Giddy-up Go: Lustrous One Braves $1,522, Silver Breaks $17, Copper Recovery to $2.6

Big Smoky Valley (2014)

Lander County, Nevada 

Friday, August 9, 2019 AM

Follow the ole Colonel on twitter @Eurekaminer

Next Week Target Gold Price: $1,525 per ounce, Target Silver Price: $17.12 per ounce.

High/Low range: $1,560/$1,500 per ounce

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

Here's a column by renowned commodities journalist Debbie Carlson on how to smartly buy silver:

How to Invest in Silver (Debbie Carlson, U.S. News & World Report, August 1, 2019)

Morning Miners,

What a week! This report has warned for some time that Chinese currency weakening above 7 yuan per U.S. dollar would cause all manner of hell in markets - well, it did and it did Monday. 

The highs for the week tell the story for metals:

Comex Gold (12/19 contract) intraday high $1,522.70 per ounce - Holy Cow!

Comex Silver (9/19 contract) intraday high $17.26 per ounce - Wow!

Comex Copper (9/19 contract) intraday low $2.5315 per ounce - Ouch!

Mining journalist Adella Harding, revered in Nevada for her many years of excellent "boots-on-the-ground" reporting, asked for my thoughts. She posted this column in the Elko Daily Free Press on Monday afternoon: 

Gold rises to 6-year high (Adella Harding, 8/5/2019, Elko Daily Free Press)

I've updated some of those thoughts in my input to Kitco News this morning:

A trigger for a lot of crazy action in global markets and a big boost for gold started Monday with the Chinese yuan weakening above the key 7 USDCNY level. Gold and the Japanese yen have become safe-havens of choice for worried market participants.

This is all the more impressive with the background of a still strong U.S. dollar* and muted inflation as further supported by the core PPI drop this morning [PPI = Producer Price Index, a reliable leading indicator of inflation trends ]. Holders of gold in euro terms are particularly joyful as the yellow metal surged above 1,340 € per ounce this week - a 53% rise above its 2013 lows compared to gains of only 27% for U.S. denominated gold and 30% for gold in yen.

With increasingly negative bond rates in Europe and Japan**, gold at zero yield is a good deal (gold is a non-interest earning asset). The 10-year real rate is only 0.04% even with muted inflation making the cost of holding gold very cheap in the U.S.

I believe Comex gold will catch another gear higher next week then consolidate gains at the the $1,525-level with silver following at $17.12. Notably silver outpaced gold gains this week, a trend which may continue with the current gold rally [see below].

* the U.S. Dollar Index is only marginally down from its 7/31 high (97.60 vs. 98.52)

**10-year bonds: Germany -0.58%, France -0.28%, Japan -0.23%

Keep the faith! My bottom line bet is that gold will go further up the stairs in 2019.

This mornings' price action:

Comex gold (12/19 contract) $1,507.4 per ounce, 

Comex silver (9/19 contract) $16.92 per ounce

Comex copper (9/19 contract) $2.6090 per pound

Here's a quick look at our local miners compared to my last report (8/2):

Barrick Gold Corp. (GOLD)  $18.22 per share ($17.00) 

McEwen Mining (MUX)  $1.9850 per share ($1.8550)  

Prophecy Development Corp. $0.1650 (PRPCF) per share ( $0.1270)

General Moly (GMO)  $0.2150 per share ($0.1989)

Have a good weekend!

Crossroads for Silver Remain

Comex silver is above $16 per ounce. 

Please check this out if you get the silver bug:

How to Invest in Silver (Debbie Carlson, U.S. News & World Report, August 1, 2019)

The gold-to-silver ratio (GSR) set a new high July 11 at 91.3 ounce per ounce. We've been waiting for a move down and it is underway - bullish for silver if the Lustrous One recovers more territory. 

At 89.1:1, 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 appear to be moving sideways.

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  nudge below the June 17 low of 1.61%, presently 1.60% as of Monday. 

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 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 posted up 1.46% for the week recovering some of its recent losses. Presently trading at $2.6090 per pound ($5,752 per tonne), the red metal is just inside in bear territory, 20.8% 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. 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 conflicts.

Here's how Freeport McMoRan (FCX) CEO Richard Adkerson recently framed challenges for the red metal as reported by the Wall Street Journal:

“We have this great inventory of opportunities, but like other projects in the industry, they require prices higher than today’s price to develop...If global growth turns down, then we won’t be in a position to invest in these resources.” He also added, “Investors continue to be reticent about our sector...That’s likely to be the case until there’s some clarity on the direction of this trade issue.”

(Fall in Copper Prices Threatens to Drive Metal Shortages, Amrith Ramkumar, WSJ, 8/9/2019) 

Total copper stored in LME and Nymex warehouses is 0.317 million tonnes, moving sideways and still below the 0.5 million tonne mark of early-2018. The Nymex warehouse tonnage is behind the LME but  bumped above the 40,000 tonne mark this week.

LME inventories are descending after an uptrend starting in late-May: 

It is important to keep our eyes on the Nymex inventories which are moving higher but still way below the LME (LME 275,950 versus Nymex 40,837 tonnes):

My Input to Kitco News 

Next Week target gold price $1,450 per ounce. Target silver price $16.19 per ounce.

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

A trigger for a lot of crazy action in global markets and a big boost for gold started Monday with the Chinese yuan weakening above the key 7 USDCNY level. Gold and the Japanese yen have become safe-havens of choice for worried market participants.

This is all the more impressive with the background of a still strong U.S. dollar* and muted inflation as further supported by the core PPI drop this morning. Holders of gold in euro terms are particularly joyful as the yellow metal surged above 1,340 € per ounce this week - a 53% rise above its 2013 lows compared to gains of only 27% for U.S. denominated gold and 30% for gold in yen.

With increasingly negative bond rates in Europe and Japan**, gold at zero yield is a good deal (gold is a non-interest earning asset). The 10-year real rate is only 0.04% even with muted inflation making the cost of holding gold very cheap in the U.S.

I believe Comex gold will catch another gear higher next week then consolidate gains at the the $1,525-level with silver following at $17.12. Notably silver outpaced gold gains this week, a trend which may continue with the current gold rally.

* the U.S. Dollar Index is only marginally down from its 7/31 high (97.60 vs. 98.52)

**10-year bonds: Germany -0.58%, France -0.28%, Japan -0.23%

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 breaking above the key 7 USDCNY level this week.

The yuan is currently at 7.0573 USDCNY with a lot of daylight above the March 26, 2018 low (i.e. much stronger level) of 6.2342. 1-month yuan volatility is up dramatically this week at 1.04%. Something to watch compared to 1-month volatilities of euro, yen and gold.

The euro & yen 1-month volatilites arealso up, 0.53% & 1.00% respectively; Comex gold 1-month volatility is an elevated 2.26%.

Weekly Summary August 9, 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

You may remember my beer bet earlier this year, "$1,380+ by May Day." I lost that bet but only by 35 market-days - the underpinnings for a gold rally in 2019 are strong and growing stronger. How about $1,500 before Christmas? How about this week! Wow, that was fast!

Need to re-think the next level higher - stay tuned.

Here's some background:

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 are dramatically 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 continues for gold in terms of euro compared to yen:

Gold euro/yen spread widens again since 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 118.45, it is very divergent from parity.

Chart to Watch

Here's a chart to watch for 2019. 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 0.5146 and closer to the high of 0.5409 set at the close December 21, 2018. Importantly, the ratio appears to have left the downward trending channel with a new trend of higher lows starting with the October, 2018 low.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.