Gold breaks $1,300, McEwen Mining (MUX) Pops to $2.32; Happy New Year!

Early Windfall Mine

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Friday, December 29, 2017 AM

Morning Miners,

As the market year comes to a close, gold and copper are on a tear - miners too!

Comex gold touched $1,307 per ounce in morning trading and Comex copper scored a new high at $3.322 per pound yesterday. The red metal has been marching higher since early-December falling back only slightly today to $3.289. Some of the rally is U.S. dollar weakness as the euro crests 1.20 and Nymex oil sticks its head above $60 per barrel. The greater driver for the red metal are expectations for a pickup in U.S. growth in 2018 bolstered by a robust global economy and the possibility of increased domestic infrastructure spending. The same forces that propel copper up may push gold down if rising interest rates outpace inflation. 

For my current thoughts on gold please read my input to the Kitco News Weekly Gold Survey (below) and latest column:

The Gundlach Indicator Restored - Gold, Copper and Interest Rates (December 27, 2017, Kitco News)

A very strong run into the finish for miners (daily high in parentheses):

McEwen Mining (MUX) $2.295 ($2.320)

Barrick Gold (ABX) $14.54 ($14.56)

Newmont Minining (NEM) $37.62 ($37.76)

Freeport McMoRan (FCX) $19.075 ($19.446)

Happy New Year!

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: 

Gold $1,362.4 per ounce September 8, 2017 (December 2018 contract)

Silver $18.290 per ounce September 8, 2017 (December 2018 contract)

Copper $3.3220 per pound ($7,186 per tonne) October 16, 2017 (March 2018 contract)

Comex copper is presently trading at a $3.2890 per pound, just below yesterday's new 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 and are now leveling off as the year comes to a close:

It is instructive to keep our eyes on the Comex inventories which now exceed the LME after a healthy bounce (211,372 versus 202,100 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 $1,290 per ounce. Target Silver price $16.8 per ounce.

On a thinly traded week, gold is closing the year in a strong position currently above $1,300 per ounce. This scores a respectable 15% gain for the year*. In terms of weekly gains, the yellow metal is finishing ahead of the Japanese yen and euro and industrial metal copper. This is even more impressive considering that the euro and red metal have been in a strong rally mode against a falling U.S. dollar.

I think it likely there will be some consolidation around the $1,290-level next week with silver following gold lower to $16.8 per ounce. Let's assume 2018, like 2017, is a mix of buoyant market expectations and rising rates with occasional geopolitical, political and economic shocks. Gold will feel the headwinds of the former and enjoy price spikes in times of market stress. I believe this will secure a price floor in the $1,200 to $1,250 range with highs challenging but not exceeding the September Comex high of $1,366 per ounce.

2018 will prove a less bullish period for gold than this year unless interest rates are contained near present levels and copper prices fall - a less likely scenario given U.S. growth and synchronous global recovery expectations.

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 6.5025 USD/CNY and now only 1.0% above its low (i.e. its strongest level) for the year of 6.4345. A 1-month yuan volatility of 0.55% 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  0.57% & 0.37% respectively; Comex gold 1-month volatility is 1.40%.

Weekly Summary  for December 29, 2017 AM 

(click on table for larger size)

Yearly Summary for 2017

(click on table for larger size)

Comex gold gained nearly 14% for the year but was outpaced by Comex copper that enjoyed a 32% uptick in price. Comex silver lagged both for a  respectable 7.2%. Overall, gold gained 12% on the broader Bloomberg Commodity Index (BCOMTR:IND) which includes everything from crude oil to things that oink. In terms of major currencies, gold in terms of yen advanced almost 10% but slipped 0.4% relative to the strengthening euro.

Although gold slipped 5% in value relative to the S&P 500 it was not a bad year at all for the yellow metal!

Gold Price Outlook for 2018:

My revised gold range for 2017 was $1,250 to $1,400. It looks like we'll close the year today comfortably above $1,300.

Let's assume 2018, like 2017, is a mix of buoyant market expectations and rising rates with occasional geopolitical, political and economic shocks. Gold will feel the headwinds of the former and enjoy price spikes in times of market stress. I believe this will secure a price floor in the $1,200 to $1,250 range with highs challenging but not exceeding the September Comex high of $1,366 per ounce.

2018 will prove a less bullish period for gold than this year unless interest rates are contained near present levels and copper prices fall - a less likely scenario given U.S. growth and synchronous global recovery expectations. Inflation will be another key factor to monitor.

Here's a good beer bet for 2018: Gold will fall below $1,220 before rising above $1,380. We're right in the middle of that range with this morning's rally above $1,300 - a fair starting point 

[Update: Comex gold closed at $1,309.3; intraday high $1,309.8, February contract]

Which side of this bet you take depends on whether you have a half-full or half-empty view on interest rate direction and economic prospects, both global and domestic.

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).

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 134.92 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) and more recently December, 12, 2017 (0.4661). Currently this AM the AUSP is 0.4864 - still bearishly below the key 0.5-level but rebounding nicely from the mid-December low.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.