Eureka, Nevada
Friday, December 7, 2018 AM
Target Gold Price: $1,240 per ounce Target Silver Price: $14.58 per ounce.
Morning Miners!
I've been on vacation for the last six weeks and quite frankly haven't missed the roller coaster ride of these crazy markets. One good thing is that gold price is about where it was for my last report in late-October (Friday, 10/26) - near the mercurial $1,250-level.
It seems markets have come to a range gate and the key to unlocking it is either a thawing of tense U.S. China trade relations or a more gradual rise in Federal reserve interest rates...or both.
This morning I explained the situation to Allen Sykora, editor of the Kitco Weekly Gold Survey:
...Richard Baker, editor of the Eureka Miner Report, looks for gold to pull back.
“At the release of a so-so jobs report, Comex gold made a six-week high, barely nudging above the key $1,250 level,” he said. “Does it move higher from here? It is instructive to note that in that same period, the yellow metal has gained about 1% in value relative to the embattled S&P 500 and copper prices are only 1% higher -- seemingly calm waters if we ignore the violent market storms in between. “This suggests that gold prices are at the top of a range that is unlikely to change until there is more clarity on the turbulent U.S.-China trade relations and the trajectory of U.S. Federal Reserve hikes next year.”
[Full report can be found below]
The monthly employment report wasn't bad this morning, just below economists estimates. The U.S. added 155,000 jobs in November compared to an expectation of 198,000. By a separate Labor Department survey, the unemployment rate hasn't changed from a quite low 3.7%. Some of the miss can be explained by weather and average hourly wages did advance 0.2%.
A so-so report boosted gold prices back to the $1,250-level on the logic that the Federal Reserve may not be as aggressive next year in raising rates. Consensus is that there will be one more hike this year to be announced this month.
How the U.S./China trade relations will fare after the 90-day "cooling off period" is anyone's guess which probably keeps gold in safe-haven mode for the remainder of the year.
What am I looking at for direction? Copper prices and strengthening of the Indian rupee are two good ones. Further discussion is given below.
Good to be back, keep the faith!
“At the release of a so-so jobs report, Comex gold made a six-week high, barely nudging above the key $1,250 level,” he said. “Does it move higher from here? It is instructive to note that in that same period, the yellow metal has gained about 1% in value relative to the embattled S&P 500 and copper prices are only 1% higher -- seemingly calm waters if we ignore the violent market storms in between. “This suggests that gold prices are at the top of a range that is unlikely to change until there is more clarity on the turbulent U.S.-China trade relations and the trajectory of U.S. Federal Reserve hikes next year.”
[Full report can be found below]
The monthly employment report wasn't bad this morning, just below economists estimates. The U.S. added 155,000 jobs in November compared to an expectation of 198,000. By a separate Labor Department survey, the unemployment rate hasn't changed from a quite low 3.7%. Some of the miss can be explained by weather and average hourly wages did advance 0.2%.
A so-so report boosted gold prices back to the $1,250-level on the logic that the Federal Reserve may not be as aggressive next year in raising rates. Consensus is that there will be one more hike this year to be announced this month.
How the U.S./China trade relations will fare after the 90-day "cooling off period" is anyone's guess which probably keeps gold in safe-haven mode for the remainder of the year.
What am I looking at for direction? Copper prices and strengthening of the Indian rupee are two good ones. Further discussion is given below.
Good to be back, keep the faith!
This mornings' price action:
Comex gold (2/19 contract) $1,249.2 per ounce,
Comex silver (3/19 contract) $14.620 per ounce
Comex copper (3/19 contract) $2.7535 per pound
Have a relaxing weekend - you deserve it!
Inflation Watch
Inflation expectations made a new 2018 high April 23rd above trend lines of higher lows (dotted lines, click on chart for larger size). But now those trend lines have been broken to the downside as shown in this chart:
10-year Inflation Expectations
Note: In the above chart inflation expectations peaked at 2.14% February 2nd and then moved higher April 23rd to 2.18%. May 29th dramatically broke a trend line of higher-lows falling to 2.04%. This Wednesday expectations are much lower at 1.98%. The older trend lines of higher-lows are shown in dark blue. Those trends extend from June 21, 2017 low of 1.66%.
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 down from last week at $2.7535 per pound ($6,070 per tonne), now 14.4% 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. Copper is very close to entering bear territory for a second time this year (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.
Freeport McMoRan (FCX) CEO Richard Adkerson made two important observations on copper in October:
- Freeport is a victim of the U.S.-China trade tensions which are prompting them and other mining companies to defer investments in new projects, and “that will add to this impending supply gap situation for the industry.”
- He also noted that speculators are bearish about copper “due to macro-drivers, and this is having a significant impact on price.”
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 128,200 versus Nymex 130,864 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 $14.58 per ounce.
At the release of a so-so jobs report, Comex gold made a 6-week high barely nudging above the key $1,250-level. Does it move higher from here? It is instructive to note that in that same period, the yellow metal has gained about 1% in value relative to the embattled S&P 500 and copper prices are only 1% higher - seemingly calm waters if we ignore the violent market storms in between.
This suggests that gold prices are at the top of a range that is unlikely to change until there is more clarity on the turbulent U.S./China trade relations and the trajectory of U.S. Federal Reserve hikes next year. Importantly, 10-year real rates are also still around 1%* even though the 10-year Treasury has fallen below 3%. This is because inflation expectations have fallen in pace with Treasury yields blunting the normally bullish influence of lower interest rates on gold price. Equilibrium not excitement for gold going forward in the near term.
Accordingly, I believe it is likely gold will find comfort at the $1,240 per ounce-level next week with silver slightly lower at $14.58 per ounce.
One thing to monitor is the gradual strengthening of the Indian rupee relative to the U.S. dollar**. Falling below the 70-level (USD/INR) in the coming weeks could be bullish for gold and silver (fewer rupees for a dollar makes dollarized commodities more attractive for physical buyers).
[please see Weekly Summary Chart]
* real 10-year rate 1.03% (10/26); 0.96% (12/07) - source Bloomberg
** USD/INR 73.46 (10/26); 70.93 (12/07)
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 7.0 USD/CNY for 2017 and started stronger in the new year followed by a weakening trend. The yuan is near the 7.0-level at 6.8750 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 is 0.48%. Something else to watch compared to 1-month volatilities of euro and yen*
* the euro & yen 1-month volatilites are 0.53% & 0.43% respectively; Comex gold 1-month volatility is an slightly elevated 1.04%
Weekly Summary for December 7, 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 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 128.57
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 0.4620, maintaining an impressive gain above the September 27th low.
Cheers,
Colonel Possum & Mariana
Posts
.png)
.jpg)
.jpg)
No comments:
Post a Comment