Jackson Mine Hoisting Works (Walter S. Long, June 19, 1880)
Eureka, Nevada
Courtesy University of Nevada Reno Archives
Friday, April 12, 2019 AM
Next Week Target Gold Price: $1,290 per ounce, Target Silver Price: $14.93 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!
Here's an oldie but goodie - do you remember the last time silver was $9 per ounce?
Ouch! It was right in the heart of the 2008-2009 financial crisis. At that time investors were liquidating everything of value and silver was among the first assets thrown overboard. On November 11, 2008, Comex silver was $9.074 per ounce and gold, $821 per ounce. Dividing those two numbers gave a gold-to-silver ratio (GSR) of 90.48 ounces of silver for an ounce of gold - a peak we haven't see for more than 10 years.
Guess what? The GSR set a new high yesterday of 86.64 fast closing in on the late-2008 levels. Of course, both metals have risen in U.S. dollar value but it is troubling that silver is back under $15 while gold hovers around $1,300 - the ratio tells the story.
Kitco News Editor Allen Sykora featured my thoughts in a market nugget this morning:
Eureka Miner’s Report: High Gold-Silver Ratio Unsustainable (Allen Sykora, Kitco News Market Nuggets, 4/12/2019)
The rise in the gold-silver ratio is unsustainable and will correct, says Richard Baker, editor of the Eureka Miner’s Report. This ratio measures how many ounces of silver it takes to buy an ounce of gold. A rising number means under performance by silver, and vice-versa. Baker points out that the silver has hit levels not seen since November 2008 during the financial crisis. The ratio was 86.6 Thursday, well above its 10-year average of 66.2. “This suggests silver is very, very cheap relative to the yellow metal, at least in historical terms,” Baker says. “The gold-to-copper ratio, although not extreme, is also elevated considering the safe-haven demand for gold has declined from earlier this year.”
More details are given below in my input to the Kitco News Weekly Gold Report and the next section.
Keep the faith! My bottom line bet is that gold will go further up the stairs in 2019.
This mornings' price action:
Comex gold (6/19 contract) $1,294.6 per ounce,
Comex silver (5/19 contract) $14.980 per ounce
Comex copper (5/19 contract) $2.9400 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)
Crossroads for Silver Remain
Comex silver is now below $15 per ounce.
The gold-to-silver ratio (GSR) is still very near yesterday's high today and ready for a move down - bullish for silver if the Lustrous One recovers more territory. This morning the Comex GSR is 86.42. This chart shows the peak GSR was 86.64 yesterday, April 11 (click for larger image size). The 10-year average GSR is much lower at 66.2 ounce per ounce.
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 up at 1.94%.
Bloomberg posted this U.S Labor Department chart which shows two other measures of inflation:
The Consumer Price Index (CPI) without food & energy (orange trace) is one monitored by the Federal Reserve. The fact that it has been trending down since mid-2018 suggests a decrease in the rate of inflation, called by economists "disinflation."
Many believe, including the ole Colonel, that gold price is more sensitive to inflation expectations (first chart). The Bloomberg chart is important because it influences Federal Reserve decisions on interest rates which also impact gold price.
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 rose 1.6% for the week. Presently trading at $2.9400 per pound ($6,482 per tonne), the red metal is now 10.8% 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 0.237 million tonnes, up for the week but less than one-half the 0.5 million tonne mark of early-2018. The Nymex warehouse tonnage is behind the LME and now below the 40,000 tonne mark.
LME inventories are thankfully picking up:
It is important to keep our eyes on the Nymex inventories which are still falling (LME 197,525 versus Nymex 39,402 tonnes):
My Input to Kitco News
Next Week target gold price $1,290 per ounce. Target silver price $14.93 per ounce.
Here is my input to the Kitco News Weekly Gold Report:
Although the U.S. dollar has retreated some today, its resurgent strength this week has weighed on gold and the metals. However, I believe the much bigger story is the gold-to-silver ratio (GSR) which hit levels not seen since November, 2008 in the heart of the 2008-2009 financial crisis (yesterday's GSR of 86.6 shines a lot of daylight above its 10-year average of 66.2, the GSR peaked at 90.5 11/21/2008).
This suggests silver is very, very cheap relative to the yellow metal, at least in historical terms. The gold-to-copper ratio (GCR), although not extreme, is also elevated considering the safe-haven demand for gold has declined from earlier this year. Are the metals seeing something that equities and currencies are not? Switching vantage points, one could also say that gold is overvalued relative to metals and due for a correction down.
The answer is unclear. If a U.S/China deal emerges and/or Brexit is resolved it is likely that global demand for metals will see some upside and gold ratios could revert to more historical levels. This is potentially a bearish scenario for gold. On the other hand, if slower global growth expectations prevail, Europe worsens and the U.S. economy slows there could be considerable upside for gold and more price declines for metals (copper below $2.72 per pound would be a tell).
One thing is true, the present GSR is unsustainable and will correct. I believe next week will see more downward pressure with on gold seeking the $1,290-level and silver following at $14.93 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 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 6.7042 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 0.14%. Something to watch compared to 1-month volatilities of euro, yen and gold.
The euro & yen 1-month volatilites are 0.48% & 0.48% respectively; Comex gold 1-month volatility is 0.62%.
Weekly Summary April 12, 2019
Yearly Summary for 2018
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 126.65, 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 0.4451 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
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