Croesus Mine, Eureka, Nevada
You can read more about the Croesus mine in this story I wrote several years ago for the Elko Daily Free Press:
Major Henry G. Catlin and the Eureka-Croesus revival (Elko Daily Free Press, 3/3/2015)
Friday, December 28, 2018 AM
Next Week Target Gold Price: $1,290 per ounce, Target Silver Price: $15.539 per ounce.
Morning Miners!
The only certain thing about markets is they don't like uncertainty.
A government shutdown, Federal Reserve Chairman on thin ice, confusing phone calls from the Treasury Secretary to major banks, policy reversals in Syria and Afghanistan, 17 investigations involving the President of the United States and unresolved trade tensions between the two largest economies of the world create uncertainty in global markets.
A brutal week, a brutal December, a brutal fourth quarter...and gold is loving it!
Switching into safe haven mode after the Federal Reserve rate hike in late-September, the yellow metal has gained significant value over falling stock markets (see Chart to Watch below). European and Asian stocks are in bear territory and the S&P 500 came right to the grizzly border Christmas Eve (i.e. down 20% ). Although stock markets are recovering some, Comex gold rallied to an intraday high of $1,284.7 per ounce early this morning. Currently trading at $1,280.5, gold is poised for a run at the $1,300-level in the coming weeks.
If it weren't for a persistently strong U.S. dollar, gold would be well on its way to its April high of $1,365 (continuous chart). That may change in 2019 if dollar strength starts to fade in the shadow of growing fiscal deficits and stalling real interest rates* - or maybe not. I'm presently working on my predictions for 2019 but here's a beer bet for next year:
Gold will rise above $1,380 per ounce before May Day 2019
I think next week will be an example of what 2019 may look like for the lustrous metal. Adding a changing Congress to the list of worrisome topics noted, gold could take a run at $1,300 by mid-week. However a positive monthly labor report Friday (January 4) will likely remind everyone that the underlying economy is still on track. Although GDP will no doubt slow in 2019, the economy is not headed for recession anytime soon. A push-pull to higher gold prices with a positive trend of higher lows is in the cards.
By the way, keep your eye on silver prices pardner. In compaative value, it outpaced gold by 3% this week and the Indian rupee dipped below 70 USD/INR** - both bullish signs for a trip to $16 per ounce or higher (see Weekly Summary Chart below)..
* real 10-year rate 1.01% (12/28); 1.01% (12/21), down 13 bps for the month - source Bloomberg
** USD/INR 69.908
I have a new model of gold based on the S&P 500, CBOE Volatility Index (VIX) and Japanese yen (USD/JPY). This is a work in progress but is already useful for predicting upper and lower bounds with an estimation error of less than 1%. Upper bound suggests $1,300 per ounce is now in the cards. (click on image for larger size):
Keep the faith! Gold will go further up the stairs in 2019.
This mornings' price action:
Comex gold (2/19 contract) $1,280.5 per ounce,
Comex silver (3/19 contract) $15.425 per ounce
Comex copper (3/19 contract) $2.7025 per pound
Happy New Year!
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 dramatically 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 1.77%. The older trend lines of higher-lows are shown in dark blue. Those trends extend from June 21, 2017 low of 1.66%. Currently, we are below the expectation level of November 27th, 2017 (red dashed line).
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 (note new continuous chart baseline):
Gold $1,365.4 per ounce (Continuous chart April, 2018)
Silver $18.160 per ounce (Continuous chart September 2017))
Copper $3.2955 per pound ($7,265 per tonne, continuous chart December 2017)
Comex copper is presently trading up from last week at $2.7025 per pound ($5,958 per tonne), now 18.0% below last 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 just escaped 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. Watch for new numbers in January!
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 a bump up:
It is instructive to keep our eyes on the Nymex inventories which are still falling (LME 129,725 versus Nymex 110,705 tonnes):
My Input to Kitco News
No survey conducted this week. My prediction for next week:
Next Week target gold price $1,290 per ounce. Target silver price $15.539 per ounce.
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. Something to watch: the yuan dramatically weakened from mid-April and now appears to be stabilizing just below 7.0 USD/CNY again.
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 6.8754 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 0.41%. Something else to watch compared to 1-month volatilities of euro and yen*
* the euro & yen 1-month volatilites are 0.31% & 1.06% respectively; Comex gold 1-month volatility is an elevated 1.28% as is the yen (both in safe haven mode).
Weekly Summary for December 28, 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:
*** COMING SOON: 2019 GOLD PRICE FORECAST ***
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 trending 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 126.30 suggesting continued divergence from parity.
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 October 1, 2018 (0.4063). Currently this AM the AUSP is at 0.5134, maintaining an impressive gain above the October 1st low but below the recent high of 0.5409 set at the close December 21, 2018. Importantly, the ratio has broken the upper rail (dotted green line) of the downward trending channel.
Cheers,
Colonel Possum & Mariana
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