Bitcoin Collapses, Gold Bounces $1,278; Merry Christmas!

The Terror is Over (Noozhawk photo)

Santa Barbara, California

Friday, December 22, 2017 AM

Morning Miners,

The Eureka Miner has been offline for several week's as the ole Colonel's attention has been on California's second largest fire threatening both Santa Barbara and Ventura counties (272,000 acres to date). Mariana and I are now safe in our second home in Santa Barbara's foothills. Saturday was very scary as the fire came very close to our house.

That Sunday we cautiously ventured out to Joe's Cafe on State Street. Two firefighters came in and sat down at the table next to our booth - both were from Carson City! Later I told our waiter that we would like to pick up their tab. She said that they were already covered by an older gentleman at the bar. The night before he had treated 35 firefighters. The community support for the firefighter's brave efforts has been tremendous.

One patron asked the Carson City boys whether they were exhausted after days of 24 hour shifts. In typical Nevada style the lead replied, "Naw. It's hard on the new guys, we're used to this stuff." 

Simply, the best.

There were many other Nevada firefighters deployed to fight California wild land fires:

RENO FIRE DEPARTMENT HELP BATTLE FIRES IN SOUTHERN CALIFORNIA (The Nevada Sagebrush, 12/12/2017)

Bitcoin Collapses, Gold Bounces $1,278

This morning's trading may be a harbinger of things to come in 2018 with the dramatic drop in Bitcoin and bounce in gold. The wildly popular and speculative Bitcoin has recently seen volatile declines starting today with a 20% drop. It has lost roughly one third of its value in 24 hours.

Presently, Comex gold is trading at $1,278.0 per ounce just shy of its $1278.8 high for the day. By the time you read this there may be a new high in place. Please read my input below to the Kitco News Weekly Gold Survey (below) for further analysis.

Digital currencies are no doubt here to stay and eventually will compete with the yellow metal as an alternative store-of-wealth. Although their recent parabolic rise in value is collapsing to gold's advantage, it is likely only the first chapter is a very long story. The venerable NYSE Art Cashin quipped yesterday that there will be a day when we stop carrying paper around with pictures of dead presidents. My theory is that so-called cryptocurrencies will follow the same path as tech stocks: wildly popular until a big crash then slowly popular again as technology eventually catches up with early expectations (internet-of-everything, online shopping, social media etc.). Currently it looks like we are headed for the "bull trap" side of a Bitcoin crash following this classic chart of bubbles:

(click on graph for larger size)

The big question is whether gold investment may indeed be headed for secular decline. We will explore this more fully in 2018. For the holidays, here is some interesting reading by renowned commodity journalist Debbie Carlson:

Will Bitcoin Futures Legitimize Cryptocurrencies? (Debbie Carlson, U.S. News, 12/14/2017)

Scorecard for the last-half of 2017

Here's our scorecard on where we stand for the last-half of the year:

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 $3.2595 per pound ($7,186 per tonne) October 16, 2017 

Comex copper is presently trading at a $3.2395 per pound, just below October's high. Improving global growth has kept the red metal above the key $3 per pound level with an added boost from passage of Tax Reform and expectations for U.S. infrastructure spending. All eyes remain on China to see how growth prospects shape up. LME inventories have seen an uptick lately:

It is instructive to keep our eyes on the Comex inventories which now exceed the LME with a healthy bounce (210,486 versus 201,150 tonnes)

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." 

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 $1,260 per ounce. Target Silver price $16.1 per ounce.

Gold bounced nicely from the dramatic decline in Bitcoin this morning. The release U.S. economic data which included inflation and durable goods had little impact on price. We can expect more volatility from holiday trading as the end-of-the-year approaches.

I believe it likely some of this bounce will wear off next week as gold settles above the key-$1,250 level for the year - my target price is $1,260 per ounce. Silver should prove resilient around $16.1 per ounce. 

This morning's trading may be a harbinger of things to come in 2018. Digital currencies are here to stay competing with the yellow metal as an alternative store-of-wealth. Although their recent parabolic rise in their value is collapsing to gold's advantage, it is likely only the first chapter is a very long story. Another important thing to watch is the interplay of rising interest rates and inflation rate expectations given a pickup in U.S. GDP. If the former gains on the latter; gold could face serious headwinds in the year to come.

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 stronger than last week at 6.5756 USD/CNY and now 2.2% above its low (i.e. its strongest level) for the year of 6.4345. A 1-month yuan volatility of 0.20% is in the ballpark of major currency levels - a healthy sign for the Chinese currency (1-month volatilities of euro, yen and gold*).

Merry Christmas & Happy Holidays!

* the euro & yen 1-month volatilites are  0.45% & 0.59% respectively; Comex gold 1-month volatility is 1.26%.

Weekly Summary  for December 22, 2017 AM 

(click on table for larger size)

Gold Price Outlook for 2018 (coming soon!):

My revised gold range for 2017 was $1,250 to $1,400 and it looks like we are headed to the lower end of that range as this year comes to a close. A new outlook will be posted soon for 2018.

Two important charts to watch remain the gold-to-S&P500 or AUSP (see "Chart to Watch" below) and gold in terms of major currencies euro and Japanese yen (directly below).

 A fall below $1,260 is bearish; below $1,230, very bearish.

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 133.13 yen per euro. 

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 again July 7, 2017 (0.4989). Currently this AM the AUSP is 0.4748 - still bearishly below the key 0.5-level.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.