The more the U.S. economy improves, the worse things get for gold.
Bullion fell below $1,200 an ounce today, erasing its gains for the year, after the government reported that the U.S. grew at a faster pace than analysts forecast in the third quarter. A stronger economy is validating optimism that prompted the Federal Reserve to say yesterday that it will stop buying debt, further diminishing the appeal of precious metals an inflation hedge. Silver tumbled to a 55-month low.
Global holdings in exchange-traded products backed by gold have dropped to the lowest in five years. In China, the world’s top bullion buyer, the government sent investigators to probe a sevenfold surge in precious-metals exports, raising concern demand in the country will slide. Imports in India, the second-biggest consumer, are poised to plunge this month, a jewelers’ group said.
“In the current environment, we see no reason to own gold,” Scott Gardner, who helps manage $450 million at Verdmont Capital SA in Panama City, said in a telephone interview. “Some people were disappointed with yesterday’s Fed statement since they expected it to be more dovish in light of a stronger dollar, and we continue to see some good U.S. economic data.”
Gold futures for December delivery slumped 2.1 percent to settle at $1,198.60 at 1:42 p.m. on the Comex in New York, leaving prices down 0.3 percent in 2014. Aggregate trading was 64 percent above the average for the past 100 days for this time, according to data compiled by Bloomberg.
The price touched $1,195.50, the lowest since Oct. 6, when gold reached this year’s low of $1,183.30.
Fewer Americans filed applications for unemployment benefits over the past month than at any time in 14 years, government figures showed today. Gross domestic product grew at a 3.5 percent annualized rate in the third quarter, the Commerce Department said. That compared with a median forecast for a 3 percent advance by economists in a Bloomberg survey.
“Gold dipped further on the stronger-than-expected GDP print and weekly claims” for jobless benefits, Tai Wong, the director of commodity product trading at BMO Capital Markets Corp. in New York, said in a telephone interview. “The market was already under pressure as the Fed ended the QE, and there are no worries about inflation.”
Silver futures for delivery in December plunged 4.9 percent to $16.42 an ounce, the biggest drop since Sept. 20. The metal touched $16.33, the lowest since March 2, 2010. Trading was 62 percent above the average for the past 100 days for this time, according to Bloomberg data.
Last quarter, gold slumped 8.4 percent as the dollar jumped 6.7 percent and equities surged to an all-time high. Yesterday, at the conclusion of its two-day policy meeting, the Fed maintained its pledge to keep interest rates near zero percent for a “considerable time.”
Rising rates reduce gold’s allure because the metal generally offers investors returns only through price gains, while a stronger dollar typically cuts demand for a store of value. The U.S. has had “solid job gains,” the Federal Open Market Committee said yesterday.
The Fed statement was “more hawkish than what the market was expecting,” Edward Meir, an analyst at INTL FCStone Inc., wrote in a note. “The Fed will be inclined to raise rates sooner rather than later.”
Gold tumbled 28 percent last year and investors dumped ETPs on expectations for reduced U.S. stimulus as the economy improved.
On the New York Mercantile Exchange, palladium futures for delivery in December fell 2.5 percent to $780.70 an ounce. The price rose in the previous nine sessions, the longest rally in two months.
Platinum futures for January delivery declined 1.8 percent to $1,245.90 an ounce, the largest decline since Oct. 3.
Gold prices ended the U.S. day session sharply lower and hit a three-week low Thursday. Precious metals have been hit hard by a stronger U.S. dollar and a surprisingly hawkish Federal Reserve. Silver prices slumped to a four-year low Thursday. December Comex gold was last down $25.50 at $1,199.40 an ounce. Spot gold was last quoted down $12.40 at $1,199.40. December Comex silver last traded down $0.804 at $16.46 an ounce.
After a weak overnight session, gold prices slumped further in late-morning U.S. trading Thursday. Prices fell below what was key near-term chart support at $1,200.00, which triggered fresh chart-based selling, including sell stop orders being hit in the futures market.
