The Eureka Miner: Gold $1,648 Rebound; Red Metal $2.20 Sings COVID-19 Blues

"Fearless in 2010" (EM December 29, 2009)

Eureka, Nevada

Friday, April 03, 2020 AM

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Friday (4/3) closing prices:

Comex April gold $1,645.7 per ounce

Comex May silver $14.65 per pounce (down 22.9% from 2/24/20 high, $19.005/t-oz)

Comex May copper $2.2045 per pound (down 23.8% from 1/16/20 high, $2.8930/lb)

Nymex WTI crude oil $27.43 per barrel (down 57.4% from 1/8/2020 high, $64.39/bbl)

S&P 500 2,531.78 This is down 25.4 % from the all-time intraday high of 3,393.52 set 2/19/2020 - both feet into Bear Country.

"I cannot overstate the potential harm the coronavirus can do to the world economy." (Eureka Miner, January 31, 2020)

"WARNING: Too quiet on the copper front? Red metal at currency-like volatility!" @Eurekaminer March 4, 2020 [Comex copper fell into Bear Country March 13, 2020]

John Hopkins University & Medicine Coronavirus Resource Center

COVID-19 Projections

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Follow the ole Colonel on twitter @Eurekaminer

Next Week Target Gold Price: $1,680 per ounce, Target Silver Price: $15.00 per ounce

My latest Kitco News commentary: Copper, gold & the coronavirus (2/18/2020) [summary of recent commentaries given at the bottom of the blog]

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

Morning Miners!

June 2009 marked the end of the Great Recession (2007-2009) as depressed equity and commodity prices began to improve. Today's headline photo started my blog of December 29, 2009 entitled, "Fearless in 2010". In turned out to be a good year reminding us today that as dark as things may become with the covid-19 pandemic there will be a turn for the better. Fearful today, fearless tomorrow.

As a point of reference, prices on that day were:

Comex gold $1,100.2 per ounce

Comex silver $17.240 per ounce

Comex copper $3.2995 per ounce.

This morning the Labor Department reported a whopping net loss of 701,000 nonfarm payroll jobs last month with headline unemployment bolting from 3.5% to 4.4%. 9.9 millon folks filed for unemployment in the last two weeks. One economist on CNBC Business News reacted to the numbers as "unbelievably awful."

Here are the grim covid-19 statistics reported this morning:

U.S.A. 245,442 covid-19 cases; 6,099 deaths

Nevada 1,458 covid-19 cases; 38 deaths

Source: John Hopkins University & Medicine Coronavirus Resource Center

[UPDATE: Weekly rates 3/28 to 4/4, calculated by the ole Colonel]

U.S. covid-19 deaths double every 3.52 days

Nevada covid-19 deaths double every 3.33 days

If you want to track the charts and projections that Dr. Anthony Fauci and Dr. Deborah Birx reference, check out this site:

COVID-19 Projections

Click on the "United States of America" tab to find individual states. The "deaths-per-day" chart projections give the best time duration estimate because death is a lagging indicator (please bear with me, I know this is a grim subject):

U.S.A. - peak deaths-per-day April 15; deaths-per-day go to zero July 16

Nevada - peak deaths-per-day April 18-24; deaths-per-day go to zero May 27

This is only a model prediction - it can change and adapt as we learn more each day.

Remember each region has its own curve and numbers can vary widely state-to-state, county-to-county. Social distancing is our only weapon to change the curve's shape - the above numbers assume we do everything right from now forward.

Stay safe and distant my friends.

Comex June gold touched $1,648 per ounce earlier today is is presently trading at $1,644.7 [10:41 am Eureka time, Weekly Charts below reflect data below taken earlier today]

Here's how I explained my gold and silver outlook to the Kitco News Weekly Gold Survey this morning:

It's easier to state what gold needs to do than to predict what it will do in the near term. Propelled by fears and the real damage Covid-19 has done to global economies, Comex gold has made three runs at the $1,700-level since late-February.* All three attempts have failed to sustain rallies above this key resistance. Due to an expected duration of the virus into this summer and possible recurrence this fall, it's quite likely we'll see $1,800+ gold later this year on a re-energized safe-haven play.

