Strong Jobs Report, Comex Gold $1,262; The Dog Days of August Are Upon Us

Headframe Repose
Lone Mountain, Eureka, Nevada

Friday, August 4, 2017 AM

Morning Miners,

The Dog Days of August are upon us and hopefully offer some respite from all the global and domestic craziness of the last several weeks. An upbeat U.S. jobs report this morning is something to fell good about. 209,000 jobs were added for July versus an expectation of 182,00 and the headline unemployment remains at a very low 4.3%. Average hourly wages got a nice bump too of 0.3% holding the year-over-year number at 2.5% - might be a good time to ask the boss for a raise.

Importantly, any lower-than-expected boost in wages would signal persistent low inflation - have we turned the corner? Raised inflation expectations and a tighter labor market will likely move the Fed to raise rates and perhaps begin a reduction of their $4.5 trillion balance sheet. The Fed selling, instead of buying, bonds is called "quantitative tightening" or QT in contrast to recent years of buying bonds (quantitative easing or QE). There is a 45% chance that the Fed will bump rates another quarter percent in December. Higher rates in combination with QT are headwinds for gold price. Comex gold is presently trading at $1,268.4 per ounce [UPDATE: at posting, 8:53 a.m. Eureka time, Comex gold is $1,262.5].

Although retreating a bit today on a stronger dollar, Comex copper has had a terrific rally since July trading currently at $2.88 per pound or $6,349 per tonne. This report had identified $6,200 as a bullish level for copper so we're grazing in green pasture. There is a new buzzword in the market community, "synchronous global recovery." If true and not just an aberration of  recent dollar weakness, metal prices could see a brighter future.

Unfortunately, LME Moly Oxide has missed all this bubbly enthusiasm and 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 down. Target gold price $1,260 per ounce. Target Silver price $16.3 per ounce.

The Dog Days of August are upon us.

A better-than-expected Labor Department report this morning has blunted the soaring euro and brought life to the embattled U.S. dollar. After touching a 13-month low earlier this week, a recovering dollar index (.DXY) will continue to put pressure on gold and other metals next week*. Evidence for this is a positive correlation of gold with key commodities which mostly enjoyed the recent dollar decline.

Although gold is holding value against most commodities, it has worryingly lost ground to both the euro and Japanese yen this week. I expect it likely that the post-election trend higher for gold in yen terms will resume and gold in euro will stabilize around 1,075 €/oz.

Reorganization of the White House under chief of staff John Kelly and seeming pause in geo-political tensions removes some of the uncertainty that has buoyed gold lately. I believe gold will find short-term equilibrium at the $1,260-level next week.

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 6.7238 USD/CNY (1-month volatility** 0.44%).

Have a great weekend!

*   U.S. Dollar Index or DXY plumbed 92.55 Wednesday; The DXY is presently trading at 93.65, a healthy 1.2% bounce from the Wednesday low.

** by comparison the euro & yen 1-month volatilites are  1.44% & 1.17% respectively.

Weekly Summary  for August 4, 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. 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 0.5116 still recovering from the July low and slightly below the middle of its range bound meander for 2017.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.