A strong advance third-quarter GDP report issued Thursday morning, at up 3.5% on an annual basis, further undermined the safe-have gold market.
The precious metals were still feeling the ill effects of a hawkish FOMC statement issued Wednesday afternoon. The FOMC statement was deemed surprisingly hawkish on U.S. monetary policy. The Fed ended its monthly bond-buying program (quantitative easing), which was expected. However, the FOMC statement emphasized the improving U.S. economy, which led many to believe U.S. interest rates will be raised in 2015. The majority of traders and investors were looking for a dovish lean from the FOMC statement.
The U.S. dollar index has posted a solid rally in the wake of the FOMC meeting and hit a three-week high Thursday. The greenback is hovering near a four-year high. Meantime, Euro currency prices slumped on the FOMC statement.
In overnight news, the Euro zone got another downbeat economic report Thursday. EU consumer confidence came in at a reading of minus 11.1 in October from minus 11.4 in September. The report met market expectations but is another reminder of the ill economic health of the European Union, which is the world’s third-largest economy.
Nato warplanes are keeping a close eye on large-scale Russian military aircraft maneuvers that are occurring in Europe this week. This is likely more saber-rattling by Russian president Putin.
The London P.M. gold fix was $1,202.00 versus the previous London A.M. fixing of $1,205.75.
Technically, December gold futures prices closed nearer the daily low and hit another three-week low. The bears have the solid near-term technical advantage. Gold prices are now edging toward major longer-term technical support at the $1,183.00 area. A breach of the support level would open the door to a significant leg down in prices, and a move to the $1,000 level could not be ruled out. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at this week’s high of $1,235.50. Bears’ next near-term downside breakout price objective is closing prices below solid technical support at $1,183.00. First resistance is seen at $1,210.00 and then at today’s high of $1,216.50. First support is seen at today’s low of $1,195.50 and then at $1,190.00. Wyckoff’s Market Rating: 1.5
December silver futures prices closed nearer the session low and hit a contract and four-year low today. The silver bears have the solid overall near-term technical advantage. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at this week’s high of $17.40 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $16.00. First resistance is seen at $17.64 and then at $17.00. Next support is seen at today’s contract low of $16.33 and then at $16.25. Wyckoff’s Market Rating: 1.0.
December N.Y. copper closed down 370 points at 306.75 cents today. Prices closed near mid-range today. The key “outside markets” were bearish for copper today as the U.S. dollar index was higher and crude oil prices were lower. The bears have the near-term technical advantage. Copper bulls’ next upside breakout objective is pushing and closing prices above solid technical resistance at 315.00 cents. The next downside price breakout objective for the bears is closing prices below solid technical support at 300.00 cents. First resistance is seen at today’s high of 308.75 cents and then at this week’s high of 311.40 cents. First support is seen at 305.00 cents and then at today’s low of 303.60 cents. Wyckoff’s Market Rating: 4.0.
Goldcorp Inc. (TSX:G)(NYSE:GG) is bullish on longer-term gold prices, and it’s not based on what the Fed may or may not do, said a Goldcorp executive.
Speaking on the company’s third-quarter conference call, Chuck Jeannes, president and chief executive officer, made it clear that the focus on gold prices shouldn’t be near-sighted.
“During most of this year, the debate of when and how the U.S. Federal Reserve would raise interest rates helped fuel the downward pressure on gold price, and we’re seeing that today,” Jeannes said. “I believe this focus on short-term gold catalysts ignores an important trend in greater long-term importance.
“Put simply, our industry is not discovering as much gold as it once did despite significant increase exploration investment,” he continued. “As such, it is reasonable to conclude that global gold production is facing a sustained multi-year decline that cannot help but positively impact the supply/demand fundamentals, and therefore the price of gold.
“In other words, I don’t believe our industry will ever mine as much gold as we do in 2015,” he added.
