Gold Dips to $1,244 after Upbeat Jobs Report; Troubling Signs for Gold

@ Clouds
Eureka, Nevada

Friday, December 08, 2017 AM

Morning Miners,

Watching gold price reverse below $1,260 yesterday was not a happy.

Presently, Comex gold is trading at $1,254.0 per ounce up from a $1,244.4 low following an upbeat monthly jobs report. For an explanation of what this portends for the Lustrous One, please read my input below to the Kitco News Weekly Gold Survey (below).

Of course in economic terms, we should be glad to see encouraging news from the Labor Department. November added a robust 228,000 jobs compared to an expected 195,000. Headline unemployment remained unchanged at a low 4.1%. The response of stronger U.S. dollar and environment for rising interest rates is a major headwind for gold prices. More troubling is the rotation of money away from the yellow metal to booming global stock markets and speculative crypto-currencies like Bitcoin. Some part of this "risk-on" boiler is going to blow one of these days.

Here's a number to ponder: the average monthly job growth in 2016 was 187,000. The monthly average for 2017 is 174,000. A booming December report could help close the gap, maybe.

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 $2.9720 per pound, below October's high and 1.8% down for the week. Improving global growth had kept the red metal above the key $3 per pound level but it experienced a sharp reversal to the downside Tuesday (12/5). 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 but are leveling off (208,699 versus 193,675 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 $1,250 per ounce. Target Silver price $15.8 per ounce.

A horrible week for gold.

Dipping to lows not seen since mid-year, the gold retreat reflects a move to "risk-on" assets exacerbated by a better-than-expected U.S. jobs report. With global equity markets booming again, the value loss to the benchmark S&P 500 scored a new low after the Labor Department numbers for November. There will likely be some skirmishes around the key $1,250-level next week but the outlook is not encouraging; a retest of this morning's $1,244 low followed by further descent towards $1,225 territory is possible as 2017 comes to a close.

Most troubling is this week's breakdown of one of gold's most enduring uptrends for 2017. Gold in terms of Japanese yen has enjoyed a succession of higher lows since the U.S election. That has now come to an end with gold losing nearly 2% in value to the yen this week. This is important because the Japanese currency often competes with gold for safe haven status. The uptrend collapse is an ominous turn for the lustrous metal. 

An ounce of gold does buy more copper this Friday than last week - one of the few positives as the latter fails to hold the key $3 per pound-level. A retreat in commodities since early November has generally favored gold. The yellow metal gained on the broader Bloomberg commodity index (BCOM) 0.6% for the week.

Silver should follow gold lower next week to $15.8 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 only slightly weaker than last week at 6.6179 USD/CNY and now 2.9% above its low (i.e. its strongest level) for the year of 6.4345. A 1-month yuan volatility of 0.19% 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  0.73% & 0.66% respectively; Comex gold 1-month volatility is 0.99%.

Weekly Summary  for December 08, 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).

Warning from this week's gold survey (above): Most troubling is this week's breakdown of one of gold's most enduring uptrends for 2017. Gold in terms of Japanese yen has enjoyed a succession of higher lows since the U.S election. That has now come to an end with gold losing nearly 2% in value to the yen this week. This is important because the Japanese currency often competes with gold for safe haven status. The uptrend collapse is an ominous turn for the lustrous metal. 

 A fall below $1,260 is bearish (we're there!); 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 0.4737 - a new low and very bearish indication.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.