Checkout the latest Mining Quarterly by new editor Suzanne Featherston - it's a dandy!
Friday, September 29, 2017 AM
Morning Miners,
Another bruiser for gold.
Comex gold dipped to $1,280.4 per ounce yesterday feeling the full weight of a buoyant U.S. dollar and rising Treasury yields, both lifted by renewed hopes for the Administration's new new Tax Reform Plan. February's "phenomenal" description of an earlier plan has been upgraded to "miraculous."
There are solid elements that should spur economic growth such as lower corporate tax rates and repatriation of oversea's money at lower rates. The rejiggering of income tax rates, deduction makeover and elimination of the federal estate tax are far more contentious. The core issue is how to reform taxes without increasing the national deficit and, ultimately, the national debt. This promises to be another Washington lollapalooza. Stay tuned.
Some of the initial market optimism has faded this morning with Comex gold at $1,287.1 as the U.S. dollar index and 10-year Treasury yields off their Thursday peaks.
A look at where we were earlier this month puts metal prices in context:
Intraday highs on the Comex futures exchange (all December contracts):
Gold $1,362.4 per ounce September 8, 2017
Silver $18.290 per ounce September 8, 2017
Copper $3.1785 per pound ($7,007 per tonne) September 5, 2017
More on gold's price reaction is in my weekly input to Kitco News below.
Comex copper nearly made the $3-level this morning peaking to $2.9925 per pound, falling back some to trade at $2.9650 per pound currently. Prices seem to stabilizing after taking a beating on its recent "avalanche" of inventory. This London Metal Warehouse (LME) Chart indicates the inventory surge may be abating:
China's Golden Week begins next week so copper traders will be away from their desks. Put thoughts about copper in pause mode for now.
And, again the chorus of our very tiresome molybdenum song, "LME Moly Oxide remains on snooze alarm at $7.26 per pound. This is disappointingly short of $8 after climbing to $7.94 for much of May. Since moly oxide is primarily a byproduct of copper mining, the copper glut is not helping this situation."
Bad Week for General Moly (GMO)
General Moly (GMO) got walloped this week on a court decision and inexplicable 2-day delay in their press release. It finally came out this morning:
General Moly and its Largest Shareholder, AMER, Agree to Two-week Extension to Close $6 Million Tranche 2 Private Placement and General Moly Reports on Ruling from Nevada Supreme Court (Press release, 9/29/2017)
The court ruling first:
"...on September 27, 2017, the Nevada Supreme Court issued its Opinion affirming the Nevada District Court's March 2016 Order which vacated the water permits concerning the Mt. Hope Project. The Company and the Nevada State Engineer had challenged the District Court's Order last year."
On a more positive note the funding extension from AMER appears to be on track. Here is Bruce D. Hansen, General Moly's Chief Executive Officer, take on both events:
The Tranche 2 funding extension relates to unanticipated process delays. It has no impact on AMER's relationship with General Moly and its commitment to support eventual development of the Mt. Hope Project in Nevada. We also continue to work with AMER to evaluate other potential base metal business development opportunities.
And in regards to the Nevada Supreme Court Opinion:
...we are disappointed in the results, but are pleased that we can now move forward with the Nevada State Engineer on the new water applications for our majority-owned Mt. Hope Project. We anticipate that we can complete the process and obtain new permits along with receipt of a Record of Decision during 2018, which we anticipate may coincide with the continuing improvement in the molybdenum market for higher prices for a development decision of the Mt. Hope Project. We are confident in our ability to present evidence of the proper use of the water for the Mt. Hope Project and look forward to presenting evidence of our ability to mitigate any potential impacts to individual water right holders in the same basin. Now with a decision, our goal to achieve water permits and follow through with the eventual development and operation of the Mt. Hope Project can move forward.
Market participants saw the court ruling Wednesday and shares began a deep dive to $0.344 by yesterday, a nearly 33% fall from the September 14th high of $0.51 per share. A $0.46-level sustained for a time after an upgrade to "buy" earlier this month from Zack's Investment Research, Inc. General Moly price seems to be stabilizing this morning around $0.36 per share.
