Lone Mountain, Eureka, Nevada
Friday, May 18, 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 $1,300 per ounce. Target Silver price $16.6 per ounce.
Morning Miners!
We haven't seen a week this bad for gold in some time - that's what the market bears will tell you.
Real interest rates, the kryptonite for our metallic hero, are hitting 7-year highs. Price collapsed below $1,300 per ounce to plumb $1,284 yesterday on a strong U.S. dollar which made a new high for the year this morning*. Comex gold is presently trading at $1,288.0 trying its hardest to put some daylight above yesterday's low.
Don't despair pardner! The ole Colonel remains in bull pasture. Kitco News included my thoughts in Allen Sykora's Weekly Gold Survey:
Richard Baker, editor of the Eureka Miner Report, sees gold reclaiming $1,300.
“Although there has been a terrific acceleration in interest rates and U.S. dollar value lately, that will slow,” Baker said. “Inflation should start to close the gap with interest rates, and rising deficits will eventually erode dollar -- both bullish indications for gold. There is also enough lingering political/geopolitical uncertainty to keep gold afloat above its trend line.”
More analysis for the week is included in my input to the survey below.
If you believe the bears can't see what's on the other side of the mountain, you may want to throw a little glitter in the buckboard at these prices.
If I'm wrong, it's a long way down the mine shaft.
Please do your own research. As this report always remind the reader - markets can turn on you faster than a feral cat!
* U.S. Dollar Index (.DXY) high 93.81, 10-year TIPS auction real yield 0.934%; both on Thursday 5/17/2018
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%. Wednesday was slightly lower at 2.17% (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!
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 $3.0770 per pound ($6,784 per tonne), lack luster at 7.7% 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 new talks are scheduled to be held in Washington.
Total copper stored in LME and Nymex warehouses is now lower at 0.539 million tonnes.
LME inventories continue to fall:
It is instructive to keep our eyes on the Nymex inventories which are behind the LME (LME 290,825 versus Nymex 248,259 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 $1,300 per ounce. Target silver price $16.6 per ounce.
Yesterday's TIPs auction brought real yields for that security to a 7-year high (0.934%) - a bearish indication for the Shiny One if interest rates continue to outpace inflation. Positive inflation adjusted returns are a serious headwind for gold that pays no interest for holding it.
Gold is also is hanging by a thread with respect to its trend of higher-lows established from Dec. 2016 as it plumbed $1,284 yesterday. As the U.S. Dollar Index (.DXY) makes a new high for the year*, the yellow metal has lost value for the week across a broad set of assets including equities, key commodities and currencies.
BUT the gold bears are not seeing the other side of the mountain. Although there has been a terrific acceleration in interest rates and U.S. dollar value lately, that will slow. Inflation should start to close the gap with interest rates and rising deficits will eventually erode dollar - both bullish indications for gold.
There is also enough lingering political/geopolitical uncertainty to keep gold afloat above its trend line. I remain bullish and think it likely the lustrous metal will regain $1,300 territory next week with silver getting a boost back to the $16.6-level.
By the numbers, gold is down 2.5% for the week falling behind the S&P 500 (-2.1%), key commodities copper and oil (-1.4% & -3.6%) and major currencies euro (-1.0%) and Japanese yen (-1.1%).
Time for the other side of the mountain![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. The yuan is weaker than last week at 6.3769 USD/CNY, and putting daylight above the March 26th low (i.e. stronger level) of 6.2342. A low 1-month yuan volatility of 0.37% 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 1.29% & 0.65% respectively; Comex gold 1-month volatility is 1.04%.
Weekly Summary for May 18, 2018 AM
Weekly Summary for May 18, 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 $1,285 with highs challenging but not exceeding $1,380 per ounce [yesterday, 5/17/18, Comex gold tested $1,284]
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 $1,285, 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 130.44 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 0.4739 bearishly trending below the key 0.5-level.
Cheers,
Colonel Possum & Mariana
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