Gold & Precious Metals

One of the most frustrating charts to trade during 2017 has been almost any chart in the metals complex. In fact, if you speak to most metals investors, you would almost think that they have incurred a huge loss in 2017.

But, that is far from the truth. In fact, since we caught the low around 107 in the GLD at the end of 2016, we have seen it rally almost 20% off those lows when it struck its 2017 high back in early September. As I write this article, we are still 13% off those lows. 

Even though we still have seen a nicely positive year for GLD to date, the sentiment is one of despondency and despair. You see, the complex has had multiple opportunities to strongly break out during 2017, but has failed to reach escape velocity despite several set ups to do so. And this has likely caused the negative sentiment pervasive through the market, despite the positive return year. In fact, the best categorization of the sentiment I am seeing in the market is indifference.

But, in order for us to develop the appropriate sentiment which will finally set us up to develop escape velocity in the complex, we will likely have to drop again into the end of the year, and begin to hear claims of $1,000 gold and lower. And, to be honest, many of those calls have already begun. 

Lastly, I want to bring up one more issue I have addressed in the past, as I have been getting a lot of questions about it recently. For those that are looking for a long term vehicle within which to invest should we see the bigger pullback I am looking for in the complex, I would avoid using the GLD (as I see it as more of a trading vehicle), and I have explained why in detail in this webinar.

Price pattern sentiment indications and upcoming expectations

Unfortunately, due to the inability of the GLD to break out in a strong fashion, it has become much less likely that we see a rally take us through the 2016 highs in a meaningful way just yet. Rather, while we may still make one more attempt at testing the 2016 high struck in the GLD, it is likely that most of the gain earned in 2017 may be wiped out before the end of the year.

And, if we will see one more rally over the next few weeks which does re-test or even slightly exceeds the 2016 highs struck by the GLD, I would be viewing that move quite skeptically, as it may simply be designed to develop more bullishness in the complex before the trap door opens.

But, despite the potentially non-productive year we may see in the GLD for 2017, I think 2018 can finally provide us with a strong move higher, and it may begin within the first month of the year. In fact, if the GLD is able to begin a strong rally early in the year, it is entirely possible we can see as high as the 150 region by the end of the first quarter of 2017. While I cannot say this is a high probability just yet, as I need to see how the last two months of the year play out, I am seeing evidence of the potential to see a rally which can be even stronger than the one we experienced in early 2016.

