Diamond Valley (2012)
Eureka, Nevada
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BREAKING NEWS UPDATE (2:26 pm Monday, August 5)
Please read Adella Harding's column in the Elko Daily Free Press:
Gold rises to 6-year high (Adella Harding, 8/5/2019, Elko Daily Free Press)
Yikes! This report has warned for some time that if the Chinese currency weakened above the 7 yuan per dollar level it would be a bad omen for copper (see below) - that happened today. It was a good day for Comex gold. Here are the winners & losers at the close:
S&P 500 down 2.98%
DOW 30 down 2.90%
10-year yield down 1.7350%
Comex Gold (Dec) $1,475.7 up 1.25% (high $1,481.8)
Comex Silver (Sep) $16.41 up 0.83%
Comex Copper (Sep) $2.5490 down 0.87% (low $2.5315)
Cu:Au ratio = 578.93 pounds per troy ounce
Stay tuned
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Next Week Target Gold Price: $1,450 per ounce, Target Silver Price: $16.19 per ounce.
High/Low range: $1,460/$1,420 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!
I woke before the birds to watch the monthly job numbers come in at 5:30 Eureka Time. It was a decent print but it's the first time nonfarm payrolls are not included in the title of this report. Hardly nudging declining markets, the Labor Department's Employment Situation Summary humbly joined many other market Lilliputians trying to rope down the beast of spiraling global trade tensions.
Let's get the good news out the way before visiting the bad and the ugly. The United States added 165,000 jobs in July, headline employment held at a low 3.7%, wage growth is up a healthy 3.2 % from last year at this time. Not bad, even participation rate (off the coach and back to work measure) rose from 62.9% to 63.0%. Also this week, the Federal Reserve lowered its fund rate 0.25% although by not as much as expected by some (including the President).
OK, then the markets opened and stocks appear to be headed for their biggest weekly drop this year, Dr. Copper called in sick and the 10-year Treasury yield is below 2%. That's pretty bad, at least from a market perspective.
The ugly is an unresolved trade dispute between the U.S. and China that is rattling global supply chains, U.S. manufacturers and growth expectations for the world. The latest dust up came after a tweet from the White House that tariffs will be raised 10% on an additional $300B worth of Chinese goods in September. This is on top of the 25% tariffs already targeting $250 billion in Chinese imports. The rising probability of a hard Brexit this fall under U.K.'s new leader Boris Johnson is looking pretty ugly too.
Of course, all of this bad and ugly is good for gold prices. Comex gold briefly touched $1,461.9 per ounce (December contract) and is now trading at $1,447.7. Comex copper (September) is a hurting $2.5955 per ounce (see "Scorecard" below). Comex Silver (September) is hanging in there at $16.16 per ounce.
This is what I told Kitco News this morning:
A disappointing Federal Reserve rate cut and Presidential tweet threatening to extend tariffs to virtually all Chinese goods threw markets in a spin this week. Key equities, commodities and currencies fell as gold soared - touching $1,462 briefly on the Comex exchange.
A fairly decent nonfarm payroll report did little to change market direction.
In terms of comparative value, a better than 1% rise in U.S. dollar gold price crushed falling oil, copper and most currencies except safe haven companion Japanese yen. With the 10-year Treasury yield now below 2%, real rates have fallen to less than 0.2% even with a decline in inflation expectations. This is a supportive backdrop for gold with 10-year interest rates falling further into negative territory for Germany, France and Japan.*
It is noteworthy that the gold-to-copper ratio is at historically high levels this morning (560 pounds per ounce) which is an indication that does not bode well for broader markets - Dr. Copper is unhappy. The U.S. Dollar Index, although off its July highs (98.52), is still strong (98.21) making the gold rally that started in late-May all the more impressive. A key currency to watch is the Chinese yuan which is just below the key 7 USDCNY level. It serves as a good barometer for U.S./China trade relations.
I believe Comex gold will catch another gear higher next week then consolidate gains at the the $1,450-level with silver following at $16.19. Silver weakness from its recent rally is something to watch closely as the gold-to-silver ratio inches back toward the 90-level.
* 10-year bond rates for Germany -0.49%, France -0.18%, Japan -0.23%
When Kitco asked me about gold priced in other currencies like the Canadian dollar and Aussie loonie, I replied:
I track the euro and yen the closest but I think there is a common story here relative to the currencies mentioned. I use 2013 lows as a benchmark for "gold in terms of other currencies" (chart below).