There are several cross winds in gold's path forward. Bearishly, on-again/off-again liquidations have driven the U.S. Dollar Index above the 100-level this month as market participants seek safety in the dollar. This should eventually abate as more and more stimulus measures become headwinds for the U.S. currency. Bullishly, The interest rate picture has again turned favorable for gold with 10-year real rates and the German Bund both plumbing negative 50 basis points.**

I believe it likely that Comex gold will see $1,680 per ounce next week with silver following to $15.00 per ounce. My gold prediction is the same as last week, this time may be it will succeed.

* Comex gold intraday highs: 2/24 $1,697.0; 3/9 $1,707.8; 3/25 $1,698.0

** 10-year U.S. real rate -.51%; 10-year bonds: German Bund -0.46%, France +0.03% and Japan -0.02%;

Renowned Commodity Journalist Debbie Carlson explains a new way to invest in gold:

A $1.2 Billion Fund Makes the Case for Gold (Debbie Carlson, Barron's, 3/26/2020)

This morning, Comex copper is below the key $2.5-level at $2.2045 per pound. This chart illustrates copper's plight compared to gold:

Copper & Gold Drift Apart

Here is a Mining.com column on how covid-19 is impacting the supply-side for the red metal:

2020 copper production forecast trimmed to 21mt (Mining.com, 4/1/2010)

The Saudi-Russia oil price war has created a gold ratio for the history books. On March 30 an ounce of gold could buy over 81 barrels of West Texas crude (WTI) as prices threatened to drop below $20 per barrel. Prices have recovered some on the hopes of a truce between oil giants against a backdrop of global oil demand destruction. This morning Nymex WTI is $27.43 per barrel.

One for the History Books

China, which still represents copper's highest demand, is on the mend. Here is my China Indicator updated through this morning (see above 2/18/2020 Kitco column). A low number is good. A bottom occurred after the signing of the Phase I deal of 0.3011. This AM the indicator sits at 1.1991 below the coronavirus peak of 1.8399 set February 11 but above the 5-year average (0.78). The covid-19 pandemic is stabilizing in China, but let's keep an eye on recent moves higher (click on chart for larger size)

China 2-rho Divergence Indicator

I've been actively tweeting market news/events during the week so please follow me at @Eurekaminer. I usually tweet Sunday night on the Monday Shanghai Futures Exchange (SHFE) for a heads up on copper & gold prices in the Year of the Rat.

To ponder: In numerology the year 2020 reduces to the number 4 - a dreaded number in Chinese culture. And yes, it is the Year of the Rat...a double-whammy for sure.

Remember, you can register with the Centers for Disease Control and Prevention (CDC) for updates by e-mail. Look at the situation summary tab on their website for updated U.S. infections and deaths.

How Bad Could 2020 Be?

Update 3/31/2020: Goldman Sachs' Chief Economist Jan Hatzius now sees second quarter U.S. GDP decline dropping -34% (previous estimate -24%) but then two large GDP gains in the third and fourth quarters. Mid-year unemployment estimate is now 15% versus a previous estimate of 9%.

Here are the annualized quarter-on-quarter growth rates:

Q1: -9% (previous -6%)

Q2: -34% (previous -24%)

Q3: +19% (previous +12%)

Q4: +10%

He is known for his accurate economic forecasts including the 2008-2009 Financial Crisis.

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 is below $15 per ounce after recovery from recent lows (see Weekly Summaries above).

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 Wednesday, 3/18, of 123.9 ounce per ounce solidly above July 11 high of 91.3 - a trend down from this top is bullish for silver if the Lustrous One continues its rally.

At 112.0, silver is historically very, very cheap relative to gold!

The 10-year average GSR is much lower at 68.1 ounce per ounce.

