The Eureka Miner: February 2021

Friday, February 19, 2021

Gold $1,785 in House of Pain; Red Metal Breaks $4.00; Silver Resilient Above $27

"Habanero"

Winter Storms Uri & Viola

Clyde, Texas

Friday, February 19, 2021 AM

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Next Week Target Gold Price: $1,760 per ounce, Target Silver Price: $27.50 per ounce

Morning!

Our dear friends in Clyde, Texas (outside Abilene) have seen brutal weather this week from Winter Storms Uri and Viola. The headline photo is "Habanero" toughing it out in the snow. Fortunately, they have generators, water and the donkeys have a warm place to shelter. The Eureka Miner sends its best and hopes for warmer weather!

Gold might as well be in a winter storm. The yellow metal is down from its early morning high of $1,790.9 per ounce, thankfully up from its low of $1,759. As you will see from my Kitco input yesterday, holding the $1,760-level is key or the yellow metal will really be in a house of pain. Comex copper broke above $4 per pound pound today - we haven't been at these levels in nearly 10 years! Silver has also shown considerable strength touching $27.74 per ounce before declining some:

Comex April gold is presently trading at $1,785.6 per ounce (8:32 am Eureka Time).

Comex May silver is presently $27.59 per ounce (8:31 am Eureka Time).

Comex May copper is presently $4.0625 per pound (8:31 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]

I remain bearish on gold at least for the near term - Comex futures will likely test the lows of mid-2020 before deciding whether the trend down is over (~$1,760-level).

The lustrous metal plight is illustrated by comparison to two metals and the S&P 500. The uncommon negative correlation with silver persists on a 1-month basis, both of these precious metals are usually highly correlated in a positive sense. The copper-to-gold ratio has been in a strong trend of higher-lows since last August and is accelerating higher with copper prices breaking the $3.9 [Friday update $4.0] per pound level. I believe the gold-to-silver ratio will plumb 64 ounce per ounce next week.

Takeaway - the yellow metal is steadily losing value to the red and white. Finally, gold has been losing value to rising equities since the U.S. Presidential Election. The gold-to-S&P 500 ratio has fallen to mid-2019 levels. My gold target for next week is $1,760 with silver rising slightly to $27.50.

On the flip side, market-driven inflation expectations are still on the rise. The 10-year Treasury breakeven rate is now above 2% (2.21% 2/17 Wednesday). However interest rates still have not risen as fast as expectations, so the 10-year real rate is a negative 0.89%; the 5-year is a negative 1.83%. For a non-interest earning asset like gold, negative interest rates are potentially bullish. Gold is also considered by many to be an inflation hedge.

These are the strange times of coronavirus.

Stay safe my friends.

Chart for the Week

The ratio of copper-to-gold prices has really taken off from last October. As you can read from the commentaries below, there is a strong relationship between this ratio and interest rates.