Although gold in U.S. dollar terms would later find lower-lows in 2014-2015, 2013 stands out as a landmark for value lost to equities, commodities and major currencies.
As the chart shows, gold regained value parity with the euro and yen in 2014 when gold in terms of U.S. dollar, euro and yen were all about 10% above their 2013 lows (green ellipse).
When major central bank policies began to diverge from the U.S. Federal Reserve direction (notably after the U.S ended quantitative easing 10/31/2014), the gold spreads began to diverge.
Fast forward to recent times, this divergence has been exacerbated by U.S./China trade tensions and impact to global growth.
You can see the dramatic rise in gold in euro terms to nearly 50% above its 2013 lows. Although additional factors are influencing the pound sterling (looming Brexit), and the Canadian dollar and Aussie loonie (commodity sensitive currencies), the euro remains a good example of global currency weakening due to divergence in central bank policies and trade tensions.
Interestingly, gold in the U.S. dollar and yen are re-establishing value parity in the 20-25% range above the 2013 lows. This is because the yen shares safe haven status with gold, abating some of the divergent monetary forces.
Gold price in terms of U.S. dollar, euro & Japanese yen
Keep the faith! My bottom line bet is that gold will go further up the stairs in 2019.
Here's a quick look at our local miners compared to my last report (6/26):
Barrick Gold Corp. (GOLD) $17.00 per share ($17.10)
McEwen Mining (MUX) $1.8550 per share ($1.8278)
Prophecy Development Corp. $0.1270 (PRPCF) per share ( $0.1276)
General Moly (GMO) $0.1989 per share ($0.3793)
This mornings' price action:
Comex gold (12/19 contract) $1,447.7 per ounce,
Comex silver (9/19 contract) $16.16 per ounce
Comex copper (9/19 contract) $2.5955 per pound
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 89.6:1, 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 recovering.
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 are above the June 17 low of 1.61% and stabilizing at 1.70% as of Thursday..
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 dropped 3.33% for the week. Presently trading at $2.5955 per pound ($5,722 per tonne), the red metal is now back in bear territory, 21.2% 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.
Total copper stored in LME and Nymex warehouses is 0.330 million tonnes, plateauing and still below the 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 are leveling off 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 290,500 versus Nymex 39,647 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 disappointing Federal Reserve rate cut and Presidential tweet threatening to extend tariffs to virtually all Chinese goods threw markets in a spin this week. Key equities, commodities and currencies fell as gold soared - touching $1,462 briefly on the Comex exchange.
A fairly decent nonfarm payroll report did little to change market direction. In terms of comparative value, a better than 1% rise in U.S. dollar gold price crushed falling oil, copper and most currencies except safe haven companion Japanese yen. With the 10-year Treasury yield now below 2%, real rates have fallen to less than 0.2% even with a decline in inflation expectations. This is a supportive backdrop for gold with 10-year interest rates falling further into negative territory for Germany, France and Japan.*
It is noteworthy that the gold-to-copper ratio is at historically high levels this morning (560 pounds per ounce) which is an indication that does not bode well for broader markets - Dr. Copper is unhappy. The U.S. Dollar Index, although off its July highs (98.52), is still strong (98.21) making the gold rally that started in late-May all the more impressive. A key currency to watch is the Chinese yuan which is just below the key 7 USDCNY level. It serves as a good barometer for U.S./China trade relations.
I believe Comex gold will catch another gear higher next week then consolidate gains at the the $1,450-level with silver following at $16.19. Silver weakness from its recent rally is something to watch closely as the gold-to-silver ratio inches back toward the 90-level.
* 10-year bond rates for Germany -0.49%, France -0.18%, 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 on trade tensions.
The yuan stayed below 7.0 USD/CNY for 2018, starting stronger and then followed by a weakening trend. The yuan is currently at 6.9329 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 0.20%. Something to watch compared to 1-month volatilities of euro, yen and gold.
The euro & yen 1-month volatilites are 0.56% & 0.51% respectively; Comex gold 1-month volatility is 0.96%.
Weekly Summary August 2, 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
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?
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 mixed 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 120.97, it is widely 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 0.4932 and below 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
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