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

Oct 24, 2017

  1. “The Federal Reserve and other central banks have piled up huge reserves. But there is no inflation because the money is sitting within the banks and they are not lending it. Therefore, you don’t get a multiplier effect.” -Pierre Lassonde, gold expert, interviewed by Finanz and Wirtschaft News, October 2017.
  2. Because the world’s major central banks have moved so slowly to transition from QE and rates near zero to QT and higher rates, the huge bear markets in money velocity in Western countries have not ended.
  3. Most Western gold bugs are more focused on gold stocks than bullion, and are eagerly awaiting a turn in money velocity that will usher in a new and lasting era of inflation.
  4. The bad news is that Janet Yellen initially lied about the pace of rate hikes. She has moved vastly slower than promised, and that’s kept money velocity (and gold stocks) in the “dumpster”.
  5. The good news is that the US central bank finally appears ready to increase the number of rate hikes per year. The plan is for three in 2018 and perhaps four in 2019. 
  6. It’s possible that she is lying again, but I don’t think so, mainly because of progress China is making with OBOR (The gargantuan “One Belt One Road” infrastructure program).
  7. Please  click here now. There are rumours that Janet Yellen cut a secret deal with the Chinese government behind the back of her own Fed governors when she started hiking rates. 
  8. According to the rumour, she agreed to cut the pace of hikes because China was struggling with long term downside manipulation of its stock market and with a very slow start to its OBOR program. She then ordered the Fed governors to agree to a slow path of rate hikes until getting the green light from China.
  9. I don’t know if the rumour is true or not, but I do know that OBOR is the largest infrastructure spending program in the history of the world. It makes Roosevelt’s “New Deal” look like a microscopic peanut play, and it is… inflationary.
  10. With OBOR moving forwards now and Chinese stock market rule changes implemented to prevent “robber barron” shorting, the Fed is free to move more aggressively with rate hikes and accelerated QT.
  11. Also, the ECB (European Central Bank) is poised to make a key announcement on Thursday about QT and rate hikes. In Japan, Abe just won re-election, and the stock market has been rising while the yen is steady. That opens the door to a potential reduction in QE there.
  12. Mainstream media focuses on the “government economy” and the “stock market economy”, but the real economy is Main Street. The health of that economy is best measured by money velocity that relates to GDP.
  13. Horrifically, more than twenty million people are employed by the municipal, state, and federal governments in America, while only ten million people are employed in manufacturing. 
  14. This is unsustainable. Banks have loaned companies money for stock buybacks that enrich company directors. Central banks are shareholders in some of these companies. Very little capital has been allocated to business expansion, despite a modest rise in bank deposits since 2011. 
  15. US money velocity is simply a ratio measurement of how frequently a dollar is used to buy goods & services. When government gets the money and wastes it on ridiculous wars, then money velocity obviously implodes.
  16. On that note, please  click here now. Odds are probably near 90% that 2018 is the year that the giant bear market in money velocity is ended by the US central bank with more rate hikes and accelerated QT. 
  17. Trump’s tax cuts will ice that cake.
  18. When gold traded between $1500 – $1800 repeatedly in 2011 – 2012, I suggested buying the $1577 – $1523 area and selling into $1650 – $1800. After it worked three times, I noticed that many amateur investors that didn’t take action wanted to finally buy the fourth touching of that $1500 – $1550 area.
  19. I warned that it could be a “Three strikes and you are out” situation, and so it was. In the current time frame, I notice that many gold market investors are extremely worried about the possibility of lower prices. It’s starting to remind me of the 2011-2013 situation, but this time with a huge blast to the upside that could shock investors like the downside tumble shocked them in 2013.
  20. The ECB announcement on Thursday could be the key to the next move for gold, but I’ll dare to suggest that it’s vastly more important to be a buyer of any price weakness than to avoid drawdowns on existing positions. The current time and price zone will be looked back on as generational lows for both money velocity and gold stocks. 
  21. Please  click here now. I’m not sitting on a “25 bagger” in bitcoin right now because I predicted the price would rise. If bitcoin fell to zero today, I walk out of the arena with hundreds of percent of booked gains that I’ve parked in cash and gold bullion.
  22. I’m not sitting in that position because I predicted bitcoin would rise to $5000 as it has, or to my long term $500,000 target. I’m in this position because I bought bitcoin at prices where I was 100% sure it was finished and I was emotionally destroyed.
  23. Gold bullion has a tiny fraction of the risk that bitcoin has. There’s no need to be afraid of a minor $50 – $150 an ounce decline that probably marks the end of the multi-decade money velocity bear market. That decline might not even happen, depending on what the ECB says and does on Thursday.
  24. Please  click here now. Double-click to enlarge this key GDX accumulation tactics chart. With OBOR, central bank, and tax cut winds at its back, GDX and the entire gold stocks sector need to be accumulated with a golden smile on any and all price weakness, in anticipation of a major reversal in US money velocity. GDX is flirting with my $23 – $18 buy zone, and the ECB on Thursday will determine whether investor buy orders get filled, or whether the price just soars shockingly higher. Obviously, if an investor has no buy orders in place, they cannot get filled. My suggestion to all gold stock enthusiasts is to take the order placement action to ensure they are smiling during the historic upturn in US money velocity!

Thanks! 

Cheers
st

Oct 24, 2017
Stewart Thomson  
Graceland Updates
website: www.gracelandupdates.com

Tuesday 24th Oct 2017
Special Offer: Send an email to freereports@gracelandupdates.com and I’ll send you my free “Golden Baker’s Dozen” report. I highlight 12 top senior gold stocks and the hottest junior stock in the gold community right now, Novo Resources! I focus on winning tactics, risks, and potential reward.

Gold Market Update

Posted by Clive Maund

on Monday, 23 October 2017 13:37

The dollar is getting ready for a sizable rally, and that means that gold and silver are going to be knocked back again. Longer-term however, the outlook for the Precious Metals could scarcely be better, as we will see. In last weekend’s update it was pointed out that gold’s gap breakout from its steep downtrend shown on its latest 6-month chart below was probably false and that it was expected to drop back as the dollar advanced, which it duly did last week. Bearing in mind that the dollar has about completed its Head-and-Shoulders bottom, it is now clear that a parallel Head-and-Shoulders top is completing in gold as shown on the chart. This chart projects a breakdown beneath the nearby support level to be followed by a drop targeting the quite strong support in the $1200 – $1215 area.

gold6month221017

….continue HERE for 7 more charts & analysis 

 

THE FRAGILE GOLD INDUSTRY: Gigantic Equipment, Massive Capital Expenditures And Rising Costs

Posted by Steve St. Angelo - SRSrocco Report

on Thursday, 19 October 2017 13:37

Mercedes-Mining-TruckThe gold industry has been built on the leveraging of debt and energy.  The days of using human and animal labor to produce the precious yellow metal are long gone.  While some gold is still mined the old fashion way, the overwhelming majority is produced by using colossal-sized mining equipment, massive amounts of capital, energy, and materials.  Thus, the global gold supply comes via a very complex industry with a lot of moving parts.  When one of these critical parts are in short supply or removed, then the entire gold supply system disintegrates.

An example of one of the newest complex gold mines in the world is the Pueblo Viejo Mine in the Dominican Republic, owned by Barrick (60%) and Goldcorp (40%), which cost a staggering $3.7 billion to build.  The Pueblo Viejo Mine started production in 2013 and is now running a full capacity.  Gold production at the Pueblo Viejo Mine is over one million ounces per year.  According to Barrick, it’s cost of sales at Pueblo Viejo was $564 an ounce in 2016.  However, cost of sales does not include “all costs.”  We must also factor General and Administrative, Exploration-Evaluation, Mine Closure and Income Tax expenses.

 Pueblo-Viejo-Mine-768x512

However, these additional expenses do not include the initial $3.7 billion cost to build the mine.  According to data, the Pueblo Viejo Mine has approximately 15.5 million oz (Moz) of proven and probable gold reserves.  Even though additional gold discoveries at the mine will be added in the future, if we assume a 15-year initial payback period, the annualized capital cost would be an extra $250 per oz of gold produced.

Thus, the $564 cost of sales plus $250 capital cost now equals $814 an ounce.  But, this does not include the additional expenses which would push the actual total cost from the Pueblo Viejo Mine over $900 an ounce.  This is just my simple calculation which shouldn’t be compared to the industry’s more complex accounting of Net Present Value.  Even though the Pueblo Viejo Mine is Barrick’s lowest cost gold mine in the company, Barrick’s total cost to produce gold last year was $1,125, based on the $1,251 spot price.  Again, that is my simple “Net Income Break-Even Analysis.”

Regardless, the Pueblo Viejo Mine is a very advanced complex mine that processed 7.5 million tons of ore to produce the 1.1 Moz of gold last year.  According to Barrick’s 2016 Sustainability Report, the Pueblo Viejo Mine consumed the following in 2016:

Pueblo Viejo Mine Materials & Energy Consumed:

  1. 4.9 billion gallons of water
  2. 3,100 metric tons cyanide
  3. 338,000 metric tons lime
  4. 18.7 million GigaJoules of Energy (3.1 million barrels of oil equivalent)

There are many other materials not included in that list above, but the ability to produce gold at the Pueblo Viejo Mine is only possible from a very complex supply chain.  The majority of materials and energy consumed by the Pueblo Viejo Mine has to be transported to the Dominican Republic Island in the Carribean.

For example, Barrick’s mining equipment fleet at the Pueblo Viejo Mine includes following (info from OSIsoft Report):

  1. (34) CAT 789 Haul Trucks
  2. (2) Hitachi 3600 Shovels
  3. (3) CAT 994F Front Loaders
  4. (30) Support equipment

The estimated maintenance budget for just the haul truck fleet is $18 million.  And when one of the 34 trucks goes out of service, it cost one hell of a lot of money.  The truck downtime cost is $700 per hour.  The six tires the CAT 789 Haul truck uses cost approximately $30-40,000 a piece and last a little more than a year.  The CAT 789 Haul truck gets about 0.3 miles per gallon.

big-tractor

(CAT 797F )

Now, the featured picture (above) that I used for this article is not the CAT 789; it is the CAT 797.  The CAT 797 weighs twice as much as the CAT 789, used at the Pueblo Viejo Mine.  However, I just wanted to give an idea of just how big these haul trucks can get.

Furthermore, the mining, excavating and hauling of ore out of the Pueblo Viejo Mine is controlled by high-tech computerized systems.  The hauling of the ore by the large truck fleet is monitored by state of the art technology that designs the most efficient method to remove the ore out of the mine, so very little time is wasted.  Again, time is money.

We must remember, the more technology that is used in a system, the more complex and fragile it becomes.  Of course, technology is great at making large operations run more efficiently and faster, but the downside is that if one or more critical parts are removed, the complex mining system breaks down.  What would happen to gold production at the Pueblo Viejo Mine if cyanide becomes in short supply?  Without cyanide, the processing of gold ore grinds to a halt.

While I have provided one example of the enormous cost and massive amounts of capital needed to produce gold and one mine, let’s take a look at what is going on at the top 8 gold mining companies in the world.