Jeannes said the company is bullish on long-term gold prices and believes that will translate into more success for companies well placed down the line.
Touching on the company’s earnings, Jeannes said he was pleased with the third-quarter results, highlighting the Eleonore and Cerro Negro mines coming online on time and on budget during the quarter.
Goldcorp reported a net loss of $44 million, or 5 cents per share, in the third quarter, compared to net earnings of $5 million, or 1 cent per share, in last year’s comparative quarter.
The company’s Mexican-based Peñasquito mine was hit with a $36 million, or 4 cents per share, non-cash reduction on the value of low-grade stockpiles at the mine.
They also absorbed “unusual losses,” as Jeannes put it, of $85 million from foreign exchange translation of deferred income tax assets and liabilities, $14 million in losses on derivatives and $13 million in losses on the impairment against the carrying amount of El Sauzal as a result of accelerating closure activities due to previously reported pit wall instability, the company said.
Adjusted net earnings totaled $70 million, or 9 cents per share, compared to adjusted net earnings of $190 million, or 23 cents per share, this time last year. Adjusted revenues came out at $1.1 billion while adjusted operating cash flow rose to $399 million, or 49 cents per share, compared to $375 million, or 46 cents per share in the third quarter of 2013.
Jeannes said production did not meet the company’s expectations, but they expect a strong fourth quarter to close out the year.
“Our production during the third quarter was below expectations,” he said. “However, the gold didn’t go anywhere – production is delayed rather than lost.”
The company produced 651,700 ounces of gold in the third quarter at all-in sustaining cash costs of $1,066, with gold sales totaling 641,400 ounces in the quarter. Goldcorp maintained their 2014 production guidance of between 2.95 million and 3.1 million ounces, but cautioned the low end of that guidance will likely be met due to stoppages at the company’s El Sauzal and Los Filos mines.
Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) Tuesday reported third-quarter net income of $552 million, or 53 cents per share, down from $821 million, or 79 cents, in the same quarter a year ago.
The third-quarter results were hurt by lower copper, gold and crude oil prices than a year ago. The company resumed ore shipments from its Indonesia operations in July, although it faces new labor issues in the region.
The third-quarter results included net charges of $115 million, or 11 cents per share, including $192 million associated with a reduction in the carrying values of oil and gas properties due to full-cost accounting rules and $47 million related to changes in Chilean tax rules. This was partly offset by $76 million for non-cash mark-to-market gains on oil and gas derivative contracts, a gain of $31 million from sales of assets and a gain of $17 million for early extinguishment of debt.
Citi Research said operating earnings of 64 cents a share, excluding the special items, topped the consensus estimate of 61 cents, helped in large part by higher-than-expected output of gold.
Freeport was historically thought of as the world’s largest publicly traded copper company. However, Freeport now calls itself a leading natural-resources company, since it is also a significant gold producer, the world’s leading molybdenum producer and also entered the oil and gas business last year.
On July 25, the company entered into a memorandum of understanding with the Indonesian government that allowed Freeport to resume exports of concentrates from its giant Grasberg gold and copper mine. In January, Indonesia banned the shipment of all ore exports in an attempt to force companies to do more processing locally. Under the memorandum of understanding, Freeport’s Indonesia subsidiary, PT-FI, and the government will negotiate an amended contract of work to address a number of topics. PT-FI provided a $115 million assurance bond as a commitment to smelter development and the company also agreed to increased royalties and export duties.
“Our goal is to maintain a positive long-term partnership with the government of Indonesia. We’re confident we can achieve that because it’s one of these things that works in everyone’s best interests to do it,” said Richard Adkerson, vice chairman, president and chief executive officer, during an earnings webcast.
