Ruby Hill Memories (2014)
Ruby Hill, Nevada
Friday, March 02, 2018 AM
Morning Miners!
Talk about throwing a wrench in the works - the President's announcement yesterday on tariffs for steel and aluminum imports has roiled global markets. There are now rising fears of trade wars and inflation boosting gold price with a negative reaction in global and domestic stock markets. Kitco News quoted the ole Colonel in their Weekly Kitco Gold Survey :
Richard Baker, editor of the Eureka Miner Report and who is also bullish [gold] commented that one day’s worth of news can make a big difference in markets.
“Gold, after having a bad week against a broad set of assets and nearly breaching the $1,300 level, has found a safe-haven boost on global trade war and inflation fears…,” he said, calling for gold to rise. “The presidents surprising announcement on steel and aluminum tariffs yesterday brought the U.S. dollar index off its six-week high (90.91) and sent global equities reeling. Although the actual implementation of tariffs may be milder than anticipated, the yellow metal will no doubt remain in safe-haven mode for the near term.”
My whole report is included below.
The proposed tariffs of 25% for steel and 10% for aluminum have brought threats of trade retaliation from the European Union and Canada. Canada is our largest importer of both metals; 16% steel and a full 43% for aluminum. But our neighbor north is also a big customer for automobiles, manufactured goods, as well as agricultural products and fuels. A trade war could fuel inflation with a rising cost of products on both sides of the border. Nobody "wins" trade wars. Here is the breakdown on steel exporters to the U.S.:
In an opening salvo, the European Union is threatening to impose tariffs on Harley Davidson, bourbon whiskey and Levi jean exports to the EU.
Hopefully some of this international dust-up will subside as details and compromises are eventually worked out across borders.
Interest rates and inflation numbers going forward are also greatly influenced by central bank policy worldwide. My latest Kitco commentary discusses what some of the moving parts are as well as useful indicators - watch the U.S. Dollar Index (DXY) and euro/yen cross rate:
The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)
Several of the charts in this column are updated below.
Have a fun weekend!
Ruby Hill, Nevada
Good news for General Moly (GMO), Mt. Hope
General Moly (GMO) had two important news releases this week:
General Moly Reports Increasing Molybdenum Price Leads Surge in Metals; Aligned with Multiple Bullish Market Factors (Press release, March 2, 2018)
General Moly to Explore for Copper, Silver and Zinc at Mt. Hope Project (Press release, March 1, 2018)
The latest release reports a very positive development in the molybdenum market. Presently at $12.83 per pound, Miss Moly has re-emerged as a metal with encouraging prospects for price and demand.
Bruce D. Hansen, Chief Executive Officer of General Moly, reports:
Moly can be called a late stage industrial metal. We believe the moly price recovery, which began slowly in 2016, has accelerated in the past few months and still has future appreciation potential.
Yesterday's release discusses exploring other important minerals at nearby Mt. Hope. The exploration is underway for a copper-silver target as well as zinc mineralization. Commenting on the path ahead, Mr. Hansen said:
We are extremely excited by the exploration findings to date, which were driven by our internal efforts and exceeded our expectations in terms of the scope of targets. We look forward to moving ahead with further geologic assessment and further exploration efforts later this year, in what we feel is an improving commodities' market environment of rising molybdenum, copper, zinc, and silver prices. We also feel that the future successful development of any of these non-moly opportunities, if warranted, should be value added and synergistic to our ultimate goal of building one of the world's largest primary moly mines.
General Moly's (GMO) price is presently $0.44 per share on the NYSE.
Scorecard
Here's our scorecard on where we stand for the last six months:
Intraday highs on the Comex futures exchange:
Gold $1,370.5 per ounce January 25, 2018 (April 2018 contract)
Silver $18.160 per ounce September 8, 2017 (Continuous chart))
Copper $3.3335 per pound ($7,349 per tonne) December 28, 2017 (May 2018 contract)
Comex copper is presently trading at $3.1200 per pound, 6.4% below December'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. China growth prospects appear to be firming up with a better-than-expected Q4 GDP of 6.8%. This results in a GDP 6.9% for 2017 compared to 6.7% for 2016. The GDP projection for 2018 is 6.5%, down but fairly robust.
