Time takes its toll on Ruby Hill (2014)
Eureka, Nevada
Next Week Target Gold Price: $1,360 per ounce, Target Silver Price: $15.09 per ounce.
High/Low range: $1,360/$1,317 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)
Morning Miners!
I'm back stateside after taking my sweetheart Mariana to Europe to celebrate her birthday - a benchmark number for total journey's around the sun!
The closest I got to markets since April 26th was an UBER ride past the historical Paris Bourse (which has since moved to EuroNext Paris) and whizzing by the LME copper warehouse in Rotterdam on a high speed train. Apparently, I've picked a good time to return - gold is on a tear. I wish the same were true for copper!
The yellow metal touched $1,362.2 per ounce on the Comex Exchange in the wee hours this morning. The red metal is still wallowing below $6,000 per tonne but up for the week; Comex copper is presently trading at $2.6380 per pound ($5,816 per tonne).
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, commented that not only has gold benefited from its role as a safe haven, but real interest rates remain suppressed given high demand for U.S. Treasury notes, which he noted is a bullish development for non-interest-bearing assets like gold.
“As oil prices have fallen on weakening demand, gold has proved resilient and, more recently, on the move higher,” Baker said. “A gold price model based on Brent [crude]*, 10-year real rates, [the] euro and Japanese yen demonstrates high fidelity since early March. That model suggests that Comex gold should return to this morning's highs closing above $1,360 per ounce next week. Silver should follow above the $15-per-ounce level.”
My complete input to Kitco News is given below.
The referenced gold model looks like this (click on image for larger size):
3-Month Gold Model Demonstrates High Fidelity
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) $1,347.3 per ounce,
Comex silver (7/19 contract) $14.950 per ounce
Comex copper (7/19 contract) $2.6380 per pound
Have a good weekend!
*Additional note:
One explanation for Brent oil's relation with gold is that it has become a proxy for global slowdown given plunging demand. Gold has regained safe haven status even with a low inflation backdrop hence the tight negative correlation. Additionally, low 10-year real rates are supportive of gold.
Copper is a typical proxy for global growth but the correlations have been less dramatic than for Brent:
correlation 1-month 3-month
Gold/Brent -0.9526 -0.8918
Gold/copper -0.7509 -0.4208
General Moly Secures Water Rights
Monday General Moly (GMO) announced a major milestone for the Mt. Hope Project:
General Moly Announces Water Rights Approval for Mt. Hope Project – Major Milestone for Mt. Hope Development (Press Release, 6/10/2019)
Bruce D. Hansen, Chief Executive Officer, said,
“We are extremely pleased that the State Engineer has considered our applications and the efforts made to resolve the concerns and protests of third parties, including the ranchers and growers in the Kobeh Valley and Diamond Valley water basins, and the County of Eureka in once again approving our water rights. We maintain our commitment to the Eureka Producers’ Cooperative through the establishment of the Sustainability Trust to help Diamond Valley conserve water and enhance the viability of the agricultural community. The approval of our water applications represents a major milestone for the development of the Mt. Hope Project.”
GMO share price: $0.3611
Crossroads for Silver Remain
Comex silver is below $15 per ounce.
The gold-to-silver ratio (GSR) above 90 is very near recently set new highs. 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 but...someday it will come to pass.
At 90:1, silver is historically very, very cheap relative to gold!
This morning the Comex GSR is 90.12. This chart shows the peak GSR was 90.97 June 10 (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.
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 are again below the level of November 27, 2017 (red dashed line). The Wednesday expectations are 1.71%.
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 rose 0.40% for the week. Presently trading at $2.6380 per pound ($5,816 per tonne), the red metal is now 20.0% below the December 2017 high - technically in bear territory again. 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.
Total copper stored in LME and Nymex warehouses is 0.241 million tonnes and 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 thankfully got a bump up in late-May:
It is important to keep our eyes on the Nymex inventories which are still falling (LME 210,900 versus Nymex 30,204 tonnes):
My Input to Kitco News
Next Week target gold price $1,360 per ounce. Target silver price $15.09 per ounce.
Here is my input to the Kitco News Weekly Gold Survey:
Gold rallies in a conducive environment for moving higher as safe haven assets get a boost from tensions in the Gulf of Oman, slowing global growth and trade war uncertainty. Real rates* are also surpressed given high demand for U.S. Treasurys - a bullish development for noninterest bearing assets like gold.
One striking and persistent correlation has been between gold and Brent crude oil, the latter being a proxy for global growth. As oil prices have fallen on weakening demand, gold has proved resilient and, more recently, on the move higher. A gold price model based on Brent, 10-year real rates, euro and Japanese yen demonstrates high fidelity since early-March (see attached). That model suggests that Comex gold should return to this morning's highs closing above $1,360 per ounce next week. Silver should follow above the $15 per ounce-level.
It is noteworthy that key gold ratios are very high emphasizing how inexpensive commodities have become relative to the lustrous metal. The gold-to-silver ratio is greater than 90, a historic level. The gold-to-copper ratio is above 500 pounds per ounce which signals more market turbulence ahead. The gold-to-WTI ratio is also elevated although not extreme topping 25 barrels per ounce.
An exciting time for gold market participants.
* real 10-year rate is now 0.41%; down 12 bps on a 1-month basis, down 38 bps on a 1-year basis (source: Bloomberg News)
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, strenghtened 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 6.9231 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 very low 0.16%. Something to watch compared to 1-month volatilities of euro, yen and gold.
The euro & yen 1-month volatilites are 0.56% & 0.69% respectively; Comex gold 1-month volatility is an elevated 2.10%.
Weekly Summary June 14, 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 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 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 121.81, 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 0.4677 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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