Gold Country - Roberts Creek Road
Eureka, Nevada
Next Week Target Gold Price: $1,400 per ounce, Target Silver Price: $15.33 per ounce.
High/Low range: $1,420/$1,380 per ounce
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
An interesting article on the role of arsenic in the formation of Carlin-type Nevada gold deposits: Resolving the 'invisible' gold puzzle (May 1, 2019, Helmholtz Association of German Research Centres)
Happy Summer Solstice Miners!
I'll be on the road again soon so this will be my last report until Friday, July 26.
This week's markets experienced an avalanche of news propelling the S&P 500 to new records, gold to 6-year highs and the 10-year Treasury to yields below 2%. This morning Comex gold touched $1,415.40 per ounce in early trading. Currently, Gold sits at $1,401.5. Comex copper thankfully got a nearly 3% bump from last Friday. At $2.7055 per pound, the red metal is very close to $6,000 per tonne which this report has identified as an entry point for price recovery (see below).
A rising tide lifts all boats, so good news for local mining companies [late Friday update]:
Barrick Gold Corp. (GOLD) $15.60 per share up 1.96% (closing price)
McEwen Mining (MUX) $1.790 per share up 2.87% (closing price)
Prophecy Development Corp. (PRPCF) $0.1600 up 1.27% (closing price)
General Moly (GMO) $0.354 per share up 3.27% (closing price)
The European Central Bank and the Federal Reserve signaled the possibility of a more accommodative monetary policy which gave a boost to gold and commodities on expectations of a weakening U.S. dollar. The central banks' dovish stance and optimism about the upcoming Xi/Trump meeting (June 28-29) drove domestic equities higher. Escalating tensions in the Gulf of Oman elevated the yellow metal above the mercurial $1,400-level on a safe haven play but had little impact on stocks.
How does one sort out this mix of conflicting forces? One clue lies in the re-emerging relation of the U.S. 10-year Treasury yield and the gold-to-copper ratio (GCR) which have demonstrated a very tight negative correlation in the past two months. Recent geopolitical concerns, slowing global growth and uncertainty about U.S./China trade relations have caused an increase in the GCR and decline in U.S. Treasury yields. As market participants run to safe havens like gold and U.S. Treasurys, they typically retreat from "risk-on" assets like copper. Rising gold and declining copper prices raise the GCR while higher bond prices produce lower yields.
This morning the GCR peaked at a historically elevated 518 pounds per ounce and 10-year yields plunged below 2% yesterday. Real rates dropped below 0.3% this morning, adding another bullish factor for higher gold prices.
This week, I wrote a Kitco commentary on the relation of 10-year Treasury yield and the GCR*:
Robust Revival of Gundlach's 10-yr Treasury Relation with the Copper-Gold Ratio (Richard Baker, Kitco News, June 19,2019)
Kitco Editor Allen Sykora carried my thoughts this morning in the Kitco News Weekly Gold Survey:
Richard Baker, editor of the Eureka Miner’s Report, looks for gold to be sideways around $1,400 an ounce.
“I suspect, given the advances this week, that both gold and [Treasury] yields will consolidate around $1,400 and 2% next week, sensitive of course to any surprise coming from the G20 [Group of 20] meeting, Baker said. “It's noteworthy that the gold-to-silver ratio peaked again, now above 91. This suggests that silver is historically very, very cheap relative to gold. It is likely at these levels that silver will stabilize around $15.30 level but watch for a breakout higher.”
My complete input to Kitco News is given below.
*An updated Treasury yield model model looks like this (click on image for larger size):
3-Month Model: 10-yr Treasury Yields based on Gold Price
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) $1,401.5 per ounce,
Comex silver (7/19 contract) $15.350 per ounce
Comex copper (7/19 contract) $2.7055 per pound
Have a good weekend!
Crossroads for Silver Remain
Comex silver is above $15 per ounce.
The gold-to-silver ratio (GSR) set a new high this morning of 91.3 ounce per ounce. It is ready for a move down - bullish for silver if the Lustrous One recovers more territory. I've been saying this for some time, someday it will come to pass - hopefully soon.
At 91:1, silver is historically very, very cheap relative to gold!
