Gold $1,270 on NK Missile, Russian Expulsions & GDP But Copper Steals The Show

Shelter from the Storm
Lone Mountain, Eureka, Nevada

Friday, July 28, 2017 AM

Morning Miners,

One of those weeks where the stars align for metals. Is it just more falling U.S. dollar? The euro is strengthening to levels not seen since 2014, the Japanese yen became more precious moments ago when a North Korean missile plopped into their shipping lanes and a weaker-than-expected GDP report this morning dampens fears of rapidly rising interest rates - all forces that move the dollar down in value. But copper made new year-to-date highs this morning far in excess of the dollar's depreciation. Currently trading at $2.8790 per pound, it is up more nearly 6% for the week. Oil (WTI) has climbed almost 8%. 

This is more than just a weak dollar story*. Most base metals are up too with stronger outlooks for global demand and renewed investment interest in raw materials. To put this in perspective, this report flagged $6,200 per tonne ($2.81 per pound) as a bullish level several months ago; we're at $6,350 this morning. Comex gold (December contract) popped to $1,276.7 per ounce on the North Korea news. Not all bad, pardner...prices that is.

Unfortunately, LME Moly Oxide still remains at $7.26 per pound disappointingly short of $8 after climbing to $7.94 for much of May. $8 per pound is a key level for General Moly (GMO) to secure additional funding for Mt. Hope from AMER. 

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

My vote is up. Target gold price $1,280 per ounce. Target Silver price $16.8 per ounce.

One can only be impressed by copper's new highs for the year, a weekly gain of nearly 6%. The euro is on fire too reaching levels this morning not seen since December 2014. Although gold's advance is less impressive compared to these rising stars it is not far behind. Importantly, the yellow metal reaching the $1,270-level today outpaces the S&P 500 for the week by nearly 1% - a stock index that made an all-time record Wednesday.

A slightly weaker than expected domestic GDP this morning adds further support to a dovish take on the Fed's future rate hikes trajectory. This is bullish for gold allied by White House turmoil and uncertainty created by the early morning collapse of the ACA repeal. The Russian ouster of hundreds of U.S. staff in response to tighter sanctions adds a new geopolitical dimension.The combination of these drivers should bring the yellow metal to the $1,280-level next week [Note: shortly after this input was submitted, North Korea fired a missile into the Sea of Japan giving gold a further boost higher].

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. The yuan has stabilized below 7 USD/CNY for most of 2017 and continues to strengthen. Volatility is lower than other major currencies.  This morning, the yuan is trading stronger than last week at 6.7382 USD/CNY (1-month volatility** 0.324%).

Have a great weekend!

*   U.S. Dollar Index or DXY currently at 93.38; by comparison, April, 24, 2016 the DXY plumbed 93.08

** by comparison the euro & yen 1-month volatilites are  1.00% & 0.87% respectively.

Weekly Summary  for July 28, 2017 AM  (something new!)

(click on table for larger size)

My latest column in Kitco News, Montreal:

The Gundlach Conundrum: $1,000 Gold by Year's End? (Kitco News, June 21,2017)

My commentary in the Summer 2017 Mining Quarterly:

Bottoms Up! (6/8/2017. Elko Daily Free Press)

Online Edition (pages 77-80): Summer 2017 Mining Quarterly

McEwen Mining (MUX) $2.57 per share

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) $0.45 per share; Moly oxide (LME) $7.26 per pound

Mt. Hope Project's Supplemental EIS Published in Federal Register, Moving Project Towards ROD (Press Release, July 20, 2017)

Marcum Microcap Conference  (Press Release, 6/16/2017)

What's Up with General Moly (GMO)? EM Talks to CEO Bruce Hansen (Eureka Miner, 1/27/17)

Summer 2017 Mining Quarterly - It Rocks!

Summer 2017 Mining Quarterly

[SPECIAL NOTE: Marianne Kobak McKown will no longer be with the Elko Daily Free Press. She was hired as the executive director of the Committee Against Domestic Violence starting July 1. She will be missed by this report and the mining community, the best of luck on her new journey!

Suzanne Featherston is the new editor of the Mining Quarterly - the best to Suzanne!]

Marianne Kobak McKown has done an excellent job again bringing a new Mining Quaterly in time for summer. It has a new size format with glossy pages that really make images pop! There are great stories and updates on Goldstrike/Cortez, Florida Canyon, RheoMinerals, Newmont and McEwen Mining's Gold Bar Project north of Eureka.

Veteran Adella Harding has several columns on the rise in Nevada gold production and mining claims as well as new exploration. My column on commodity prices also discusses good news on mining employment nationally and updates from Barrick and Newmont locally:

Bottoms Up! (6/8/2017, Elko Daily Free Press)

Online Edition (pages 77-80): Summer 2017 Mining Quarterly

Hats off to Marianne, Adella and crew!

Gold Price Outlook: Second-Half 2017

Gold started the year nicely and should remain in my revised range of $1,180 to $1,320 per ounce*. Average gold price for 2017 is expected to print above $1,200 per ounce with an outside chance to see $1,400 given an adverse outcome for  upcoming debt limit debate, White House controversies, political or geo-political shocks (e.g., North Korea, Syria).

There is a sobering possibility of a serious gold correction later this year if you believe some of the observations and interest rate projections of bond guru Jeffrey Gundlach of DoubleLine Capital. Here's my analysis on why this may be the case:

The Gundlach Conundrum: $1,000 Gold by Year's End? (Kitco News, June 21,2017)

Gold has gained ground on the embattled euro and yen. Post-election, gold in euro and yen terms is up and safely above 2013 lows (chart below). It is worrisome that gold in euro terms broke below uptrend support March 9 and then again after French elections (i.e. defeat of Le Pen), and headed lower on the prospects of the ECB taking a more hawkish stance on monetary policy. It has since stabilized with more dovish comments by Mario Draghi last week . Gold in yen has mostly trended higher since the U.S. election.

An important gold ratio to watch is gold-to-S&P500 or AUSP (see "Chart to Watch" below).

Gold ratios relative to copper and oil are stabilizing near historically less extreme levels which proves a healthy sign. Gold valuations relative to copper are elevated but stable..

Political and geo-political events together with concerns about the timing and efficacy of the new administration's policies have restored glitter to gold in 2017 although that is being tested lately. A fall below $1,230 is very bearish; prices above $1,260, bullish.

Gold below $1,200 per ounce-level is, however, 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

My commentary in the Spring 2017 Mining Quarterly reaffirms an average price above $1,200 per ounce with a potential run at $1,400:

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

Click on the image for a larger size:

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

Chart to Watch

Here's a chart to watch for 2017. 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 trended higher but then bearishly bottomed yet again July 7, 2017 (0.4989). We must stay above the December low (0.4973)! Currently this AM the AUSP is 0.5143 recovering from the July low and moving toward the middle of its range bound meander for 2017.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted