A 1.35% advance today brings gold back to $1,181 per ounce, its highest level since early December.
The major averages are holding up fine this week, but interest rates have declined in the new year amid some soft economic numbers and lousy numbers from retailers. The XRT is down 2.3% today and the XLF down 1.2%.
Goldcorp (GG -1.3%) is downgraded to Market Perform from Outperform with a $15 price target, cut from $23, at BMO Capital, which cuts its price assumptions for the yellow metal, given near-term optimism that Trump-based policies will have a positive impact on the U.S. economy.
While remaining constructive on the longer term outlook, the firm does not see GG shares outperforming the peer group until several key catalysts are delivered - likely not until later in 2017 - including delivery of $250M in annual sustainable cost efficiencies by 2018 through decentralization and optimization, a return to normal production rates at Cerro Negro following a large workforce reduction, and delivery of a mine plan or updated resource estimate at Cochenour.
BMO forecasts gold prices averaging $1,175/oz. next year, down from an earlier outlook for $1,413, and cuts its 2018 forecast to $1,250/oz. from $1,350.
Gold futures inched above yesterday's 10-month low but still fell for the sixth straight week, sinking after the Fed announced its first rate hike of the year with expectations for three more increases in 2017.
"The selling may not yet be exhausted... The bearish factors for gold, namely a high U.S. dollar, rising yields and equities and risk-on investor demand appetite leave bullion clearly on the defensive," HSBC analyst James Steel says.
Gold stocks are not yet in oversold territory but any bumps in enthusiasm about the incoming Trump administration could provide buying opportunities, J.P. Morgan's John Bridges says, while also warning that miners with higher debt loads look vulnerable in the absence of a stronger recovery in prices.
Bridges says Barrick Gold (NYSE:ABX) and Kinross Gold (NYSE:KGC) likely will continue to fluctuate most due to their enhanced sensitivity to gold prices while less levered names like Newmont (NYSE:NEM) and Agnico Eagle (NYSE:AEM) should be more stable, Goldcorp (NYSE:GG) remains in show-me mode as it works under new CEO Dave Garofalo to meet its new targets, and Eldorado Gold (NYSE:EGO) and B2Gold (NYSEMKT:BTG) rank among the few “growth” names left in the sector.
On balance, the jobs report was a strongish one, with job gains about inline, but the unemployment rate tumbling all the way to 4.6% from 4.9%.
A November whoosh lower in gold combined with big gains in bond yields and the dollar, however, likely discounted quite a bit of good economic news, and traders are using this morning's report as an opportunity to lighten up. Thus, gold is ahead 0.7% to $1,177.40 per ounce, while yields and the greenback both head south. The 10-year Treasury yield is off seven basis points to 2.38% and the dollar index is down 0.25%.
We'll get today's weakish data out of the way first - jobless claims unexpectedly jumped last week, and new home sales disappointed in October (and Sept.'s print was revised lower).
On the other hand, there was an unexpected big lift in consumer sentiment since the election, durable goods for October, surprised to the upside, and the 10-year Treasury yield has popped to more than a one-year high of 2.39%.
The dollar index has surged to its highest level in about a decade, with particular strength against the yen (NYSEARCA:FXY) and euro (NYSEARCA:FXE). UUP +0.7%
Gold, on the other hand, continues its big retreat, down 2.15% to $1,185 per ounce - its lowest price since February. GLD -2.15%
With stocks, interest rates, and the dollar all on one-way streets higher, who needs the yellow metal?
Hopes for a bounce were dashed again today, with gold now down 0.8% to $1,214 per ounce, a price not seen since early June. An amateur chartist might say there appears to be decent support in the low $1,200 area, but a break through that means the coast is clear until $1,100 or less.
The metal has now given up about $100 per ounce since early November.
The number of deals in the gold sector this year is the highest since 2011, as gold’s price surge has prompted producers to trade assets to add production or to improve the mine portfolio quality, and Telfer says GG is reviewing opportunities for acquisitions or partnerships including in new discoveries and existing assets.
Randgold (NASDAQ:GOLD) CEO Mark Bristow said recently that gold production may peak in the next three years as miners fail to replace their reserves, and Telfer concurs, saying producers have limited scope to raise output in response to higher prices, and that “we are having a heck of a time finding gold."
“Once supply from mines starts to decline and people start to realize the impact that’s going to have... it’s going to be incredibly bullish for gold,” Telfer says.
Speaking at a conference at the Central Bank of Chile, Fed Vice Chairman Stanley Fischer gives no indication the U.S. central bank has any intention of not raising interest rates next month. "The case for removing accommodation gradually is quite strong."
The remarks should be of absolutely no surprise, but they make for a convenient excuse for a whoosh lower in gold in the last few minutes. The metal is now down 2.6% on the session to $1,233 per ounce, a price not seen since the first days of June. Next stop on the charts is $1,200.
Silver is off 4.15% to $17.96, still well above its early June low of about $16.
Speaking to CNBC this morning, fund manager Stanley Druckenmiller - who had been pessimistic about the U.S. economy, said that he is now "quite, quite optimistic" on the U.S. economy following the election of President-elect Donald Trump. "It's as hopeful as I've been in a long time."
"I sold all my gold on the night of the election." Why? “All the reasons I owned it for the last couple of years seem to be ending", namely, expectations that inflation is now set to spike, forcing money out of safe assets - like gold and Treasurys - and into the dollar.
Druckenmiller said he now has a “large bet on economic growth. I’m short bonds, Bunds, Italian bonds, U.S. bonds.” The trades reflect his expectation of higher deficits and stronger growth leading to another surge in debt.
Druck said he is “hopeful” on the Trump administration and political climate. “I would not be surprised if we’re looking at the absolute peak of divisiveness.”