However, Freeport is facing potential labor unrest again in Indonesia after other strikes in recent years. The company said it received a notice from union leadership Monday of plans for a 30-day strike beginning Nov. 6, which Freeport says violates a labor agreement. Additionally, Freeport said some Grasberg open pit operators have not returned to their regular shifts, resulting in reduced production during October, after a suspension of operations following a fatal traffic accident on Sept. 27. Operations were shut down for an investigation, but Indonesian authorities approved a resumption of operations – after issuing recommendations on traffic-control procedures – on Oct. 13.
Meanwhile, company officials touted milestones in expanding Morenci copper operations in Arizona, construction at Cerro Verde in Peru, along with advancing oil and gas exploration and development activities. Also, the company sold some of its mining interests in Chile.
Average realized prices for the third quarter were $3.12 per pound for copper, down from $3.28 per pound in the third quarter of 2013; $1,220 per ounce for gold, ($1,329 in the same period a year ago); and $88.58 per barrel for oil ($104.33).
Third-quarter sales included 1.08 billion pounds of copper, up from 1.04 billion in the same period of 2013 and not far from the July third-quarter estimate of 1.07 billion. Gold sales were 525,000 ounces, up from 305,000 in the third quarter of 2013 because of higher ore grades. This was also above the July estimate of 445,000 primarily because of higher production and the timing of shipments, the company said.
Freeport sold 22 million pounds of molybdenum in the third quarter, slightly lower than third quarter of
2013 and the July estimate of 23 million pounds.
The company also listed third-quarter sales of 12.5 million barrels of oil equivalents, known as MMBOE. This was slightly higher than the July estimate of 12.2 MMBOE, but lower than third-quarter 2013 sales of 16.5 MMBOE because of the sale of Eagle Ford properties in June.
For full year 2014, sales are expected to be around 3.9 billion pounds of copper, 1.2 million ounces of gold, 95 million pounds of molybdenum and 56.2 MMBOE. For the fourth quarter, the company anticipates 1 billion pounds of copper, 350,000 ounces of gold, 21 million pounds of molybdenum and 11.5 MMBOE.
By 2016, Freeport sees copper sales rising to 5.5 billion pounds and gold sales more than doubling to 2.5 million ounces.
“The strength of our company in the minerals business is our resource base,” Adkerson said.
If copper prices are at $2 a pound, the company has more than 100 billion pounds of proven and probable reserves, he said. Additionally, the company has mineral resources of another 100 billion pounds.
“Finding projects to invest in requires time,” Adkerson said. “After we complete the current round of investments, there is going to be an active period of doing all the work that is necessary before we begin making significant capital commitments to new projects.”
Copper Cash Costs Decline; Chilean Assets Sold
Consolidated unit net cash costs for the third quarter averaged $1.34 per pound of copper, compared to $1.46 in the same period a year ago, and $20.93 per barrel of oil equivalents, compared with $16.80 in the third quarter of 2013.
Operating cash flows totaled $1.9 billion in the third quarter and $4.5 billion for the first nine months of 2014.
Capital expenditures totaled $1.9 billion for the third quarter and $5.4 billion for the first nine months of 2014, including $2 billion for major projects at mining operations and $2.4 billion for oil and gas operations. Capital expenditures are expected to be approximately $7.5 billion for full year 2014, including $3 billion for major projects at mining operations and $3.4 billion for oil and gas operations.
As of Sept. 30, consolidated cash was $658 million and debt totaled $19.7 billion. During the third quarter, Freeport redeemed $1.7 billion of senior notes with an average interest rate of 6.6%. Additionally, on Oct. 15, Freeport redeemed $400 million of its 8.625% senior notes.
Gold prices ended the U.S. day session steady to modestly higher Tuesday. Some technical selling pressure hit the futures market as the session progressed. However, the cash (spot) market remained firm as a weakening U.S. dollar index on this day worked in favor of the precious metals bulls. December Comex gold was last down $0.40 at $1,228.90 an ounce. Spot gold was last quoted up $3.60 at $1,229.25. December Comex silver last traded up $0.059 at $17.22 an ounce.
