Eureka & Palisade (E&P) RR (courtesy Eric Pastorino)
Eureka, Nevada
Eureka, Nevada
Friday, October 17, 2018 AM
General Moly Announces Pricing of Public Offering of Securities (Press release 10/17/2017)
General Moly Progresses toward Mt. Hope Water Permit and Makes Positive Impact on Local Community (Press release 10/15/2018)
General Moly Reports on Molybdenum Price Resilience and Demand Drivers (Press Release, 10/11/2018)
Target Gold Price: $1,240 per ounce Target Silver Price: $14.81 per ounce.
Morning Miners!
Gold continues to show strength with three weeks in the winner circle. Presently Comex gold is trading at $1,231.2 per pounce after peaking to $1,234.1 earlier this morning. The high for the week is $1,236.9. Here's how I told the story to Kitco News this morning:
Gold continues this week with gains not only in U.S. dollar value but material advances against key commodities and currencies. The yellow metal is also keeping pace with volatile U.S. equities.
Clearly the yellow metal has broken away from the currency pack reversing its once strong correlation with the Chinese yuan. As the latter weakens to near two-year levels, gold has enjoyed 3-weeks of solid gains. It is noteworthy that gold in terms of yuan is now above 8,500 reflecting internal concerns about a slowing economy and unresolved U.S./China trade relations.
Gold's next challenge is to breakout of a near 500 market-day downward trending channel relative to the S&P 500. If the S&P 500 falls to 2,600 and gold rises to $1,300, the equity stranglehold will finally be broken [see Chart to Watch below]. Neither level is unrealistically far from current trading.
The rise of real rates in the U.S. remain a headwind for gold. Real rates crept up 5 basis points from last week on moderating inflation expectations. Now slightly above 1% on a 10-year basis*, the same measure was only 0.4% a year ago. If inflation can keep pace with the rise in nominal Treasury yields, gold should fare well going forward given uncertainties surrounding a slowing global economy, wobbly geo-politics and growing trade tensions.
I am bullish gold as the the double-bottom of August/September now confirms a reversal in fortune. It is likely gold will step higher to $1,240 per ounce next week with silver following to $14.81 per ounce.
* real 10-year rate is now 1.08% (last week 1.03%)
This mornings' price action:
Comex gold (12/18 contract) $1,231.2per ounce,
Comex silver (12/18 contract) $14.705 per ounce
Comex copper (12/18/ contract) $2.7780 per pound
Importantly, the correlation of Comex gold price and Chinese yuan (USD/CNY) appears to have broken down - gold is a free agent now in a bullish environment (next discussion).
Have a relaxing weekend - you deserve it!
When a good model goes bad
I have written three commentaries on the stunning correlation of Comex gold price and the Chinese yuan this year:
Chinese Yuan Reversal Is Bullish Gold (Richard Baker, Kitco News, 8/27/2018)
The Mystery of Gold and the Chinese Yuan (Richard Baker, Kitco News, 7/31/2018)
Well pardner, that correlation is a dead.
A picture tells the story. Here is my three-currency model (yuan, yen & euro) that had (until recently) very accurately tracked gold price (click on chart for larger image):
Gold model based on the Chinese yuan, Japanese yen and euro currencies
Today the error between actual and modeled value is nearly 6-standard deviations (6-sigma). That's akin to aiming at a 100-yard target at the Windfall rifle range and hitting the top of the mountain!
What does this say? Gold no longer travels with the currency pack and has returned to safe haven status in a troubled world.
General Moly (GMO) Drops 40% - Ouch!
Lately, General Moly (GMO) has posted press releases on moly price outlook and water rights (see below headline photo for links). Neither has affected share price as much as this latest epistle:
General Moly Announces Pricing of Public Offering of Securities (Press release 10/17/2017)
GMO closed at $0.35 Wednesday and Thursday slide below 20 cents on this press release - a drop of 40% - ouch! What's up? GMO is issuing more common stock to raise money. More shares on the market, lower price per share is the way I see it - please correct me if there is something here I'm missing.
Encouragingly, "Bruce D. Hansen, the Company’s chief executive officer, intends to purchase $500,000 in the offering at the public offering price per share and accompanying warrant."
Time to double down or...?
Two much for this old boy to gamble given the latest situation in China.
Currently $0.2251 per share
Inflation Watch
Inflation expectations made a new 2018 high April 23rd above a trend lines of higher lows (dotted lines, click on chart for larger size). After a sharp dip last on May 29th, expectations recovered, and moved more or less sideways. There is a hint now of slowly accelerating inflation (please see note).
10-year Inflation Expectations
Note: In the above chart inflation expectations peaked at 2.14% February 2nd but were surpassed April 23rd at 2.18%. May 29th dramatically broke the trend line of higher-lows falling to 2.04%. This decline recovered to 2.12%, retreated, recovered and then popped to 2.15% two weeks ago. This Wednesday expectations were a lower 2.13%. New trend line of higher-lows is shown in dark blue; older trend line, in light blue. Note that present trend now extends to the June 21, 2017 low. Interesting to note that lower-highs from April 23rd intersect higher-lows (solid blue lines). We have broken out from this triangular consolidation.
