Gold Above $1,300 Again; Global Growth Keeps Metal Bulls Running

Eureka Rodeo 2012
Eureka, Nevada

Checkout the latest Mining Quarterly by new editor Suzanne Featherston - it's a dandy!

Friday, October 13, 2017 AM

Morning Miners,

Wow - what a difference a week or even a few hours can make in markets. Gold was on life support last Friday morning and I was confident it would need to test the $1,250-level to regain a pulse. Love being wrong when the yellow metal surprises to the upside!

A week ago, a low headline number for unemployment and rising 10-year Treasury yields sent gold down the shaft to the $1,260-level. The ole Colonel felt there was another ride lower in a 4-week downtrend. It was the old bugaboo again - fear of rising rates in a low inflation environment. Last Friday's labor report suggested to many that a Fed rate hike in December was a sure thing and the 10-year would soon make the 2.4% tipping point.

What's changed? 

There probably will be another rate hike before Christmas, but gold buyers seem less concerned. The 10-year fell back to lower yields, presently at 2.28%. Minutes from the September meeting of the Federal Open Market Committee (FOMC) showed that policymakers may not be as hawkish as previously thought. A weaker-than-expected CPI number, a gauge of inflation, spiked gold above $1,300 per ounce this morning after a fairly robust recovery all week. The logic is that the Fed will continue to raise rates but slowly until inflation picks up. 

Even last Friday showed signs of life as Comex gold scored a $1,274.9 close. I threw a red flag when the gold-to-S&P 500 ratio made a new low in the morning; by Friday afternoon gold was regaining value compared to equities (see last chart below).

Geopolitics is also supporting gold's rally with uncertainty around the future of the Iran nuclear deal, simmering tensions in Korea and a Brexit negotiation in trouble. At least Chinese traders are back from Golden Week and the world awaits the outcome of China's 19th Congress which convenes next week. An upbeat forecast from their leaders will no doubt spur the metals higher. Taken altogether, gold appears to be back in bull gear. For more detail, checkout my input to the Kitco News Gold Survey below.

A scorecard on where we were last month.

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 presently trading at a strong $3.1285 per pound, not far from September's high. More evidence of improving global growth keeps the red metal climbing. The OECD now predicts 45 economies will grow this year. Copper rices 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:

It is instructive, however, to keep our eyes on the Comex inventories which, albiet lower in total, are climbing higher:

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." 

General Moly (GMO) has stabilized around $0.36 per share. Their AMER Tranche #2 funding is set to close Monday, October 16.

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 $1,310 per ounce. Target Silver price $17.4 per ounce.

Gold Revival.

The yellow metal looked pretty grim last Friday morning falling to a new low when compared to rising stock markets and challenged by a strong dollar. Even before Friday's close, gold regained ground and now posts a solid 2.2% gain for the week [see Weekly Summary below]. Enjoying headroom above the $1,300-level, gold scores a weekly 2% gain on the S&P 500 as equities continue to post all-time highs [see Chart to Watch below]. Very bullish.

Although lagging copper and oil rallies boosted by global growth optimism, gold viewed as a currency has done quite well for the week. It has reaffirmed a value gain in terms of yen, an uptrend in place since the U.S. election. It has also performed well against the euro, an uptrend holding now since early-July [see currency chart below]. Gold price volatility has also fallen to more currency-like levels on the order of yen and euro. This suggests emerging gold price stability. Bullish.

I believe geopolitics surrounding the Iran deal and North Korea together with buoyancy from rising commodities will lift gold to $1,310 per ounce next week - possibly higher. Silver should follow gold higher next week to $17.4 per ounce.

Let's see what happens when China's 19th Congress convenes next week. An upbeat China growth forecast could keep the metal bulls running.

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. With Golden Week over, the yuan is trading at 6.5753 USD/CNY, 2.2% 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 some distance from the holiday break to update this number (1-month volatilities of euro, yen and gold*).

Have a great weekend!

* the euro & yen 1-month volatilites are  0.70% & 47% respectively; Comex gold 1-month volatility has fallen to 1.17%.

Weekly Summary  for October 13, 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., Iran, 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 since early-July.

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 414 pounds per ounce on October 12.

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, so far so good.

My target price for next week is $1,310 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:

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

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 132.58 yen per euro, abut where it was last week.

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). Currently this AM the AUSP is 0.5103 recovering from last Friday's scary 0.5001. We must stay above the December low benchmark (0.4973)! 

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.