The Eureka Miner: Gold $1,294, Headwinds on Solid Jobs Report; Moly Oxide Outlook Improves

Gold History in Windfall Canyon

Eureka, Nevada

Nevada's first gold bar poured from sediment-hosted disseminated, Carlin-type, gold deposits came from Windfall Canyon. The Deadwood Daily Pioneer-Times reported:

Eureka, Nev. July 23, [1909]. – The first gold bar ever produced in the Eureka district, being the product of the ore of the Windfall mine, was brought to Eureka recently from the Eureka Windfall Mining Company’s new cyanide mine…It is a beautiful yellow bar, weighing a little over 700 ounces and valued at $12,000 to $14,000. [Click here for more]

Friday, April 5, 2019 AM

Next Week Target Gold Price: $1,280 per ounce, Target Silver Price: $14.91 per ounce.

High/Low range: $1,310/$1,280 per ounce

My 2019 Beer Bet: Gold will rise above $1,380 per ounce by May Day 2019 (getting a little scary!)

Here's an easy-to-understand overview on gold (32 slides, read explanation below each slide): History of gold and which countries have the most

Morning Miners!

I'm getting a little nervous about my 2019 beer bet on gold (above). We've been in a very bullish environment for most of the year but there are some concerning headwinds building, at least for the near-term. Silver and copper are looking a bit under the weather too.

This too shall pass.

Here's a simple price barometer check for clearer skies ahead: Comex gold (June) needs to survive a pressure drop to $1,280 per ounce (my target for next week), Comex (May) silver needs to maintain $15-plus per ounce after testing the $14.90-level, and copper must stay above $6,000 per tonne ($2.72 per pound).

A lot of things can happen to give overall market sentiment a boost - more positive progress on the U.S./China trade negotiations, a Brexit stalemate turnaround or continuing strong economy in the U.S. Any or all of these will give the metals some relief but may also reduce safe haven demand for gold.

This morning's job report for April was good and that's encouraging on the home front. 192,000 jobs were added compared to economist's expectation of 172,000. There were also upward revisions to the January and February numbers. Unemployment, by a separate survey, remains unchanged at 3.8%.

Hourly average wages were weaker-than-expected moving up 0.1% compared to an expected 0.3%. This supports the tame inflation theme for 2019.

Here's how I put some of these pieces together for gold in my input to the Kitco News Weekly Gold Survey:

A U.S. Dollar Index just below 22-month highs and tame inflation expectations are creating increasing headwinds for gold. Real rates* are inching back up and the 10-year German Bund yield is once again positive chipping away at incentives buy gold.

Although a solid jobs report this morning indicates a resilient economy, a weaker-than-expected wage growth suggests inflation is in check. In terms of safe-haven demand, the U.S./China trade negotiations appear to be making progress and some of the fear has dissipated regarding Washington political turmoil and geopolitical tensions.

Gold continues to struggle in terms of value relative to key commodities, major currencies and rebounding U.S. equities. For the week, gold has only made progress against copper and companion safe-haven yen [see Weekly Summary Chart below].

Taken altogether, the bullish outlook for gold is at best tempered for the near-term. I believe next week will retest this week's low and challenge the $1,280-level. Silver, after several recent forays into $14 territory will follow gold lower to $14.91 per ounce.

* currently inflation expectations are rising at 1.91% compared to the January bottom of 1.68% (1/13/2019), source: FRED; current 10-year real rates are rising from late-March lows, now 0.61% source: Bloomberg

Keep the faith! Gold will go further up the stairs in 2019.

This mornings' price action:

Comex gold (6/19 contract) $1,294.4 per ounce,

Comex silver (5/19 contract) $15.075 per ounce

Comex copper (5/19 contract) $2.9050 per pound

Have a good weekend!

My latest Kitco News commentaries:

What Do Stocks, Real Rates & Japanese Yen Tell Us about Gold? (Kitco News, 1/22/2019)

Gold Versus Real Rates: $1,380+ by May Day 2019 (Kitco News, 1/2/2019)

Moly Oxide Outlook Improves

In a recent presentation, General Moly (GMO) included some bullish forecasts on Moly Oxide pricing based on supply/demand outlook. You can find a .pdf of the slides here:

Strategic Opportunity - Corporate Update (April 2019)

Crossroads for Silver Remain

Several weeks ago, I said a breakout for silver above $16 per ounce may occur soon and cautioned to watch the Indian rupee. The rupee had strengthened below 70 USD/INR and savvy investors in India have been buying U.S. dollars. This has not translated into a move higher for silver in dollar terms.

Today the rupee is 69.21 up (i.e. weaker) from its 68.60 low Monday, March 18th.

Comex silver has recently dipped below $15 per ounce and I now believe this could continue into next week.

The gold-to-silver ratio (GSR) is still very near its November high today and ready for a move down - bullish for silver if the Lustrous One recovers more territory. This morning the Comex GSR is 85.86. This chart shows the peak GSR was 86.16 last November (click for larger image size).

