Gold, Gold Equities Posting Big Gains

It may be difficult to believe, but President-elect Donald Trump, who is trying to lower taxes and cut regulations while threatening tariffs on imports, thinks the dollar is too strong, especially against the yuan. Combine his comments on the relevancy of NATO with U.K. Prime Minister Theresa May's speech on a hard Brexit and the dollar index is weakening to a 2017 low while gold rallies. The fact that the president-elect is vocal about his opinion on the level of the dollar is just going to throw another variable into the macro-investing environment. It already has yields across developed markets in a full retreat. The volume in gold futures today is over 40 million ounces as we traded through the 50-day moving average, which is close to the entire open interest going into today's trading. This is after the Commitments of Traders report on Friday, which showed net length increasing in gold for the first time in nine weeks. Friday's gold ETFs saw inflows of 81,000 ounces, the most since before the election. Gold equities are rallying with the yellow metal. with the Market Vectors Gold Miners ETF is up 11% year-to-date and up 79% over the past 12 months. Market Vectors Junior Gold Miners ETF is up 19% year-to-date and 120% over the past 12 months. Personally, I do not feel that gold producers with their operational risks deserve that leverage to the underlying commodity price, but it is the only way equity investors know how to gain exposure as they seek portfolio insurance. Silver is joining the rally back above $17 an ounce, and palladium, which still has the best fundamentals, looks ready to threaten $800 an ounce. Base metals have given back some of last week's gains on the back of Trump's Wall Street Journal comments about a 45% tariff with China. Despite China's president giving measured comments on trade with the West at Davos conference, copper continued lower. The Chinese spec community, which has been loading up on everything from copper to zinc, was a bit worried on Trump's trade moves and sold some of their length. Escondida's copper production report was higher than expectations copper is all about China. Nickel length is continuing to unwind as commodity trading advisors get stopped out as moving averages were getting breached ahead of the new deadline for the Philippine mining head, Gina Lopez, to release her report. There has been large buying of short-dated downside puts ahead of the the Jan. 30 announcement, as large nickel stockpiles ready for export have been built. Iron ore continues to be the standout as it hit a new 30-month high of $83 a ton on the Dalian exchange. Obviously, steel supply cuts in China have rallied steel prices, which in turn increased smelting margins, leading to more iron ore buying. The trade of the year, though, is to buy 2018 iron ore, which is trading sub-$60, and global infrastructure projects will underpin that price. The oil price has been volatile between the $51.50-$53.50 range as the Saudis say the market will be in balance in 2Q. Al-Falih also did not feel there would be a spike in U.S. shale production but seeing the appetite for Permian assets that Exxon Mobil and others has exhibited, I beg to differ. I expect the forward contango to continue to narrow as U.S. exploration and production companies are printing money in the Permian basin at current prices and so are aggressively hedging through 2018. If U.S. market share of increased production continues to gain vs. the rest of the world, certain OPEC members and Russia will start to move away from quota adherence. The recent weakness in the U.S. dollar should benefit oil, but the border tax plan in Congress is inconsistent with Trump's, as the adjustment offset may strengthen the U.S. dollar. This may put any tax reform agreement further down the calendar.

Gold, Gold Equities Posting Big Gains

Silver surged above $17 an ounce, and palladium looks set to hit $800 an ounce.

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