Eureka, Nevada
Friday, May 11, 2018 AM
Latest Mining Quarterly! (Checkout story on McEwen Mining's Gold Bar Project)
General Moly Reports First Quarter Results (Press Release May 08,2018)
McEwen Mining Reports Q1 2018 Production Results (Press release, 4/16/2018)
Next Week: Target gold price $1,340 per ounce. Target Silver price $17.1 per ounce.
Morning Miners!
Snow/rain mix and thunder or blue skies and time to water everything - turbulent spring weather in the Great Basin. This is not unlike global markets this week - unsettled forecasts. Of course, gold loves uncertainty and appears to have recovered from two recent dives at the $1,300-level, trading this morning at $1,324.8 per ounce on the Comex exchange. The ole Colonel has headed for the bull pasture, I think we'll see a nice rally in the coming weeks (see my recently revised 2018 forecast below).
For starters, the rising dollar peaked this week posting a 4.5 month high for the U.S. Dollar Index (.DXY) at 93.42. Presently the "Dixie" is a lower 92.48. To give this some perspective, the index has languished around the 90-level for much of this year. A weakening dollar boosts gold, copper and other dollarized commodities.
As for cloudy skies, continue to watch oil for clues especially now that the U.S. has pulled out of the nuclear agreement with Iran. West Texas crude (WTI) is now above $70 per barrel and its global benchmark buddy is nearly $77. Some analysts predict a return to $100 per barrel - I'm not there on that one yet! It is notable that the gold-to-WTI ratio made a new low yesterday of 18.5 barrels per ounce. February 2016 an ounce of gold could buy nearly 50 barrels!
The possibility of trade wars also remains on the horizon. Some early hail is falling from U.S. sanctions on China's tech giant ZTE which sells smartphones and other telecommunications equipment. ZTE claimed last month that it expected its business to be "severely impacted" by U.S. sanctions and its stock halted trading on the Hong Kong exchange April 16. Of course this is tit-for-tat given that company's dubious record of trade violations in dealing with North Korea and Iran.
[UPDATE 5/13/2018: Trump Extends Lifeline to Sanctioned Tech Company ZTE (Wall Street Journal, 5/13/2018)
Sanctions on Russia's aluminum behemoth Rusal are still rippling the metal markets although softened some form the initial imposition. Commodity Maven Janet Mirasola of Sucden Futures, Inc. reported this morning, "Rusal said its long term prospects remain uncertain as the top aluminum producer declined to give forecasts in a quarterly earnings report that predates U.S. sanctions. 'Any forecast or outlook made or previously made should be deemed unreliable and may become irrelevant due to ongoing developments on the market' – leading us to wonder not just for Rusal but in relation to all the tariffs and sanctions – what else could possibly go wrong??"
In fairness, there may be sunnier days ahead given a positive outcome from the upcoming U.S.-North Korea summit now scheduled for June 12 in Singapore. For now, global markets are in a wait-and-see mode. For more analysis please see my input to the Kitco News Weekly Gold Survey (below).
Inflation Watch
Inflation expectations made a new 2018 high April 23rd above a new trend line of higher lows (dark blue dotted line, click on chart for larger size). However, it appears inflation expectations are leveling off for now.
10-year Inflation Expectations
Note: In the above chart inflation expectations peaked at 2.14% February 2 but were surpassed April 23 at 2.18%. That was matched again Wednesday at 2.18% (note old trend line, faded blue).
Interest rates and inflation numbers going forward are 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!
Mt. Hope Mineral Treasures
General Moly (GMO) released its first quarter results Tuesday:
General Moly Reports First Quarter Results (Press Release May 08,2018)
There are several positives in this report not the least of which is a marked improvement in the price of moly oxide, now comfortably above $12 per pound. This is 40% above the average price for the last quarter of 2017 ($12.23 per pound versus $8.76).
General Moly's recent survey reminds us of the mineral treasures of nearby Mt. Hope. As well as having one of the world's largest deposits of molybdenum, there are also high grade copper and silver deposits alongside zinc mineralization.
Bruce D. Hansen, Chief Executive Officer, says, “We are continuing our exploration efforts with support of Dr. Mark Osterberg, Principal Consulting Geologist, and his team at Mine Mappers, LLC, in the evaluation of the Cu-Ag Target within a 17-acre zinc mineralized area covering historical underground mining of primarily zinc at the Mt. Hope Project. We continue to be excited about the exploration potential of this skarn area of interest, immediately adjacent to the moly deposit at Mt. Hope and expect to provide an update announcement later this quarter regarding our initial exploration plan. In regards to the moly price, we saw a brief downturn where the price retraced to $11.83/lb in mid-April before increasing to the current price of $12.40/lb, trailing the same general pattern as the oil price, which is now at the $70/barrel mark. As long as there is a sustainable oil industry with robust oil drilling activity and oil and gas infrastructure investment globally, there is strong demand for specialty steels using moly.”