The 3-month beta with gold is currently 0.88 (i.e. on average, the daily % rise or fall of silver price is beta times the % change in gold price). You prefer a high beta (i.e. greater than 1.00) when gold rallies higher (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. They have tracked steadily down from there with a dive to the 0.5%-level before reversing higher, yesterday's number is 1.03%. Expectations have been rising at a faster pace than 10-year U.S. Treasury yields resulting in negative real rates again (see Weekly Summary Charts) - a bullish signal for a non-interest earning asset like gold.

10-year Inflation Expectations

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 Monitor

Here's a chart to monitor for 2020 (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, 2018 (0.4063). Currently this AM the AUSP is at 0.6480 just below the recent high of 0.7029 set March 23, 2020. Importantly, the ratio has aggressively left the downward trending channel with an uptrend trend of higher-lows starting with the October 2018 low. This week the ratio continues to put lots and lots of daylight above that trend - bullish gold!

Six Things to Watch in 2020

The ole Colonel's beer bet (won on an intraday basis Tuesday, January 7th!). I have since revised it [parenthesis]:

Gold will break [on a closing basis] $1,600 per ounce before the 4th of July 2020

We'll keep the bet alive by looking at closing instead of intraday prices - what a sport! [won on a closing basis February 18th]

My top six things to watch for 2020:

Copper prices - I'd like to see copper prices push us above $6,500 per tonne ($2.95 per pound). A fall below the $6,000-level ($2.72) would be a bad sign - for example, U.S./China trade Phase I in trouble or escalating geo-political unrest. [Update: Covid-19 has pushed copper below $6,000 per tonne].
Chinese yuan - strengthening below 7 USDCNY is a good sign that their economy and trade are on an improving track (Weekly Summary). Sustained weakening above the 7-level is a red flag. [Chinese yuan is above 7 USDCNY again]
U.S. dollar - will it remain strong or begin a period of decline? Foreign demand for Treasury debt has kept the dollar strong but rising U.S. deficits and countries trying to move away from dollar dependence (e.g., China, Russia) are countervailing forces not to be ignored. The U.S. Dollar Index (DXY) made its high September 30 this year and has been in a downtrend of lower-lows since (99.38 September high). This reports tracks the Invesco DB US Dollar Index Bullish Fund (UUP) (27.01 September high, see Weekly Summary below for latest price). Finally, overseas interest in Treasurys has been fueled by negative interest rates abroad. This report monitors the German 10-year bund (Weekly Summary) as a benchmark for foreign Treasury demand. [Update: Covid-19 has caused liquidations as market participants rush to the U.S. dollar for safety. This has surged the U.S. Dollar Index]
Interest Rates - there is an almost uncanny relationship between the yield on the benchmark U.S. 10-year Treasury and the copper-to-gold ratio (CGR, Weekly Summary). I've written about this extensively since 2017 ( see The Colonel's Latest Kitco News Commentaries below). Bottom line, a rising CGR signals higher interest rates for 2020. [Update: Covid-19 appears to have reversed the trend higher, 10-year Treasury is near record lows].
Real rates - The 10-year inflation adjusted Treasury yield, or real rate, is the difference between the nominal yield and inflation expectations (aka 10-year "break-even" rate). Since gold is a non-interest bearing assets it performs best when real rates are near zero or negative. This report tracks real rates (Weekly Summary) and inflation expectations (Inflation Watch). Since gold is often considered an inflation hedge it is prudent to track both. In 2020, inflation may pick up (gold bullish) but if interest rates rise faster, an increasing real rate dampens interest in in the yellow metal (gold bearish).
Gold-to-S&P 500 ratio (AUSP) - Gold's relationship with equities is key to monitor. Gold lost value to the S&P 500 from Donald Trump's election until October of 2018. Since then it has regained value in a trend of higher-lows (see Chart to Watch). We entered 2020 with that trend higher challenged. Falling below trend would be a very bearish sign for gold. [Update: Covid-19 has put the AUSP solidly above trend].