Gold $1,280-level on Tax Reform; McEwen Gold Bar Very Close to ROD

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Eureka, Nevada

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Friday, October 20, 2017 AM

Morning Miners,

Expectation for a Record of Decision (ROD) on the Gold Bar Project in early November is exciting news for Eureka (see below for details). The best to the McEwen Mining team!

Unfortunately, an up-down week for gold. Hiking up the $1,300 mountain again, Comex gold got to $1,292.9 per ounce Thursday but then fell all the way down to $1,277.6 this morning. Recovering some, the Lustrous One currently stands at $1,283.2...but the trail back up is on shaky ground.

Geopolitics support gold with uncertainty around the future of the Iran nuclear deal, simmering tensions in Korea, a Brexit negotiation in trouble and Spain back on tenterhooks... 

...but global economies continue to whir along with increasingly optimistic outlooks. In the U.S., the Senate passing a budget is the first step towards tax reform with the expectation for a better business environment. This has strengthened the U.S. dollar and caused Treasury yields to head northbound, not a great outcome for gold especially in a low to moderate inflation environment.

Gold may find some buoyancy from metals depending on the outcome of  China's 19th Congress which concludes this week. An upbeat forecast from their leaders will no doubt spur the metals higher. Taken altogether, gold is trying to find a base to build from. 

For more detail, checkout my input to the Kitco News Weekly 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 robust $3.1855 per pound, now ABOVE September's high. More evidence of improving global growth keeps the red metal climbing. The OECD now predicts 45 economies will grow this year and the IMF has stepped up global 2018 GDP from 3.6% to 3.8%. Copper prices are recovering from the red metal's recent "avalanche" of inventory. This London Metal Warehouse (LME) Chart indicates steady progress from that peak:

It is instructive to keep our eyes on the Comex inventories which, albiet lower in total, are starting to level off:

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 $0.34 per share after receiving their AMER Tranche #2 funding on Monday, October 16. 

Here is an interesting interview with CEO Bruce Hansen which appeared in Metals News:

General Moly, Inc. (NYSE MKT and TSX: GMO): Mt. Hope Project in Nevada, One of the World's Largest and Highest Grade Molybdenum Deposits, Bruce Hansen, CEO and CFO (Metal News, 10/15/2017)

And General Moly's latest MolyBits on the many uses of molybdenum:

MOLYBITS (10/19/2017)

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 $1,260 per ounce. Target Silver price $16.9 per ounce.

An up-and-down week for gold. Morning trading around the $1,280-level shows weekly losses against a broad array of assets: U.S. equities, key commodities and major currencies.

The turn downward for gold occurred as the U.S. Senate passed a budget making way for tax code reform. The passage strengthened the U.S. dollar and boosted Treasury yields - both headwinds for gold going forward. The 10-yr Treasury is very near 2.4%, a tipping point identified by bond traders for higher yields to come.

Perhaps most importantly, the yellow metal's resilience in the face of record setting stock markets is under extreme pressure. This morning the gold-to-S&P 500 is dangerously close to its December low as market participants shift to a "risk-on" posture. 

Gold has also been weak relative to copper, the latter rising on synchronous global growth and expectations for an upbeat outcome from China's 19th Congress. A key-level to watch is a gold-to-copper ratio of 400 pounds per ounce. Movement below this number would be bearish for the lustrous metal; bullish for the red.

If geopolitics flare up, gold could head north to $1,300 territory again. Lacking that stimulus, it is likely prices will test the $1,260-level next week. Silver should follow gold lower to $16.9 per ounce.

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 generally grown stronger. The yuan is slightly weaker than last week at 6.6200 USD/CNY and 2.9% above its low (i.e. a stronger level) for the year of 6.4345. A 1-month yuan volatility of 0.44% is in the ballpark of major currency levels - a healthy sign for the Chinese currency (1-month volatilities of euro, yen and gold*).

Have a great weekend!

* the euro & yen 1-month volatilites are  0.42% & 36% respectively; Comex gold 1-month volatility is elevated again at 2.68%.

McEwen Gold Bar Close to ROD

McEwen Ming just released their Q3 2017 results and a Record of Decision (ROD) on the Gold Bar Project is expected in early November - great news for Eureka!

McEwen Mining Reports Q3 2017 Production Results (Press Release 10/18/2017)

According to the report:

The Gold Bar Project has achieved a major milestone in the permitting process with the publication by the Environmental Protection Agency (EPA) of the Notice of Availability of the Final Environmental Impact Statement (EIS) in the Federal Register. Following a regulated review period, a signed Record of Decision will be published, signifying the completion of the National Environmental Policy Act (NEPA) process. The Record of Decision is expected in early November this year and development of Gold Bar is planned to begin upon receipt, in line with our earlier estimates. Gold Bar is expected to contribute an average of 65,000 ounces to our annual gold production beginning in 2019.

McEwen Mining (MUX) is presently trading at $2.045 per share.

Weekly Summary  for October 20, 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 401 pounds per ounce on October 18. Falling below 400 is bearish for gold.

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 $1,260 is bearish; below $1,230, very bearish. A rise above $1,300 is bullish; above $1,362, very bullish.

My target price for next week is the border of scary at $1,260 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 133.76 yen per euro and above 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 0.4993...very scary. We must stay above the December low benchmark (0.4973)! 

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.