The Eureka Miner: Gold Rocks On to $1,230; McEwen Mining Update & Moly Outlook

Windfall Mill
Windfall Mine, Eureka, Nevada

Friday, October 12, 2018 AM

General Moly Progresses toward Mt. Hope Water Permit and Makes Positive Impact on Local Community (Press release 10/15/2018)

Target Gold Price: $1,215 per ounce Target Silver Price: $14.52 per ounce.

Morning Miners!

Oh, it's so good to witness gold leave the currency pack and be its old safe haven self again! Presently Comex gold is trading at $1,225.4 per pounce after peaking to $1,230 yesterday. Here's how I told the story to Kitco News this morning:

Gold had a Tiger Woods comeback this week. The yellow metal made championship gains not only in U.S. dollar value but against a broad array of assets including equities, commodities and key currencies. A greater than $40 per ounce move between intraday lows and highs demonstrated safe haven qualities not seen for months while alternative havens like the yen marched in place.

The rise of real rates in the U.S. remains a headwind for gold. Encouragingly, real rates remained stable through the tumultuous market week. 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 and trade tensions.

I am bullish gold believing the recovery from the double-bottom of August/September signals a reversal in fortune. However, it is likely gold will pullback some next week as equity markets rebound from their dramatic sell-off this week. It is likely gold will find footing at $1,215 per ounce with silver following to $14.52.

* real 10-year rate is now 1.03%

Not a bad way to end the week. There is also some good news from McEwen Mining and a positive outlook from General Moly on moly oxide prices (see below).

This mornings' price action:

Comex gold (12/18 contract) $1,225.4 per ounce,

Comex silver (12/18 contract) $14.705 per ounce

Comex copper (12/18/ contract) $2.8230 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.

Have a relaxing weekend - you deserve it!

McEwen Mining Update

McEwin Mining (MUX) released their third quarter results yesterday:

MCEWEN MINING REPORTS Q3 2018 PRODUCTION RESULTS (Press Release 10/11/2018)

Gold Bar mine construction "is advancing on schedule for completion by the end of 2018, targeting production in Q1 2019. Activities at Gold Bar in Q3 focused on completion of the heap leach pad and crushing circuit, and advancing the process facility. All major equipment and bulk materials are either on site or purchased. Engineering for the project is complete and 97% of contracts are awarded. During the first three years of operation beginning with 2019, Gold Bar is projected to produce 55,000, 74,000 and 68,000 ounces of gold respectively."

The best to the Gold Bar team!

McEwen Mining (MUX) shares are enjoying some fresh mountain air above two bucks.

Currently $2.18 per share

Moly Oxide Price Outlook

General Moly (GMO) provided an outlook for moly oxide prices yesterday:

General Moly Reports on Molybdenum Price Resilience and Demand Drivers (Press Release, 10/11/2018)

Bruce D. Hansen, Chief Executive Officer of General Moly, said, “We believe that industrial metal prices are coming off their lows. The moly price has been range-bound between the high $11s and low $12s since mid-July. With the strong U.S. economy and developed countries firmly in the late stage business cycle supportive of metal demand, we believe we have the makings of an industrial metal recovery that is the rising tide to lift all ships and further boost moly. The continued strong demand from stainless steel and the oil and gas industry, especially the rapidly expanding global liquid natural gas sector, underpin the strongest year in four years for moly prices.”

General Moly (GMO) shares continue to demonstrate stability in current wobbly markets.

Latest press release [Update 10/15/2018]

General Moly Progresses toward Mt. Hope Water Permit and Makes Positive Impact on Local Community (Press release 10/15/2018)

Currently $0.3499 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 2.16%. 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 $2.8230 per pound ($6,135 per tonne), now 15.3% 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. Improving perceptions on the severity of the trade issues has moved copper price away from bear territory (i.e. down 20%). There is some optimism ahead of a planned meeting with President Trump and Premier Xi Jinping in November.

Total copper stored in LME and Nymex warehouses is 0.340 million tonnes, well below the 0.5 million tonne mark of earlier this year.

LME inventories are still declining again after a run-up in August:

It is instructive to keep our eyes on the Nymex inventories which are behind the LME and also falling (LME 173,500 versus Nymex 166,923 tonnes):

My Input to Kitco News

Here's how I saw the weekly price action as told to the Kitco News Weekly Gold Survey (also included above in the headline comments):

Target gold price $1,215 per ounce. Target silver price $14.52 per ounce.

The rise of real rates in the U.S. remain a headwind for gold. Encouragingly, real rates remained stable through the tumultuous market week. 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 and trade tensions.

* real 10-year rate is now 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 both negatively. Something to watch: the yuan has been dramatically weakening since mid-April but appears to be stabilizing.

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 6.9154 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 0.37% is artificially low since the currency was frozen during last 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 0.87% & 0.58% respectively; Comex gold 1-month volatility is an elevated 0.83%

Weekly Summary for October 12, 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 129.54

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 0.4430, an impressive 9% above the September 27th low.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.