Stay tuned.
Eureka, Nevada
Scorecard
Here's a scorecard on where we stand with some of our favorite metals.
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 $3.1100 per pound ($6,856 per tonne), moving up but 6.7% below December's high. Improving global growth has kept the red metal above the key $3 per pound. Trade war fears dipped the red metal below this mark but copper is now back above $3. Recent weakness must be watched!
Copper futures remain down year-to-date on the Shanghai Futures Exchange (SHFE).
China growth resulted in a GDP 6.9% for 2017 compared to 6.7% for 2016. The GDP projection for 2018 is 6.5%, down but still fairly robust. Encouragingly, the Q1 result is a better-than-expected 6.8% although industrial production fell to 6.0%. Watch this one too, pardner.
Recent U.S. import tariff threats on steel, aluminum and other Chinese exports cloud the outlook for metals. Sanctions on Russian aluminum producer Rusal have spiked aluminum prices to 7-year highs (whose output represents 6% of global supply) but have fallen since with softening of U.S. position.
First round U.S./China trade talks have concluded with no major issues resolved.
Total copper stored in LME and Nymex warehouses is now lower at 0.544 million tonnes.
LME inventories continue to fall:
It is instructive to keep our eyes on the Nymex inventories which are behind the LME but moving up (LME 293,025 versus Nymex 251,643 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 up. Target gold price $1,340 per ounce. Target silver price $17.1 per ounce.
Comex gold passed the test this week, at least for now. Taking a second run at the $1,300-level*, the yellow metal rebounded nicely from a low Wednesday of $1,304.2 per ounce. With a U.S. dollar falling from a 4.5 month high, gold should move higher in the next several weeks on a turbulent spring mix of political/geopolitical weather.
My target for next week is $1,340 per ounce with silver following gold higher to $17.1 per ounce.
There is plenty uncertainty in the market jet stream with sanctions on China's tech giant and Russia's aluminum producer Rusal keeping trade war fears alive. The fallout of the U.S leaving the Iran nuclear pact continues to drive oil prices, sluggish inflation gives the U.S. Federal Reserve more room to maneuver but impact of adverse trade outcomes may stall economic growth. Finally, a positive outcome of the upcoming U.S./North Korea talks may bring a little sunshine to otherwise cloudy skies.
The lustrous one should prosper as market participants try to decide whether its umbrellas or sunscreen ahead. [see Weekly Summary and charts below]
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. There has been talk from China that currency devaluation may be used as a tool in a U.S./China trade war, just talk for now. Something to watch: the yuan has been weakening since mid-April.
The yuan stabilized below 7 USD/CNY for 2017 and had been trending steadily stronger in the new year. Although the yuan is stronger than last week at 6.3467 USD/CNY, it is still putting daylight above the March 26th low (i.e. even stronger level) of 6.2342. A low 1-month yuan volatility of 0.53% is lower now than major currency levels - something else to watch (1-month volatilities of euro, yen and gold*).
* the euro & yen 1-month volatilites are an elevated 1.48% & 0.86% respectively; Comex gold 1-month volatility is 1.16%.
Weekly Summary for May 11, 2018 AM
Weekly Summary for May 11, 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 Revised Outlook for 2018:
My 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.My revised forecast is a floor price of $1,290 with highs challenging but not exceeding $1,380 per ounce. Recent data suggests the floor may be rising to the $1,300-level.
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, it has been on the rise (see chart above in discussion). Geo-political tensions in the Middle-East have also re-surfaced.
The difference between interest rates and inflation expectations drive gold price; if the former leads the latter, there could be stiff headwinds for the lustrous metal. A trade war that results in slower growth and higher inflation could be potentially very bullish for gold.
Here's the 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. Now that I've risen the floor to $1,290, it looks like the half-full folks may have something to celebrate in 2018.
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
Note upside trend of higher lows for gold in U.S. dollars for 2018 (dotted blue line).
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 130.60 yen per euro as the gold euro/yen spread reverses lower (above chart).
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 0.4857, bearishly trending below the key 0.5-level.
Cheers,
Colonel Possum & Mariana
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