Gold Dips to $1,463 on Surprisingly Solid Jobs Numbers

McCoy Hill & Goodwin Canyon (2014)

Major William W. McCoy and C.C. Goodwin

were early mining pioneers of Eureka, Nevada

Friday, December 6, 2019 AM

Follow the ole Colonel on twitter @Eurekaminer

Next Week Target Gold Price: $1,450 per ounce, Target Silver Price: $16.46 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 gold and silver:

How to Mine Physical Precious Metals for an IRA (Debbie Carlson, Barrons, Sept. 8, 2019)

Morning Miners,

After a long time out, The Eureka Miner returns with a slightly different focus and format. My emphasis will be primarily gold and silver prices supplemented by occasional stories about local mining and other minerals of economic interest in Northern Nevada. I will present much of the same data in a more compact way with links to my periodic Kitco News commentaries (please checkout the commentary links and new weekly summaries below).

The Monthly nonfarm employment report blew expectations out of the water this morning, adding 266,000 jobs instead of 181,000. Average hourly earnings were up a healthy 0.2% and headline unemployment is a low 3.5%. So far, so good.

The good report did, however, put pressure on gold and silver prices.

Comex Gold (February contract) morning low post-report $1,463.3 per ounce (7:00 am Eureka Time)

I explain what is going on in my input to the Kitco News Weekly Gold Survey:

Today's surprisingly strong jobs report is an albatross around the neck of our favorite metal - at least for the short-term. This morning's robust advance in domestic stocks and steep decline in gold and silver prices is a not an unexpected reaction but the sustainability of the equity rally has yet to be proved. There is still enough uncertainty about the outcome of a U.S./China interim deal to moderate gold's decline. I think it likely that the stock rally will continue into next week and the yellow metal will retest the $1,450-level. 

Silver will follow gold lower to $16.46 per ounce providing a buying opportunity for the patient silver investor. The silver 3-month beta with gold is an attractive 1.9 for those that believe that gold will end the year higher [see silver discussion below].

With regard to the on-again, off-again U.S./China deal, there are two market variables to monitor. The Chinese yuan is still above the key 7 USDCNY-level and copper remains below $6,000 per tonne ($2.72 per pound). I view a strengthening yuan below 7 and sustaining copper prices above $2.72 are necessary signals, beyond just political words, to justify optimism on an imminent U.S./China deal. This puts a solid floor underneath gold prices around $1,450 per ounce [see summary charts below].

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 -0.29%, France +0.02% and Japan -0.02%; 10-year U.S. real rate +0.14%

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: copper, gold & treasury yields at a tipping point (10/14/2019)

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)

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 fell into $16 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)

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 88.1:1, 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 1.9 (i.e. on average the daily % rise or fall of silver price is 1.9 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 — 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. 

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 1.67% 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 0.4663 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

Photos by Mariana Titus if not otherwise noted