Recent threat of U.S. import tariffs on steel and aluminum cloud the outlook for metals.
Chinese returning from their Lunar holiday are in a grumpy mood with copper futures down year-to-date.
Copper stored in LME and Nymex warehouses now exceeds 0.56 million tonnes - net copper inventories are rising.
LME inventories built stronger as we started the new year, now leveling off some:
It is instructive to keep our eyes on the Comex inventories which are behind the LME but rising (230,731 versus 330,800 tonnes):
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 $1,340 per ounce. Target Silver price $16.7 per ounce.
What a difference a day makes.
Gold, after having a bad week against a broad set of assets and nearly breaching the $1,300-level, has a found safe haven boost on global trade war and inflation fears (trading now at $1,323.4 per ounce).
The Presidents surprising announcement on steel and aluminum tariff's yesterday brought the U.S. dollar Index off its 6-week high (90.91) and sent global equities reeling.
Although the actual implementation of tariffs may be milder than anticipated, the yellow metal will no doubt remain in safe haven mode for the near-term. Its likely gold will make $1,340 per ounce or higher next week with more downside expected for the U.S. dollar. Silver is showing strength and should easily return to 16.7 per ounce or higher.
Although gold is gaining on key commodities for the week (up 2% versus copper & 4% on oil), it is troubling that it is losing ground relative to major currencies euro and Japanese yen (down 0.6% versus the euro & nearly 2% on yen). The long uptrend of gold in terms of yen has broken down; gold in euro is moving sideways.
On the shiny side, gold has made significant progress against falling equities with a 3% weekly jump on the benchmark S&P 500 - now over 7% above its mid-December low (Comex gold-to-S&P500 ratio).
[see Summary Chart & last graph below, Chart to Watch].
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 stabilized below 7 USD/CNY for 2017 and has been trending steadily stronger in the new year. The yuan is weaker than last week at 6.3564 USD/CNY and above the February 7th low (i.e. even stronger level) of 6.2540. A 1-month yuan volatility of 0.46% is in the ballpark of major currency levels (but still skewed given the holidays) - a healthy sign for the Chinese currency (1-month volatilities of euro, yen and gold*).
* the euro & yen 1-month volatilites are 0.68% & 1.02% respectively; Comex gold 1-month volatility is low but rising at 0.86%.
Weekly Summary for March 02, 2018 AM
Weekly Summary for March 02, 2018 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% gain. 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. We closed 2017 comfortably above $1,300 at $1,309.3 (February contract).
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 $1,380 per ounce.
2018 will prove a less bullish period for gold than last year unless interest rates return to 2017 levels and copper prices fall - a less likely scenario given the recent rise of the 10-year Treasury together with U.S. growth and synchronous global growth expectations. Inflation will be another key factor to monitor, there are growing signs it is on the rise (i.e. latest CPI report).
Here's a good beer bet for 2018: Gold will fall below $1,220 before rising above $1,380. We ended 2017 n the middle of that range with prices just above $1,300 - a fair starting point.
Which side of this bet you take depends on whether you have a half-empty or half-full view on interest rate direction and economic prospects, both global and domestic.
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). An explanation of the charts below is given in my latest Kitco column:
The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)
Click on the image for a larger size:
Gold in euro & yen terms with good margin above 2013 lows
Gold euro/yen spread widens again in 2018
Gold euro/yen spread widens again in 2018
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 129.75 yen per euro as the gold euro/yen spread widens.
Here's a chart to watch for 2018. 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 (0.4973) trended higher but then bearishly bottomed again in July, 2017 and more recently December, 12, 2017 (0.4661). Currently this AM the AUSP is 0.4991, bullishly close to the key 0.5-level.
Cheers,
Colonel Possum & Mariana
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