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.
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 April 23, 2018 at 2.18%. May 29 broke a trend line of higher-lows. The older trend lines of higher-lows are shown in dark blue. Those trends extend from June 21, 2017 low of 1.66%. This week, expectations fell below the January 3 low of 1.68% and the June 21, 2017 low (bottom red dashed line). This Wednesday expectations are rose slightly to 1.67%.
Many believe, including the ole Colonel, that gold price is more sensitive to inflation expectations than other measure of inflation. 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 bullishly rose 2.83% for the week on dovish signals from the Federal Reserve and ECB. Presently trading at $2.7055 per pound ($5,965 per tonne), the red metal is now 17.9% 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. Trade war tensions with China and deteriorating economic conditions there coupled with a strong U.S. dollar sent the red metal plummeting. Copper continues to suffer with a bleaker global growth forecast and an unresolved U.S./China trade conflict but lifted recently by dovish signals from central banks .
Total copper stored in LME and Nymex warehouses is 0.248 million tonnes about one-half the 0.5 million tonne mark of early-2018. The Nymex warehouse tonnage is behind the LME and below the 40,000 tonne mark.
LME inventories continue to bump up starting in late-May:
It is important to keep our eyes on the Nymex inventories which are reversing higher but still way below the LME (LME 248,375 versus Nymex 30,600 tonnes):
My Input to Kitco News
Next Week target gold price $1,400 per ounce. Target silver price $15.33 per ounce.
Here is my input to the Kitco News Weekly Gold Survey:
This week an avalanche of news propelled the S&P 500 to new records, gold to 6-year highs and the 10-year Treasury to yields below 2%. The European Central Bank and the Federal Reserve signaled the possibility monetary easing which gave a boost to gold and commodities on expectations of a weakening U.S. Dollar. The central banks dovish take and optimism about the upcoming Xi/Trump meeting drove domestic equities higher. Escalating tensions in the Gulf of Oman elevated the yellow metal above the mercurial $1,400-level on a safe haven play but had little impact on stocks.
How does one sort this mix of conflicting forces? One clue lies in the re-emerging relation of the U.S. 10-year Treasury yield and the gold-to-copper ratio (GCR) which have demonstrated a very tight negative correlation in the past two months. Recent geopolitical concerns, slowing global growth and uncertainty about U.S./China trade relations have caused an increase in the GCR and decline in U.S. Treasury yields. As market participants run to safe havens like gold and U.S. Treasurys, they typically retreat from "risk-on" assets like copper. Rising gold and declining copper prices raise the GCR while higher bond prices produce lower yields. This morning the GCR has peaked at a historically elevated 518 pounds per ounce and 10-year yield plunged below 2% yesterday. Real rates dropped below 0.3% this morning, adding another bullish factor for higher gold prices.
I suspect, given the advances this week, that both gold and yields will consolidate around $1,400 and 2% next week, sensitive of course to any surprise coming from the G20 meeting.
It's noteworthy that the gold-to-silver ratio peaked again, now above 91. This suggests that silver is historically very, very cheap relative to gold. It is likely at these levels that silver will stabilize around $15.3-level but watch for a breakout higher.
An exciting time for gold and silver market participants.
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, strengthened and then weakened again this year.
The yuan stayed below 7.0 USD/CNY for 2018, starting stronger and then followed by a weakening trend. The yuan is currently at 6.8686 USD/CNY and with a lot of daylight above the March 26, 2018 low (i.e. much stronger level) of 6.2342. 1-month yuan volatility is a low 0.26%. Something to watch compared to 1-month volatilities of euro, yen and gold.
The euro & yen 1-month volatilites are 0.54% & 0.54% respectively; Comex gold 1-month volatility is an elevated 2.33%.
Weekly Summary June 21, 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
*** Soon to be revised for 2019 (2H) ***
My Kitco Commentary on gold prices and real rates:
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 up dramatically for the week. Relative value 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 continues 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 121.72, it is widely 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 0.4752 and below the high of 0.5409 set at the close December 21, 2018. Importantly, the ratio has bullishly broke the upper rail again (dotted green line) of the downward trending channel.
Cheers,
Colonel Possum & Mariana
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