The Eureka Miner: December 2020

Friday, December 18, 2020

Gold $1,896, $1,900+ Next Week; Red Metal New High $3.64

Open Road, Lone Mountain

Eureka County, NV

If I were asked to pick two words to describe America it would be "open road."

Freedom of travel, the promise of a new horizon beyond every skyline.

These are at the very core of the beautiful experiment we call America.

Friday, December 18, 2020 AM

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

Eureka County, NV Coronavirus Hub

Follow the ole Colonel on twitter @Eurekaminer

Next Week Target Gold Price: $1,920 per ounce, Target Silver Price: $26.45 per ounce

My latest Kitco News commentary: Is silver near a top? (7/27/2020, Kitco News) [summary of recent commentaries given at the bottom of the blog]

Baker: Gold in the time of coronavirus (Elko Daily Free Press, 6/4/2020)

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

Morning!

Gold is down from its early morning high of $1,895.7 per ounce but should fly above $1,900 next week. The ole Colonel remains bullish for 2020. Comex copper scored a new high earlier this morning at $3.6445 per pound.

Comex February gold is presently trading at $1,889.2 per ounce (8:53 am Eureka Time).

Comex March silver is presently $26.07 per ounce (9:03 am Eureka Time).

Comex March copper is presently $3.6250 per pound (9:03 am Eureka Time)

This is how I explained my gold and silver outlook to the Kitco Weekly Gold Survey:

[Note: my inputs are now "early bird" Thursday morning summaries]

This morning's [12/17] Comex February gold breakout above the $1,900-level is a welcome sign and may signal a reversal in gold's range-bound behavior since (U.S.) Thanksgiving week ($1,880.7, 11/23 range top; $1,767.2, 11/30 bottom). This may seem counterintuitive with global equities surging higher and the U.S. dollar plumbing a new low (DXY= 89.75) on positive vaccine news and additional fiscal stimulus in the pipeline. However, there are good reasons for safe-havens to enjoy a reboot in the coming weeks.

Weaker signals from the U.S. manufacturing sector and spike up in unemployment claims signal that the road to a robust economic recovery will still be rocky in the months ahead. Real interest rates also provide some clues. The U.S. 5-year real rate has dropped a full 31 basis points (bps) more negative in only 1-month (-1.57%); the 10-year is less dramatic but notably slumping 19 bps (-1.06%). Negative interest rates are a bullish environment for a non-interest earning asset like gold.

Finally, the copper-to-gold ratio peaked last week (0.1946, 12/10). This is a fairly dependable leading indicator for 10-year Treasury yield. The ratio and yields have been trending higher - a falling ratio signals lower interest rates ahead, at least until the recovery catches a gear. 10-year Inflation expectations are also on the rise (1.92%, 12/16) which, in combination with yield, supports more negative real rates and possible inflationary pressures in 2021. Gold is considered by many to be an inflation hedge.

These are the strange times of coronavirus.

Stay safe my friends.

Chart for the Week

The stability trajectory of the copper-gold ratio suggests the ratio has peaked for the time being. The two charts below were first created last Friday (12/11) and updated with this Friday's close. They tell the story. Presently the copper-gold ratio is 0.1923 which is less than the high of 12/10 or 0.1946.

Ratio extremum (high or low) typically happen in the upper-right quadrant of the lambda-Map (first graph). A counter-clockwise trajectory turn marks when the peak/trough in copper-gold occurs (usually within several market days). Given recent data, Thursday 12/10 may very well be the peak following 4 market-days after the turn (blue arrow). The second graph shows the copper-gold ratio plotted against time. Interestingly, the ratio low (0.1384) occurred last summer during another period of ratio instability.*

* an unstable condition is defined as a ratio whose 1-month and 3-month volatility both exceed 4%. This level is based on historical records of the copper-gold relationship.