The Eureka Miner: Gold Rebounds $1,531 on Jobs Report; Silver Giddy-Up $19.75 Wednesday

I always enjoy talking to Johnny about silver prices!

Eureka, Nevada

Friday, September 06, 2019 AM

Follow the ole Colonel on twitter @Eurekaminer

Next Week Target Gold Price: $1,540 per ounce, Target Silver Price: $18.88 per ounce.

High/Low range: $1,570/$1,510 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,

The big metal story this week has been silver finally breaking above $19 per ounce. Touching $19.75 Wednesday, it has since retreated but may stabilize next week around $18.88 with gold's support. Buy silver under $16, sell above $19 has been the ole Colonel's mantra for (a very) long time. I did just that but kept a half-position with a trailing stop limit just in case silver goes to the moon. Please do your own research on this, silver can be a slippery snake!

The Monthly nonfarm employment report missed expectations, adding 130,000 jobs instead of 150,000, but still represents a pretty solid report. Average hourly earnings were up a healthy 0.4% and headline unemployment is a low and steady at 3.7%. Importantly the 3-month average is 156,000 for added jobs - watch this number. There is deceleration in the economy with weakness in the private sector but the consumer is still a'consumin'. So far, so good.

Please checkout my latest Kitco News column on the copper-gold ratio and interest rates:

Gundlach Indicator: treasury yield and copper-gold ratio plummet (9/03/2019, Kitco News)

This is how I described the week's action to Kitco News this morning:

Comex gold made fractional gains this week in terms of the U.S. dollar and major currencies euro and yen but lost considerable ground to copper and equities - the latter two boosted by renewed hopes of a positive outcome from upcoming U.S./China trade talks.

A lackluster although solid U.S. jobs report further boosted equities and gave some support to the yellow metal with the increased likelihood of further Federal reserve rate cuts. Although inflation expectations have tumbled since this spring [see chart below], 10-year real rates have remained near zero or slightly negative which is a good environment for a non-interest earning asset like gold. Negative interest rates abroad continue further support for higher gold prices.

Safe haven demand is alive and well given the policy uncertainty coming from the White House on a host of issues, trade being the most significant for markets to date. I believe gold will receive a further boost as the Brexit situation continues to deteriorate in the U.K. under Boris Johnson.

It is likely that Comex gold will find comfort at the $1,540-level next week with silver losing more of this week's $19+ luster, stabilizing around $18.88 per ounce.

[full report below]

Gold and copper prices this morning when I did my analysis:

Comex gold (12/19 contract) $1,531.4 per ounce,

Comex silver (9/19 contract) $18.77 per ounce

Comex copper (9/19 contract) $2.6340 per pound

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:

Barrick Gold Corp. (GOLD) $18.08 per share ($19.12)

McEwen Mining (MUX) $1.8450 per share ($1.9400)

Prophecy Development Corp. $0.1940 (OTC:PRPCF) per share ( $0.2121)

General Moly (GMO) $0.1849 per share ($0.1755)

Have a good weekend!

Crossroads for Silver Remain

Comex silver was above $19 per ounce this week.

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. Note that the lower trend line of higher-lows is now broken.

At 81.6:1, silver is still 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:

In the past, when gold and silver were legal tender (see gold overview link below headline photo), it was important to set value for them and thereby establish 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 diving much lower.

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 remain below that low, presently 1.56% 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 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)

At the open of the stock market, Comex copper traded up 3.23% for the week. Presently trading at $2.6340 per pound ($5,807 per tonne), the red metal is just at the bear territory fence, 20.0% 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 0.367 million tonnes, moving up now but still below the 0.5 million tonne mark of early-2018. The Nymex warehouse tonnage is behind the LME but continues to rise above the 40,000 tonne mark this week.

LME inventories are moving up:

It is important to keep our eyes on the Nymex inventories which are moving higher but still way below the LME (LME 323,550 versus Nymex 44,113 tonnes):

My Input to Kitco News

Next Week target gold price $1,540 per ounce. Target silver price $18.88 per ounce.

Here is my input to the Kitco News Weekly Gold Survey

A lackluster although solid U.S. jobs report further boosted equities and gave some support to the yellow metal with the increased likelihood of further Federal reserve rate cuts. Although inflation expectations* have tumbled since this spring, 10-year real rates have remained near zero or slightly negative which is a good environment for a non-interest earning asset like gold. Negative interest rates abroad continue further support for higher gold prices.**

It is likely that Comex gold will find comfort at the $1,540-level next week with silver losing more of this week's $19+ luster, stabilizing around $18.88 per ounce.

* 10-year inflation expectations 1.56% (9/5) vs 1.98% (4/25)

** 10-year bonds: Germany -0.63%, France -0.34%, Japan -0.26%

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.

The yuan is currently at 7.1162 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 elevated this week at 0.74%. Something to watch compared to 1-month volatilities of euro, yen and gold.

The euro & yen 1-month volatilites arealso up, 0.56% & 37% respectively; Comex gold 1-month volatility is an elevated 1.10%.

Weekly Summary September 06, 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 by August 7, 2019! 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 moved up fractionally 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 117.66, it remains 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 0.5174 and falling away from the high of 0.5409 set at the close December 21, 2018. Importantly, the ratio has left the downward trending channel with a new trend of higher-lows starting with the October, 2018 low.

Cheers,

Colonel Possum & Mariana