Gold prices got a pop Tuesday morning when downbeat U.S. durable goods data came out. Durables orders fell by 1.3% in September versus expectations for a rise of around 0.5%. The price gains could not be held, however, as prices drifted lower through the session.
Focus of the market place is on the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve’s regular meeting that began on Tuesday morning and ends Wednesday afternoon. As usual, the Wednesday afternoon statement from the FOMC will be very closely scrutinized by the market place. Most believe the Fed will formally end its monthly bond-buying program, called quantitative easing. Traders will also be looking for clues in the statement about future direction of monetary policy, including at what point the Fed will start to raise U.S. interest rates.
In overnight news, Sweden’s central bank cut its main lending rate to zero percent Tuesday, in an attempt to produce some price inflation. The entire European Union is on the verge of serious price deflation. The European Central Bank has recently stimulated its monetary policy, and more measures are likely coming soon from the ECB. Many veteran market watchers are very concerned that price deflation in world economies will become a major problem. Deflation is the archenemy of raw commodity market bulls and a generally bad thing.
Attention is still on the two key “outside markets” that impact many other markets: the U.S. dollar and crude oil. The dollar index was weaker by Tuesday afternoon but is still hovering not far below its recent four-year high. Meantime, Nymex crude oil prices were near steady Tuesday afternoon and hovering near a two-year low. The next downside technical target for nearby crude oil is $75.00 a barrel, which I believe will be reached in the coming weeks. The slumping crude oil prices worldwide have helped drive the Russian ruble currency to record lows this week.
The London P.M. gold fix was $1,229.25 versus the previous London A.M. fixing of $1,228.25.
Technically, December gold futures prices closed near mid-range. The bears have the firm near-term technical advantage. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at the October high of $1,255.60. Bears’ next near-term downside breakout price objective is closing prices below solid technical support at $1,200.00. First resistance is seen at today’s high of $1,235.50 and then at $1,240.00. First support is seen at today’s low of $1,222.20 and then at $1,217.00. Wyckoff’s Market Rating: 3.0
December silver futures prices closed nearer mid-range. The silver bears have the solid overall near-term technical advantage. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at the October high of $17.82 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at the contract low of $16.64. First resistance is seen at today’s high of $17.40 and then at $17.50. Next support is seen at $17.00 and then at $16.64. Wyckoff’s Market Rating: 2.0.
December N.Y. copper closed up 280 points at 309.20 cents today. Prices closed nearer the session high and closed at a fresh five-week high close today. Short covering and bargain hunting were featured. The bears still have the slight near-term technical advantage, but the bulls are making a move and have upside momentum. Copper bulls’ next upside breakout objective is pushing and closing prices above solid technical resistance at the October high of 310.45 cents. The next downside price breakout objective for the bears is closing prices below solid technical support at 300.00 cents. First resistance is seen at today’s high of 309.60 cents and then at 310.45 cents. First support is seen at 307.50 cents and then at today’s low of 305.55 cents. Wyckoff’s Market Rating: 4.5.
Analysts and some precious metals’ sellers tend to focus on the “insurance” aspect of owning precious metals. They point out that having some in your possession helps protect your wealth in case of inflation, political unrest, or for use as an “alternate currency” during a natural disaster, war, etc.
Of course, these are all valid reasons for purchasing and holding “the precious metals four” – gold, silver, platinum, and palladium.
But the benefits go far beyond the insurance and assurance aspects. It just makes all around good sense. For you see, each of these are in their own way, “good news” metals.
As the developing world’s wealth increases, hundreds of millions of people have more disposable income – money left over after covering life’s basic expenses. For millennia, a significant portion has always been directed and will continue to find its way into precious metals’ ownership.
In Asia, Indians regard gold and silver as “bank accounts in your hand,” dowries for exchange upon marriage, or the raw material for the creation of jewelry having lasting beauty. In China, where the savings rate can be as high as 40% of income, precious metals fulfill the timeless role of asset preservation.
