Gold Gets Its Mojo Back; Red Metal Rises on Supply Disruptions

Spring 2017 Mining Quarterly

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Weekly Summary updated for 3/17/17 AM (something new!)

(click on table for larger size)

My commentary in the just released Spring 2017 Mining Quarterly:

Commentary: Gold ain't just whistling Dixie; The U.S. dollar has peaked and commodities have bottomed – a bullish case for gold in 2017

Online Edition (pages 44-46): Spring 2017 Mining Quarterly

There is also a terrific column by Adella Harding (pages 5-8) about the 20 year history of Mining Quarterly

McEwen Mining (MUX) $3.19 per share (AM)

Gold Bar Project on Track, McEwen Rocks; Gold Bounce Next Week? (Eureka Miner, 03/03/2017)

McEwen Mining & Gold Bar Thumbs Up for 2017! (Eureka Miner, 12/30/16) 

General Moly (GMO) $0.5000 per share (AM); Moly oxide (LME) $6.92 per pound

What's Up with General Moly (GMO)? EM Talks to CEO Bruce Hansen (Eureka Miner, 1/27/12)

Friday, March 17, 2017 AM 

Top O' the Morning Miners!

Gold got its mojo back this week. My input to the Weekly Kitco Gold Survey:

My vote is up. Target gold price $1,240 per ounce . Target Silver price $17.5 per ounce.

A sharp reversal in the U.S. dollar Wednesday following remarks by the Federal Reserve boosted gold and commodities*. A sense that the Fed will not accelerate tightening for the time being suggests the the high in early-January may indeed remain the "Trump dollar top."***

In terms of fear factors, a positive outcome in Dutch elections took some momentum from the nationalist movement in Europe but the French elections in France still loom large. There is also a witches' brew bubbling around U.S. policy ahead of this weekend's G20 meeting of finance ministers and central bankers in Baden-Baden, Germany. There are concerns about U.S. trade protectionism, possible currency manipulation charges and the fragility of multi-lateral trade agreements. Taken together, an indeterminant outcome for the meeting likely supports higher gold prices next week. 

Increasing inflationary pressures in the U.S. and abroad, a surprise FN victory in France or miscalculation in dealing with hot spots such as North Korea could drive the yellow metal considerably higher in the coming months.

Gold is up 2.4% for the week at $1,229.9 per ounce in early morning trading. The yellow metal gained value compared to oil but lost some ground to copper on supply disruption worries for the latter. Gold in euros was very strong with a small loss in terms of Japanese yen [see discussion & charts below].

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. Aggressive liquidity tightening by the People's Bank of China (PBOC) has eased, stabilizing the yuan below 7 USD/CNY. However, defending their currency has brought China foreign reserves to a 6-year low. Premier Li Leqiang's lowering of the China GDP target to 6.5% and the Fed rate hike suggest a relaxation of this vigorous defense is likely. This morning, the yuan has weakned a bit but volatility is still low (1-month volatility** is 0.26%) trading at 6.9899 USD/CNY.

Have a Happy St. Paddy's

*one-month correlation of gold with oil & copper is high; +0.79 & +0.72 respectively.

** by comparison the euro & yen 1-month volatilites are roughly 0.6% & 0.8% respectively.

***Interesting column Sunday night in Bloomberg News:

Yellen Surprises Hedge Funds Who Cut Gold Bets Before Rally



Red Metal Rises

Comex copper gained 3.6% on the week to trade at $2.6885 this morning surpassing gains in gold price. Besides a weakening U.S. dollar, copper prices have been boosted by global supply disruptions. Managing Director Janet Mirasola of Sucden Futures Inc. NY  had this to say yesterday morning in her market pre-brief following the FOMC meeting:

Euro bourses and base commodities are following the overnight trend higher off the early opening with the Black, Red and Shiny Ones [oil, copper & gold] all gaining strength from the currency factor while the Red One continues to feed on supply disruptions in Chile and Peru with continued reduced production in Indonesia affecting three of the world's biggest mines.

Comex copper scored an intraday high of $2.6975 per pound yesterday.

Stormy Weather

Eureka, Nevada (2010)

Gold Price Outlook 2017

Gold started the year nicely and should remain in my newly revised range of $1,180 to $1,320 per ounce*. Average gold price for 2017 should print above $1,200 per ounce.

An important gold ratio to watch 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 trended higher but has now bearishly reversed. Confirming a double-bottom in the coming months would be a significant positive for the lustrous metal; latest developments are less positive - we must stay above the December bottom! (see chart below).

Gold has gained ground on the embattled euro and yen. Post-election, gold in euro and yen terms are up and safely above 2013 lows (chart below) and are both above pre-election levels. It is somewhat worrisome that gold in euro terms broke below uptrend support March 9 - something to monitor carefully, although much of this loss has recovered this week.

Gold ratios relative to copper and oil are stabilizing near historically less extreme levels which is a healthy sign. Geo-political events and/or a bump in inflation expectations could restore glitter to gold in 2017.

Gold near my low-range of $1,180 per ounce-level is a tempting "buy."

(please do your own research, markets can turn on you faster than a feral cat!)

*My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper

Click on the image for a larger size:

Gold in euro & yen terms regaining value post-election

Chart to Watch

Here's a new chart to watch. Click on the image for a larger size:

Gold-to-S&P 500 Ratio (updated 3/17/2017) 

An important gold ratio to watch 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 trended higher but has now bearishly reversed. Confirming a double-bottom in the coming months would be a significant positive for the lustrous metal; latest developments are less positive - we must stay above the December bottom (0.4973)! Low for the week was 0.5052 on Wednesday.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted