Eureka, Nevada
Checkout the latest Mining Quarterly by new editor Suzanne Featherston - it's a dandy!
Friday, October 6, 2017 AM
Morning Miners,
A rough week for Nevada and the United States. This report's condolences to the families of those killed and injured in a senseless Las Vegas shooting.
Unfortunately, the ole Colonel switched from bull to bear on our favorite metal this week - at least for the time being. The Chinese have been celebrating Golden Week and hopefully will bring some luster back to their trading desks Monday. Regardless, there are some troubling trends in place for the yellow metal's 4-week downtrend.
I was "still not worried" last Friday; maybe I'm a little worried now.
The Labor Department's monthly jobs report this morning dipped Comex gold briefly to $1,262.8 per ounce although there has been a rebound to $1,272.2 (12:03 p.m. EDT). In this business, new lows matter. Chances are there will be a retest of the $1,263-level unless the returning Chinese see a bargain in the mix.
What happened? Most folks said they wouldn't read too much into the labor statistics for September due to hurricanes Harvey and Irma (Puerto Rico and the Virgin Islands are not included this report). Consensus expectation was a low 80,000 jobs added; the surprise - a whopping 33,000 jobs lost!
On first take, you may think that a negative number should be supportive of gold price. However, market participants focused on a separate survey that shows headline unemployment at a super low 4.2%. There was also a bump in hourly earnings and increase in the participation rate (63.1% versus 62.9% in August). Even the broader U6 unemployment measure (which includes that unemployed coach potato relative whose been saying for three years he'll look for work tomorrow) dropped to 8.3%. Taken together these factors indicate a tightening labor market and good excuse for the Federal Reserve to raise rates - a bearish headwind for gold.
Some more elaboration on the downdraft is given in my input to the Kitco News Weekly Gold Survey below.
A refresher on where we were last month - ouch!
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
Comex copper is the happier part of this week's story rallying back above the $3-level this morning, presently trading at $3.0250 per pound. Prices are recovering after taking a beating on the red metal's recent "avalanche" of inventory. This London Metal Warehouse (LME) Chart indicates the inventory surge is abating:
China's Golden Week is keeping copper traders away from their desk too. Metals maven Janet Mirasola of Sucden Futures, NY had this caution on copper going forward:
The Red One, which enjoyed 3% surge yesterday, triggered initially by news of an earthquake in Chile which turned out to have no impact on supply but gave traders the catalyst to unleash a technical rally taking out "stops" all the way and luring CTA's to add longs is consolidating this morning trading quietly either side of $6700 [$3.039 per pound] as it awaits fresh news.
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."
General Moly (GMO) recovered some from its recent drubbing, now trading at $0.36 per share.
McEwen Mining (MUX) Acquisition
McEwen Mining (MUX) completed a new acquistion:
McEwen Mining Completes Purchase of Black Fox Complex (Press release, 10/06/2017)
Rob McEwen, Chairman and Chief Owner, says:
We view this purchase as an important strategic step towards our goal of entering the S&P 500 Index; #1 It increases our forecast 2018 annual production by 20% to 185,000 gold equivalent ounces; #2 It allows us to accelerate development towards production of the Lexam VG properties we bought earlier this year; #3 It provides us with a base of operations, an experienced workforce, and multiple exploration targets in one of the world’s best gold mining districts, Timmins, Canada; #4 The purchase price was very attractive, given the significant investment made by the previous owner; and #5 The purchase includes large tax pools that will be used to shelter future income.
The Record of Decision (ROD) for the Gold Bar Project north of Eureka is still pending, expected to be announced before the end of the year.
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 down. Target gold price $1,250 per ounce. Target Silver price $16.3 per ounce.
A challenging week to make gold predictions given China Golden Week and Asia Moon Festival takes important gold market participants offline. Even though this morning's nonfarm payroll report is tainted by recent hurricanes, some bearish trends for gold price are emerging.
Headline unemployment dipping to 4.2%, average hourly earnings bumping up 0.5% (2.9% year-on-year) and an increased participation rate suggest the labor market is tightening - a prescription for a Federal Reserve rate hike in December. The 10-year Treasury spiked to nearly 2.4% a key level considered by some to be a tipping point for higher yields to come. The U.S dollar index strengthened on a falling euro and British pound sterling. With only moderate inflation these become very bearish indications for gold.
Steam from the geo-political cauldron and uncertainty about U.S. domestic and international policy direction are potentially bullish. However, the muted response of gold price to President Trump's flagging support for his Secretary of State and "calm before the storm" comment yesterday among his generals point to fragility of the yellow metal safe haven status. Even though weakening, the Japanese yen has lately shown more relative strength than gold. The yen is often an alternative safe haven for investors.
Most importantly, the gold-to-S&P 500 ratio dipped below its December low this morning emphasizing its diminished appeal relative to record breaking U.S. equities [see Chart to Watch below].
A key level for gold is $1,250. Falling below this is very bearish.
Silver should follow gold lower next week to $16.3 per ounce.
Gold is in trouble. Let's see what happens when Chinese traders return to their desks together with the outcome of the upcoming 5-yearly Congress.
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. Due to Golden Week, the yuan is unchanged at 6.653 USD/CNY, 3.4% above a low (i.e. a stronger level) for the year of 6.4345. Yuan volatility has been in the ballpark of major currency levels but we need to get beyond the holiday break to update this number (1-month volatilities of euro and yen*).
Have a great weekend!
* the euro & yen 1-month volatilites are 0.84% & 1.26% respectively; Comex gold 1-month volatility is an elevated 2.86%.
* the euro & yen 1-month volatilites are 0.84% & 1.26% respectively; Comex gold 1-month volatility is an elevated 2.86%.
Weekly Summary for October 6, 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. Unfortunately, it has now broken 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 at historically less extreme levels which proves a healthy sign. However, gold valuations relative to copper are again in decline posting a new low for the year of 418 pounds per ounce.
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 $1,260 per ounce-level sets some red flags, we almost got there this morning
My target price for next week is at the bottom of my range for 2017 gold - $1,250 per ounce.
(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 132.57 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). Currently this AM the AUSP is 0.4963, a new low below the December benchmark (0.4973) - a potentially ominous move!
Cheers,
Colonel Possum & Mariana
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