In North America, Eagle and Maple Leaf sales continue to set records. Through September of this year, roughly 26 million American Silver Eagles have been purchased – on track to set an annual record – the most since their introduction in 1986.
When my daughter graduated from high school in 2000, my gift to her was a one-ounce gold Krugerrand – for which I paid $275.
When America’s first pure gold coin, the 24 carat American Buffalo was introduced in 2006, I bought one for $800 for each of my children.
All of these coins are absolutely beautiful. They speak of our nation’s past. They bring a smile to the face of someone who holds them in their palm. They are a store of (increasing) value. They are a “physical reality” by which only the person who owns them can lay claim. They are a direct and enduring link to 5,000 years of history.
Industry Loves These Metals Too!
Governments are mandating phasing out of incandescent bulbs for supposedly more efficient fluorescent lighting. But fluorescents turn on slowly, produce a different quality of light, and still contain mercury – a neurotoxin harmful to both people and the environment.
At the same time, the Light-Emitting Diode (LED) is revolutionizing the lighting industry. It contains no mercury, generates little heat, lights instantly, and can last for 25 to 100 years! A 60 watt LED uses just 10 watts of power – 85% less than a traditional bulb. Continuing to decline in cost, they are replacing older methods in traffic intersection lights, residential and commercial lighting, flashlights, and headlamps.
Small amounts of gold and silver compounds are used in the soldering process. This is critical in forming a chemical bond with the gallium on the wafer’s surface of every LED, enabling the semiconductor to conduct electricity so it can function like an electronic device.
Each year over half of silver’s global production is earmarked for (mostly unrecoverable) use in hundreds, if not thousands of silver industrial applications which make our lives more productive, enjoyable, and safe. Add robust investment and jewelry demand, and you get a sense of where prices are headed over the next few years. This is good news!
Many of the world’s largest cities suffer from life-threatening levels of pollution generated by cars, trucks, and engines of all kinds. Catalytic converters use platinum and palladium to reduce these harmful emissions. But auto makers are now working to create emission-free vehicles.
These fuel cell vehicles (FCVs) use platinum as a catalyst to split hydrogen fuel into ions and electrons – virtually eliminating carbon monoxide emission – replacing it with water vapor! It is reported that each FCV produced will require at least one ounce of platinum. With supplies of platinum and palladium moving into multiple-year deficit territory, it’s not hard to see that their cost will rise as the forces of demand and supply collide. More good news.
Across cultures and historic time periods, anywhere in the world, precious metals have always been instantly accepted as money – unlike the eventual fate of virtually every artificially-created paper currency that has ever been circulated.
Yes, the “paper promises” in our wallet still buy us things, but consider this: In the United States since 1971, inflation has caused the dollar to lose 83% of its purchasing power – and that’s using the federal government’s own statistics that understate the real number. That means the greenback is barely worth 17 cents. Meanwhile, during that time, an ounce of gold or an ounce of silver has increased in value by well more than 1000%! (This new Money Metals infographic tells the story.)
Frank Holmes has popularized the “2 doors” nature of gold’s attraction for buyers. He calls them the “fear trade” and the “love trade” – both powerful motivators. Stu Thomson understands what the future portends for owners, telling us, “The fear trade got you into gold. The love trade will make you richer with it.”
Yes, buy and hold the 4 precious metals to help protect your family from unexpected financial dislocations and perhaps earn a substantial profit. But do it also because of their timeless beauty, their abundant utility in industry, the warm feeling you get holding them in your hand… and the love exchanged when you share them with others.
For all of the above reasons, make sure you own one or more of these four increasingly precious metals. Don’t consider their purchase to be an expense. You’re simply exchanging a paper currency that continues to lose purchasing power, for real money which not only holds onto its value, but tends to increase over time. Now that proposition is good news in anyone’s book!