123.9 ounce per ounce solidly above July 11 high of 91.3 - a trend down from this top is bullish for silver if the Lustrous One continues its rally.

At 113.5, silver is historically very, very cheap relative to gold!

The 10-year average GSR is much lower at 68.1 ounce per ounce.

The 3-month beta with gold is currently 0.92 (i.e. on average, the daily % rise or fall of silver price is beta times the % change in gold price). You prefer a high beta (i.e. greater than 1.00) when gold rallies higher (click on image for larger size).

Gold-to-Silver Ratio [Update Friday closing prices]

Historical note:

In the past, when gold and silver were legal tender (see gold overview link below headline photo), it was important to set a value relationship between them. In 1792, the U.S. fixed its price at 15:1. This means that 1 troy ounce of gold was worth 15 troy ounces of silver. Over the years, as this ratio has changed, precious metal investors have used it as a signal of when to buy.

Stay tuned.

Inflation Watch

Inflation expectations made a high April 23, 2018. They have tracked steadily down from there with a dive to the 0.5% level before reversing to 1.07%. Expectations have resumed rising at a faster pace than 10-year U.S. Treasury yields resulting in negative real rates again (see Weekly Summary Charts) - a bullish signal for a non-interest earning asset like gold.

10-year Inflation Expectations

Many believe, including the ole Colonel, that gold price is more sensitive to inflation expectations than other measure of inflation. My January Kitco News commentary explains the importance of tracking "real rates" which are a function of inflation expectations:

Gold Versus Real Rates: $1,380+ by May Day 2019 (Kitco News, 1/2/2019)

Old Glory

Eureka, Nevada

Chart to Monitor

Here's a chart to monitor for 2020 (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 (0.6849). It bottomed December 20, 2016 (0.4973) trended higher but then bearishly reversed into a downward channel bottoming again October 1, 2017 (0.4063). Currently this AM the AUSP is at 0.6505 just below the recent high of 0.7029 set March 23, 2020. Importantly, the ratio has aggressively left the downward trending channel with an uptrend trend of higher-lows starting with the October 2018 low. This week the ratio continues to put lots and lots of daylight above that trend - bullish gold!

Six Things to Watch in 2020

The ole Colonel's beer bet (won on an intraday basis Tuesday, January 7th!). I have since revised it [parenthesis]:

Gold will break [on a closing basis] $1,600 per ounce before the 4th of July 2020

We'll keep the bet alive by looking at closing instead of intraday prices - what a sport! [won on a closing basis February 18th]

My top six things to watch for 2020:

Copper prices - I'd like to see copper prices push us above $6,500 per tonne ($2.95 per pound). A fall below the $6,000-level ($2.72) would be a bad sign - for example, U.S./China trade Phase I in trouble or escalating geo-political unrest. [Update: Covid-19 has pushed copper below $6,000 per tonne].
Chinese yuan - strengthening below 7 USDCNY is a good sign that their economy and trade are on an improving track (Weekly Summary). Sustained weakening above the 7-level is a red flag. [Chinese yuan is above 7 USDCNY again]
U.S. dollar - will it remain strong or begin a period of decline? Foreign demand for Treasury debt has kept the dollar strong but rising U.S. deficits and countries trying to move away from dollar dependence (e.g., China, Russia) are countervailing forces not to be ignored. The U.S. Dollar Index (DXY) made its high September 30 this year and has been in a downtrend of lower-lows since (99.38 September high). This reports tracks the Invesco DB US Dollar Index Bullish Fund (UUP) (27.01 September high, see Weekly Summary below for latest price). Finally, overseas interest in Treasurys has been fueled by negative interest rates abroad. This report monitors the German 10-year bund (Weekly Summary) as a benchmark for foreign Treasury demand.
Interest Rates - there is an almost uncanny relationship between the yield on the benchmark U.S. 10-year Treasury and the copper-to-gold ratio (CGR, Weekly Summary). I've written about this extensively since 2017 ( see The Colonel's Latest Kitco News Commentaries below). Bottom line, a rising CGR signals higher interest rates for 2020. [Update: Covid-19 appears to have reversed the trend higher, 10-year Treasury is at record lows].
Real rates - The 10-year inflation adjusted Treasury yield, or real rate, is the difference between the nominal yield and inflation expectations (aka 10-year "break-even" rate). Since gold is a non-interest bearing assets it performs best when real rates are near zero or negative. This report tracks real rates (Weekly Summary) and inflation expectations (Inflation Watch). Since gold is often considered an inflation hedge it is prudent to track both. In 2020, inflation may pick up (gold bullish) but if interest rates rise faster, an increasing real rate dampens interest in in the yellow metal (gold bearish).
Gold-to-S&P 500 ratio (AUSP) - Gold's relationship with equities is key to monitor. Gold lost value to the S&P 500 from Donald Trump's election until October of 2018. Since then it has regained value in a trend of higher-lows (see Chart to Watch). We entered 2020 with that trend higher challenged. Falling below trend would be a very bearish sign for gold. [Update: Covid-19 has put the AUSP solidly above trend].