Top 8 Gold Mining Companies Costs & CAPEX Spending Surge

It is quite amazing how much more it costs to produce an ounce of gold today than it did at the beginning of the century.  The huge rise in the total cost to produce gold is why the price is nearly five times higher.  Unfortunately, many precious metals analysts suggest that the increase in the gold price is due to either market sentiment or increased demand.  I have stated in several articles that the tremendous increase in the gold price was due to the rise in the price of oil:

However, there are additional factors that also impact the cost to produce gold.  For example, the gold mining industry now has to move a great deal more ore to produce the same amount of gold it did in 2000.  The next chart shows the falling yield in the top gold mining industry from 2005 to 2013:

In just eight years, the top five gold miners experienced a near 30% decline in average gold yield from 1.68 g/t (grams per ton) to 1.2 g/t.  If we went back five more years to 2000, I would imagine it would be closer to a 40% decline in average yield.  Thus, it now takes the processing of 40% more ore to produce the same amount of gold today.  Which means, it now takes a hell of a lot more energy and materials to produce gold today than it did 16 years ago.

This next chart puts into perspective the increased cost to produce gold today versus in 2000:

This graph shows the increase “Cost of Goods Sold” for producing gold at the top 8 gold mining companies in the world.  Even though many of the companies have seen a decline in the Cost of Goods Sold since the peak in 2013, the overall figure is still much higher than it was in 2000.  Some of the companies included in the chart above have seen their Cost of Goods Sold increase significantly because they increased their gold production substantially.  However, Barrick did not have that excuse.

Barrick produced 5.9 Moz of gold with a $553 million cost compared to $5.4 billion in 2016 on 5.5 Moz of gold production.  Here we can see that Barrick’s Cost of Goods Sold increased ten times while production is about the same.

According to the data at YCharts.com and these companies’ annual reports, the total Cost of Gold Sold in 2000, was $4.9 billion ($4,953 million) versus $23.6 billion ($23,588 million) in 2016:

Now, what is amazing about the figures in the chart above is that the Cost of Goods Sold figure has more than quadrupled while total gold production in the group only increased by 2 Moz.  The top 8 gold miners Cost Of Goods Sold increased from $206 per oz in 2000 to $907 last year.   The huge increase in cost to produce gold is the very reason the price surged from $279 in 2000 to $1251 in 2016.  Let’s look at the comparison:

Cost of Goods Sold vs. Gold Price:

2000 vs. 2016 Cost of Goods Sold = 4.4 times increase

2000 vs. 2016 Gold Price = 4.5 times increase

So, if we removed all SUPPLY & DEMAND forces from the equation, it is quite surprising that the gold price is up by the same amount as the cost to produce gold.  However, we need to also look at the rise in capital expenditures.  During the same period, the top 8 gold miners total capital expenditures increased from $1.7 billion ($1,723 million) in 2000 to $6.1 billion ($6,088 million) in 2016:

Again, we can see that total capital expenditure (CAPEX) increased from $72 per ounce in 2000 to $234 an ounce in 2016, while overall production only increased by 2 Moz.  The group’s CAPEX spending only increased 3.2 times versus the 4.4 times in the Cost of Goods Sold, but it shows that it cost a heck of a lot more money to sustain or replace production.

If we understand that the present value of gold is tied to its cost of production, then we would realize it has a PRICE FLOOR.  Sure, the gold price could spike lower, but its average annual price has remained close to (or above) its cost of production for quite some time:

This chart represents my “Net Income Breakeven Analysis” for Barrick and Newmont, the two top largest gold companies in the world.  As I also mentioned above, Barrick’s cost to produce gold in 2016 was $1,125 when the spot price was $1,251.  Thus, the market has priced gold above its cost of production (in these two companies) since at least 2000.

Lastly, the gold mining industry needs a vast amount of materials, parts, energy as well as a very complex supply chain system to produce the precious yellow metal.  If one part of the supply chain breaks down, then it becomes extremely difficult or impossible to produce gold.  While there are many fragile aspects of the modern high-tech gold industry, I believe ENERGY is the most crucial.

Once the world starts to experience a decline in global oil production, the vast supply chain system will begin to break down.  This will impact the largest mines the most.  I will be writing more about this subject matter and also why a declining global oil supply will push the price of gold up much higher.

Check back for new articles and updates at the SRSrocco Report.

Gold Is In A Dangerous Spot

Posted by Avi Gilburt - Elliottwavetrader.net

on Wednesday, 18 October 2017 13:32

Of late, I have seen many articles postulating what moves gold up or down. We have heard all the old reasons being put forth from GDP, to a hedge against market volatility to interest rates, to the US Dollar, and many more. Unfortunately, market history simply does not support these reasons as a consistent driver of gold, as I have detailed in many past articles:

Sentiment Speaks: Time To Buy Gold To Prepare For A Stock Market Crash?