Interest rates and inflation numbers going forward are greatly influenced by central bank policy worldwide. This 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.
Old Glory
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)
Intraday lows on the Comex exchange:
Gold $1,167.1 per ounce August 16, 2018 (December 2018 contract)
Silver $14.315 per ounce August 15, 2018 (September 2018 contract)
Copper $2.552 per pound ($5,626 per tonne) August 15, 2018 (September 2018 contract)
Comex copper is presently trading slightly up from last week at $2.7780 per pound ($6,124 per tonne), now 16.7% below December's high. Improving global growth had kept the red metal above the key $3 per pound. Initial trade war fears dipped the red metal below this mark but copper then rebounded above $3. Current trade war tensions with China and deteriorating economic conditions there coupled with a strong U.S. dollar have sent the red metal plummeting. Somewhat hopeful perceptions on the severity of the trade issues has moved copper price away from bear territory (i.e. down 20%). Latest China GDP numbers confirm economic slowing in the third quarter 6.5% (versus 6.6% expected) compared to 6.7% in the second quarter.
Total copper stored in LME and Nymex warehouses is 0.325 million tonnes, well below the 0.5 million tonne mark of earlier this year. Interestingly, the Nymex warehouse tonnage now exceeds the LME.
LME inventories continue declining after a run-up in August:
It is instructive to keep our eyes on the Nymex inventories which are no longer behind the LME but also falling (LME 160,900 versus Nymex 163,866 tonnes):
My Input to Kitco News
Here's how I saw the weekly price action as told to the Kitco News Weekly Gold Survey:
Target gold price $1,240 per ounce. Target silver price $14.81 per ounce.
Gold continues this week with gains not only in U.S. dollar value but material advances against key commodities and currencies. The yellow metal is also keeping pace with volatile U.S. equities.
Clearly the yellow metal has broken away from the currency pack reversing its once strong correlation with the Chinese yuan. As the latter weakens to near two-year levels, gold has enjoyed 3-weeks of solid gains. It is noteworthy that gold in terms of yuan is now above 8,500 reflecting internal concerns about a slowing economy and unresolved U.S./China trade relations.
Gold's next challenge is to breakout of a near 500 market-day downward trending channel relative to the S&P 500. If the S&P 500 falls to 2,600 and gold rises to $1,300, the equity stranglehold will finally be broken [see Chart to Watch below]. Neither level is unrealistically far from current trading.
The rise of real rates in the U.S. remain a headwind for gold. Real rates crept up 5 basis points from last week on moderating inflation expectations. Now slightly above 1% on a 10-year basis*, the same measure was only 0.4% a year ago. If inflation can keep pace with the rise in nominal Treasury yields, gold should fare well going forward given uncertainties surrounding a slowing global economy, wobbly geo-politics and growing trade tensions.
I am bullish gold as the the double-bottom of August/September now confirms a reversal in fortune. It is likely gold will step higher to $1,240 per ounce next week with silver following to $14.81 per ounce.
* real 10-year rate is now 1.08% (last week 1.03%)
[please see Weekly Summary Chart]
Additional Note:
The fate of the Chinese yuan remains a key tell for gold and copper; a material drop in valuation could impact copper negatively, gold is now moving in opposition to the yuan. Something to watch: the yuan dramatically weakened from mid-April, stabilized and now appears on the move again to 7 USD/CNY.
The yuan stabilized below 7 USD/CNY for 2017 and started stronger in the new year followed by a weakening trend. The yuan is now above the 6.9-level at 6.9278 USD/CNY putting a lot of daylight above the March 26th low (i.e. much stronger level) of 6.2342. A 1-month yuan volatility of 0.41% is still artificially low since the currency was frozen during the recent one week's holiday. It is normally something else to watch compared to 1-month volatilities of euro and yen*
* the euro & yen 1-month volatilites are 0.86% & 0.57% respectively; Comex gold 1-month volatility is an elevated 1.28%
Weekly Summary for October 17, 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 Comex 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 latest revised range given the strong correlation with falling currencies compared to a strong U.S. dollar is a $1,150 floor with highs not exceeding $1,380 per ounce.
2018 will prove a less bullish period for gold than last year with higher interest rates in the U.S. Inflation will be another key factor to monitor, it has been on the rise but now may be moderating (see chart above in discussion).
The difference between interest rates and inflation expectations drives 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 in the middle of that range with prices just above $1,300 - a fair starting point [Gold bet won Thursday July 19]
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 this Kitco News column:
The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)
Gold value for all three currencies is catching a leg higher after a double-bottom for gold in U.S. dollar terms (August 17th & September 27th) :
Click on the image for a larger size:
Gold in euro & yen terms with margin above 2013 lows
Divergence has resumed for gold in terms of euro compared to yen:
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 129.26
Chart to Watch
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 (0.6849). It bottomed December 20, 2016 (0.4973) trended higher but then bearishly bottomed again December, 12, 2017 (0.4661) and again September 27, 2018 (0.4063). Currently this AM the AUSP is at 0.4412, still an impressive gain above the September 27th low.
Cheers,
Colonel Possum & Mariana
Posts
.png)
.jpg)
.jpg)
No comments:
Post a Comment