Pancake Quarries (2013)
Fire bricks for Eureka's lead/silver smelters came from here
Pancake Range, White Pine County, Nevada
Follow the ole Colonel on twitter @Eurekaminer
Next Week Target Gold Price: $1,485 per ounce, Target Silver Price: $17.29 per ounce.
My latest Kitco News commentary: Is Jeffrey Gundlach right about copper, gold & interest rates? (12/23/2019)
An easy-to-understand overview on gold (32 slides, read explanation below each slide): History of gold and which countries have the most
Merry Christmas Miners!
Gold demonstrated resilience this week around $1,480 per ounce as the copper rally continues above $6,0000 per tonne ($2.72 per pound). As I write, Comex February gold is trading at $1,483.2 per ounce and March copper is pausing at $2.8110 per pound. Silver gained noticeable strength on gold this week, up 1.4% in comparative value (see second chart below). If you happened to buy silver in the sixteens, this is a good sign. March silver is currently $17.27 per ounce.
The biggest market mover continues to be the Phase I U.S./China trade deal. Here are my latest thoughts from my early morning input to the Kitco News Weekly Gold Survey:
With recent soaring domestic equities, gold faces significant headwinds. Importantly, the gold-to-S&P 500 ratio (AUSP) broke a trend line this week of higher-lows established from October 1, 2018 [see chart below]. However, one must question the sustainability of this stock rally. Volume in the S&P 500 is trailing off and there may be end-of-the-year profit taking next week.
Furthermore, the primary impetus for this stock surge has been agreement on the Phase I U.S./China trade deal which also rallied copper and strengthened the Chinese yuan. This morning's trading suggests that the copper rally is taking a pause and the yuan has weakened above the key 7 USDCNY level again. If the new deal proves to fail expectations, the relationship between gold and the S&P 500 could quickly reverse. For these reasons, I suspect Comex gold will benefit from a weakening of the current "risk-on" sentiment finding comfort around $1,485 per ounce next week with silver following at $17.29 per ounce.
Copper, the yuan and the AUSP will all be key to monitor.
From an interest rate perspective, even with a trend higher in global yields, a bullish environment remains for a non-interest earning asset like gold. Negative or near-zero interest rates for major countries and very low real rates in the U.S. are still in place.*
* 10-year bonds: German Bund -0.24%, France +0.06% and Japan 0.00%; 10-year U.S. real rate +0.13%
The Colonel's Latest Kitco News Columns
Please checkout my latest Kitco News columns on the stunning relationship of copper and gold prices with interest rates:
Gundlach indicator: stable copper-gold means low yield volatility (11/11/2019, Kitco News)
Gundlach Indicator: treasury yield and copper-gold ratio plummet (9/03/2019, Kitco News)
Robust Revival of Gundlach's 10-yr Treasury Relation with the Copper-Gold Ratio (6/17/2019, Kitco News)
Here is the latest model of U.S. Treasury yields based on the copper-gold ratio (click on image for larger view):
Weekly Summary
Here is a weekly summary chart of gold and my 16 favorite market variables. They are grouped in categories "Commodities", "Interest Rates", "Indexes" and "Currencies" of 4 variables each. Over time, each variable has played some part in the gold story. It is prudent to monitor all 16 to understand the key price drivers that are currently active for the yellow metal. Importantly, this is not a unique collection of variables but one that works well for the ole Colonel
Because The Eureka Miner is a morning report, Friday AM prices are compared with the closing prices of the previous week (click on charts for larger size):
This weekly chart of comparative value tracks the value of gold relative to key currencies, commodities and indexes :
Silver Watch
Comex silver has returned to $17 per ounce territory 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)
How to smartly buy gold and silver:
How to Mine Physical Precious Metals for an IRA (Debbie Carlson, Barrons, Sept. 8, 2019)
The gold-to-silver ratio (GSR) set a new high July 11 at 91.3 ounce per ounce - a trend down from this top is bullish for silver if the Lustrous One rallies.
At 85.88:1, silver is historically very, very cheap relative to gold!
The 10-year average GSR is much lower at 67.6 ounce per ounce.
The 3-month beta with gold is an attractive 1.89 (i.e. on average the daily % rise or fall of silver price is 1.89 times that of gold).
(click on image for larger size)
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 a value relationship between them. In 1792, the U.S. fixed its price at 15:1. This means that 1 troy ounce 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. Expectationsaree on the rise again from the October, 2019 low.
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. This week, expectations are presently 1.77% as of Thursday up from the October 3 low of 1.48%.
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)
Old Glory
Eureka, Nevada
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 reversed into a downward channel bottoming again October 1, 2017 (0.4063). Currently this AM the AUSP is at 0.4610 and far below 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. That trend is now challenged (red arrow).
Cheers,
Colonel Possum & Mariana
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