In fact, a recent article on gold suggested that “[w]e all know that gold is negatively correlated to GDP growth.” Well, since gold rose between 2000-2008, and as you can see from this attached chart that REAL GDP did as well, are we really sure that we “all know that gold is negatively correlated to GDP growth?”

10-17ag

In fact, take note that the stock market also rose strongly during this same period of time. Moreover, I have seen many other charts presented which offer no evidence that there is any real relationship between gold and GDP. 

I have discussed this many times in the past. Correlations cannot be wholly relied upon unless you understand when those seeming correlations will end. And, since most correlation analysis does not present any indication of when those correlations will end, they are no better than using a ruler to determine your projections for any chart. 

Such linear analysis will be of no use in determining when a change of trend may occur. And, one does not need such analysis to assume the current trend for anything will continue. In fact, this is likely why so many intra-market analysts have done so poorly in the last 5 years as they failed to see the coming break down in the correlations they follow (even though we were warning about these impending break downs back in 2015).

Morgan Stanley: “We Haven’t Seen A Shift This Severe In Over A Decade”

Price pattern sentiment indications and upcoming expectations

For those following us for the last six years, you would remember that we were not only accurate in our assessment for a top being struck in the metals complex in 2011, but we were also accurate in our assessment for a bottom being struck at the end of 2015. 

Since that time, the market has provided us with what looks like a very nice 5-wave structure off the 2015 low, followed by a corrective pullback. Now, when I see a larger degree 5-wave structure (wave 1) being made off a multi-year bottom, followed by a corrective pullback (wave 2), I am on alert for the heart of a 3rd wave to take hold. And, in the metals complex, those are quite breathtaking rallies. For this reason, I have erred on the bullish side of the market as the market was looking like it was setting up for that 3rd wave in 2017. 

However, rather than providing us the 3rd wave rally for which I was seeking confirmation, 2017 has been exceptionally frustrating as the market has invalidated several set-ups for that major 3rd wave break out. 

Yet, when presented with the same opportunities on any chart, I would have probably reacted in the exact same fashion. Most of the time, the market will follow through on such set ups, while in a minority of circumstances we would see the market continue on a much larger degree 2nd wave pullback. Clearly, the market has decided that 2017 was going to be a year of consolidation.

Even though we have not had the 3rd wave break out, we have not yet broken any of the lows we identified throughout the year. And, for those that have heeded my warnings about not using leverage until the market proved itself to be within its 3rd wave, you could have still made money on each of these rallies. In fact, the GDX is approximately 10% over the lows we identified this year, even though it may not “feel” that way due to the frustration we have all felt with this current consolidation.

However, as I have been warning for the last few weeks, the GDX may be signaling it could break below those pullback lows we have struck this year. But, much depends on how high the rally I am expecting in the complex takes us.

If the GDX is able to make a higher high in the 26 region in the coming weeks, then it leaves the door open that green wave (2) may not break below the July lows. However, if the market is unable to develop a higher high over that struck in September, and then breaks below the low made before the current rally began, it opens the door to the GDX dropping down towards the 17 region before year end to complete a much more protracted wave ii, as presented in yellow on the daily GDX chart.

My preference still remains that GDX, silver and GLD all make a higher high in the coming weeks, which would put a more bullish stance upon the complex (even though another drop will likely take us into the end of the years), I really have nothing to which I can point that would suggest this will occur within a high degree of probability.

So, I have turned extremely cautious of the complex, at least until it proves itself with a higher high being struck in the coming weeks. Until such time, I am going to be more protective of my positions.

And for those who are still viewing this market from an extremely bullish perspective, I will be honest with you and tell you that I do not see any high probability set-up which would suggest the market is going to imminently break out in the heart of a 3rd wave just yet. 

For this reason, I think that one can maintain a certain amount of patience (as if 2017 has not forced you to be patient enough), as even if we see a rally to a higher high, it will likely be followed by another pullback (as a wave (2) in GDX and a c-wave in GLD and silver) before we are finally ready to break out over the 2016 market highs.

Ultimately, this leads me to the conclusion that the 2016 market highs will not likely be broken until 2018, and this will remain as my primary expectation whether the GDX sees a larger break down or not. But, until we see how the next rally takes shape, we will not be able to ascertain with more certainty whether a bigger decline is in the cards into the end of the year, or if we will simply remain in the same consolidation region until then. But, caution for the next few months is clearly warranted.

See charts illustrating the wave counts on the GDX, GLD & Silver (YI).

 

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.