Ouch.
My Input to Kitco News
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 $1,300 per ounce. Target Silver price $16.9 per ounce.
Gold still below $1,300.
The lustrous metal repeats notable weekly losses against a broad array of assets: major currencies, domestic stocks, broader commodity index (Bloomberg BCOM) and Dr. Copper [see table below].
A quadruple whammy of rapidly rising treasury yields, U.S. dollar strength, low inflation print in Europe and a week without new North Korea threats weighs heavily on gold price.
However, the dollar and yield boost from the new Administration Tax Reform Plan and a hot U.S. GDP number* is showing some signs of fading. The reality of passing this plan in its present form is uncertain and the impact of major hurricanes will no doubt hit GDP in the next update (albiet a potential boost to growth later on).
A key indicator is the 10-year Treasury yield - if it breaks 2.4% there could be more pain ahead for gold. I believe it more likely that rates will retreat some next week, the U.S. dollar rise will stall and some new steam will rise from the geo-political cauldron. All or some favor a gold return to the $1,300-level.
The near-term bottom is in for gold at $1,280. Any price below $1,285 is a cautious buy.
Silver should move just below the $17-level at $16.9 per ounce.
Take heart. Gold is still in bull mode for the year!
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 2017 and has strengthened recently. This morning, the yuan is trading weaker than last week at 6.6516 USD/CNY, 3.4% above a low (i.e. a stronger level) for the year of 6.4345. Yuan volatility is now in the ballpark of major currency levels (1-month volatility** 0.79%).
Have a great weekend!
* Q2 GDP revised upwards to an annual rate of 3.1%. The initial impact of hurricanes may shave 0.5% off GDP in the next report. Eventually, hurricane recovery and rebuilding is considered positive for the economy.
** by comparison the euro & yen 1-month volatilites are 0.64% & 1.36% respectively; Comex gold 1-month volatility is an elevated 2.59%.
* Q2 GDP revised upwards to an annual rate of 3.1%. The initial impact of hurricanes may shave 0.5% off GDP in the next report. Eventually, hurricane recovery and rebuilding is considered positive for the economy.
** by comparison the euro & yen 1-month volatilites are 0.64% & 1.36% respectively; Comex gold 1-month volatility is an elevated 2.59%.
Weekly Summary for September 29, 2017 AM
(click on table for larger size)
My latest column in Mining Quarterly (as reprinted in the Elko Daily Free Press):
A Tectonic Shift in Markets (Elko Daily Free Press, September 12,2017)
My latest column in Kitco News, Montreal:
The Gundlach Indicator R.I.P. - Gold, Copper & Interest Rates (Kitco News, August 23, 2017)
McEwen Mining (MUX) $2.45 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) $0.461 per share; Moly oxide (LME) $7.26 per pound
General Moly and its Largest Shareholder, AMER, Strengthen Strategic Partnership (Press Release, August 8, 2017)
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)
Gold Price Outlook: Fourth Quarter 2017 (Revised)
Gold started the year nicely and should remain in my latest revised range of $1,200 to $1,400 per ounce*. Average gold price for 2017 is now expected to print above $1,250 per ounce with a chance to see $1,400 given an adverse outcome for President Trump's Tax Reform Plan, the initial financial impact of super storms Harvey, Irma and Maria, or geopolitical shocks (e.g., North Korea, Syria).
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 was 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 had a nice rally following President Trump's "fire and fury" comments with an established trend higher. It is presently testing that trend line as shown in the chart.
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 and recovering from a recent descent lower.
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. A fall below $1,230 is very bearish; above $1,300, bullish; above $1,362, very bullish.
Gold below $1,285 per ounce-level is a cautious "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:
Gold in euro & yen terms with good margin above 2013 lows
Note for currency buffs: Value parity in the above chart occurs when the EUR/JPY cross rate is 139.24; something to watch for - presently 132.91 yen per euro.
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 0.5128, falling back below the center of the range after a bullish breakout from the July low. Gold gains are now behind the S&P 500 gains for the year by a small margin (AUSP on December 30, 2016 was 0.5144).
Cheers,
Colonel Possum & Mariana
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