Mt. Hope at 8,000 feet (2013)
Eureka, Nevada
Follow the ole Colonel on twitter @Eurekaminer
Next Week Target Gold Price: $1,465 per ounce, Target Silver Price: $16.83 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,
What a week!
Impeachment hearings, the U.K. vote for Boris Johnson making Brexit a near certainty in January and a Phase I U.S./China deal moving towards signature this weekend. And, there may be new hope for General Moly (GMO) and the Mt.Hope molybdenum project.
By far, the biggest market mover is the trade deal. It made gold prognostication for next week a challenge as reflected in my early morning input to the Kitco News Weekly Gold Survey:
Market flux as I listen real time to the Chinese debrief the status of the U.S./China trade negotiation. The Chinese say that the Phase I deal is on and "major progress has been made." An earlier President Trump tweet introduced uncertainty on tariff reduction. Comex gold has now retreated to the $1,470-level , copper has recovered earlier morning losses and it appears equities are back in rally mode.
This report has said for sometime that there are two key market variables that will signal real trade progress: the Chinese yuan must stay below the 7 USDCNY-level and copper prices need to sustain above $6,000 per tonne ($2.72 per pound). Copper was the first to move above threshold and the yuan dropped below 7 USDCNY Thursday - the interim trade deal seemed to moving in the right direction. Until a deal is signed these are the two variables to continue watching.
Worst case for the yellow metal, I continue to believe there is a floor for gold prices around $1,450 per ounce. If the new deal largely fails expectations, gold could move back to $1,480 per ounce in the near term - perhaps higher by the close of 2019.
I'll take the middle ground and say Comex gold should find stability at $1,465 per ounce next week with silver following at $16.82 per ounce.
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 -0.27%, France +0.02% and Japan -0.03%; 10-year U.S. real rate +0.14%
February Comex gold touched $1,491.6 per ounce yesterday then plummeted to $1,465.5 early Friday as market participants tried to read the Chinese tea leaves. This morning there has been some more ping-ponging around with the yellow metal trading at $1,479.0 as I write this column a few hours after the above Kitco input.
Although we know that the Sunday 15% tariff bump probably won't occur, it is less certain that the details of what was agreed on are clear. Expect more volatility. The positive news is that progress in negotiations appears to be moving in a good direction.
Thawing in U.S./China trade relations may be also supported by the General Moly (GMO) standoff with Chinese partner AMER being resolved. AMER provided initial financing for the Mt. Hope molybdenum project but defaulted during the more tense moments of the U.S./China trade saga. It looks like the deal is back on:
General Moly and Amer Resolve Dispute; Amer Affiliate Closes New $4 Million Private Placement (Press Release, 12/10/2019)
Chief Executive Officer Bruce D. Hansen commented, “On behalf of the Board, we thank Amer for its continued support of the Mt. Hope Project. This further investment by Amer in our Company underscores the economic appeal of the Mt. Hope Project and provides the capacity to pursue strategic alternatives and raise additional capital.”
General Moly (GMO) trading this morning at $0.2495 per share this morning after a pop on the announcement Tuesday.
Molybdenum price (as of 12/10/2019) is $26,000 per tonne or $11.79 per pound (source: Metalary)
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)
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 been in $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 87.12:1, 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 1.72% 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 0.4664 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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