Gold-to-Silver Ratio

Historical note:

If gold and silver are legal tender (see gold overview link below headline photo), then you have to come up with a set value for them and figure out which is more valuable than the other. In 1792, the U.S. fixed its price at 15:1. This means that 1 troy ounce — the long-used standard for measuring precious metals — of gold was worth 15 troy ounces of silver. Over the years, as this ratio has changed, precious metal investors have used it as a signal of when to buy.

At 86:1, silver is historically very very cheap relative to gold!

Stay tuned.

Inflation Watch

Inflation expectations made a high April 23, 2018 above trend lines of higher lows (dotted lines, click on chart for larger size). Those trend lines were broken dramatically to the downside late last year and now struggle to recover.

10-year Inflation Expectations

Note: In the above chart inflation expectations peaked at 2.14% February 2, 2018 and then moved higher April 23 to 2.18%. May 29 broke a trend line of higher-lows falling to 2.04%. The older trend lines of higher-lows are shown in dark blue. Those trends extend from June 21, 2017 low of 1.66%. We were recovering from the January 3 low of 1.68% and now above the level of November 27, 2017 (red dashed line). The Wednesday expectations are heading back up from the November 2017 level at 1.91%.

My January Kitco News commentary explains the importance of tracking "real rates" which are a function of inflation expectations:

Gold Versus Real Rates: $1,380+ by May Day 2019 (Kitco News, 1/2/2019)

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 these columns are updated in this report.

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 fell 1% for the week retreating some from last week's gains. Presently trading at $2.9050 per pound ($6,404 per tonne), the red metal is now 11.8% below the December 2017 high. Maintaining prices above $6,000 per tonne is a key benchmark to price recovery; above $6,500 is bullish.

Improving global growth had kept the red metal above the key $3 per pound-level in 2017. Initial trade war fears in 2018 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 sent the red metal plummeting. Copper has revived on optimism about a resolution of the U.S./China trade conflict.

Total copper stored in LME and Nymex warehouses is 0.209 million tonnes, down on the week and less than one-half the 0.5 million tonne mark of early-2018. The Nymex warehouse tonnage is behind the LME and still below the 50,000 tonne mark.

LME inventories sagging from mid-March gains:

It is important to keep our eyes on the Nymex inventories which are still falling (LME 167,950 versus Nymex 41,425 tonnes):

My Input to Kitco News

Next Week target gold price $1,280 per ounce. Target silver price $14.91 per ounce.

Here is my input to the Kitco News Weekly Gold Report:

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 2018 and now appears to be strengthening again.

The yuan stayed below 7.0 USD/CNY for 2018, starting stronger and then followed by a weakening trend. It has re-strengthened in 2019. The yuan is currently at 6.7181 USD/CNY but with still a lot of daylight above the March 26, 2018 low (i.e. much stronger level) of 6.2342. 1-month yuan volatility is a very low 0.15%. Something to watch compared to 1-month volatilities of euro, yen and gold.

The euro & yen 1-month volatilites are 0.49% & 0.45% respectively; Comex gold 1-month volatility is 0.64%.

Weekly Summary April 5, 2019

Yearly Summary for 2018

(click on table for larger size)

Although Comex gold price lost some steam in 2018 (down 2.1%) it made healthy gains on key commodities copper and oil (up 22.8% & 30.2%). Against the broader Bloomberg Commodity Index (BCOMTR:IND), it advanced a respectable 10.3%.

Importantly the yellow metal outpaced the S&P 500 stock index by 4.3% making it a better investment than domestic stocks for 2019. This leaves gold it in a strong position for 2019.

Only the Japanese yen, an alternative safe haven, fared better by gaining 4.1% over gold for the year.

Yearly Summary for 2017

(click on table for larger size)

Comex gold gained nearly 14% for 2017 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 Outlook for 2019 (1H)

My 2019 Beer Bet: Gold will rise above $1,380 per ounce by May Day 2019

The first-half of 2019 will be a push-pull to higher $1,380+ gold prices underpinned by a trend of higher lows. This outlook is based on a weakening U.S. dollar and real interest rates that have peaked for the near-term against a volatile backdrop of Washington and geopolitical uncertainty.

Over the last five years, gold has been negatively correlated with 10-year real rates 71% of the time. This is reassuring given the popular assumption about opportunity cost for holding a gold position – the higher real rates go, the more costly to keep a non-interest bearing asset like gold. Falling real rates support rising gold prices and vice-versa. Less often, more dominant drivers are at play and gold price appears insensitive to changes in real rates. The low gold price volatility from mid-April to late-September is a good example. Over this time, the yellow metal behaved as a currency. It was highly correlated with the Chinese yuan; to a lesser degree, the euro and yen; and much less, to real rates.

Which case will be true for the first half of 2019? My latest Kitco Commentary posits the former to be the most likely which is bullish for gold:

Gold Versus Real Rates: $1,380+ by May Day 2019 (Kitco News, 1/2/2019)

In addition to real rates, other important charts to monitor are 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 mixed for the week. It has generally trended higher from a double-bottom in U.S. dollar terms (August 17 & September 27, 2018) :

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 at 125.37, it is divergent 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 0.4483 and below the high of 0.5409 set at the close December 21, 2018. Importantly, the ratio had bullishly broke the upper rail (dotted green line) of the downward trending channel but has bearishly returned below.

Cheers,

Colonel Possum & Mariana