"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Monday, December 30, 2013

Happy New Year! Eureka Miner's Gold Prices for 2014


Happy New Year! Eureka, Nevada


*** Local Mining News ***

MIDWAY GOLD COMPLETES PERMITTING – RECEIVES RECORD OF DECISION PAN PROJECT, NEVADA (Press Release, 12/20/2013)
 
General Moly Announces Updated Operating Cost Estimate and Project Economics for Mt. Hope Project (Press release, 12/05/2013) 

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:  Gold (Still) Trapped in a Value Wedge (12/09/2013) 

My latest column in the Mining Quarterly: Copper & Gold - The Long Ride from Lehman Brothers (p. 90-91 online, p. 84-85 printed copy, MQ Winter Edition 2013)


Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Monday's AM prices used for this morning's analysis: 


COMEX Gold price = $1,204.8/oz (February contract most active)
COMEX Silver = $19.695/oz (March)
COMEX Copper = $3.3850/lb (
March)
NYMEX WTI crude = $99.82/bbl (
February)
ICE Brent crude = $111.37/bbl (February)



Eureka Miner’s Gold Value Index© (GVI) = 79.92 (gold value relative to a basket of commodities that include oil, copper and silver; 100 is a high value)
Value Adjusted Gold Price© (VAGP) = $1,259.6/oz
COMEX - VAGP = -54.76/oz; gold is trading at an increasing discount to key commodities (bearish trend)




General Moly (GMO) = $1.45 up 3.57%
Barrick Gold (ABX) = $17.44 down 0.11%%
Newmont Mining (NEM) = $23.315 down 1.17%

Midway Gold (MDW) = 0.8167 up 0.83%
Timberline Resources (TLR) = $0.1737 up 2.60%
S&P 500 = 1,840.24 down 0.06%




[Note this report has been updated with Friday's input to the Kitco Gold Survey, Jan. 3, 2014]

Morning Miners!

The Eureka Miner wishes a happy New Year to you and your family - thank you for following this report through a very tumultuous market year.

As 2013 draws to a close, U.S. markets are near all-time highs as gold loses more shine. MarketWatch's year in review:

The Dow is up nearly 26% year-to-date, leaving the index on track for its biggest annual percentage gain since 1996, while the S&P 500 is up around 29% over the same stretch, putting it on track for its best annual gain since 1997. (MarketWatch, New York, 12/30/2013)

This morning Comex gold is trading down $9.02 at $1,204.8 per ounce - a long way from the heady days of $1,900+ per ounce exuberance.

This report prefers to compare gold performance to November of last year when the yellow metal was experiencing a period of impressive strength relative to both stocks and key commodities. Here is the relative loss in value from Nov. 9, 2012 to this morning:

Comex gold price (U.S. dollars) down 30%
Value lost to Comex copper 29%
Value lost to Nymex oil 40%

An ounce of gold in November of last year could buy roughly 500 pounds of copper and 20 barrels of oil. This morning an ounce fetches only 350 pounds of red metal and 12 barrels of goo!

Even more startling, gold has lost nearly 49% of its value relative to the S&P 500 compared to when when it attained its peak strength November 15, 2012 - investors continue to liquidate gold positions to chase soaring equities. Asian bargain hunters and central bank buying of gold has mitigated some of the decline in U.S. dollar gold price but rallies have been short-lived and lackluster (pun intended).

So what can we expect in 2014? I've written two recent columns on gold's outlook for next year; in the Winter Edition of the Mining Quarterly and more recently, for Kitco News, Montreal:

Copper & Gold - The Long Ride from Lehman Brothers (p. 90-91 online, p. 84-85 printed copy, MQ Winter Edition 2013)

Gold (Still) Trapped in a Value Wedge (Kitco News, 12/09/2013)

By the way, if you haven't checked out the latest Mining Quarterly - do it! Elko Daily Free Press Mining Editor Marianne Kobak McKown has done a terrific job on this issue with the latest news on the mining industry in Northern Nevada.


In the MQ article, I compare the price performance of copper and gold from the fateful collapse of Lehman Brothers Sep. 15, 2008 to the present. My argument is that monetary easing programs of the U.S. Federal Reserve have trumped supply/demand fundamentals for both metals for a significant portion of this 5 year period. There have been three quantitative easing cycles (QE or the printing of money to buy bonds) resulting in metal price reflation (QE1), inflation (QE2) and price stabilization for the current program (QE3).

Current stability in the metal markets is good for a global commodity such as copper which likely maintains a $3 per pound floor for the red metal as long as QE3 provides a supply of easy money. Monetary easing is less supportive for gold which has lost value to copper during all three QE programs. Sustainable gold rallies and even new records have typically occurred near the end or after these monetary interventions (e.g., QE1 and QE2 and respective benchmark gold records that followed). Is this a ray of light in the mine shaft?

The December meeting of the Federal Reserve began the tapering of their massive bond buying program signalling that QE3 will wind down sometime in 2014. Before this cycle is complete, the MQ column submits that "...if continued easing returns [gold/copper valuations] to pre-QE2 levels of 350 pounds per ounce, a $3-to-$4 range for copper would imply a $1,050-to-$1,400 range for gold." This morning the gold/copper valuation is 356 pounds per ounce so we're right on track going into the New Year.

The Kitco article takes a broader view and includes not only copper but oil and silver for a relative value comparison. According to this analysis, gold will enter 2014 trading at a substantial discount to both copper and oil and be trapped in a range of $1,150-to-$1,375 for the first half of the year.

The MQ column concludes:

Absent future price shocks, continuation of the present QE3 program will likely mean less volatile copper and gold prices stabilized within trading ranges. As monetary accommodations fade, metals will naturally revert to the laws of supply and demand. As inflation expectations return, the market should eventually reverse in gold’s favor with a resumption of higher sustainable prices.

With tame inflation in the U.S. and the threat of deflation in Europe, we may have to wait some time to ride the up-elevator of our favorite metal. Always the optimist - let's see what the second-half of 2014 may bring!

[Note: the above analysis and conclusions are not materially changed by the gold price update below]

Kitco Gold Survey (for Friday morning 01/03/14)

Here is my input for the weekly Kitco Gold Survey:

01/03/2013 (10:33 AM CT)

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Up. My target price is $1,240 per ounce.

Q. Why?

Gold has a strong start for 2014, gaining not only on stocks but gaining value relative to key commodities as well. The S&P 500 has stumbled from an all-time high close for 2013 as gold gains traction with reinvigorated Asian physical buying and recovering some shine as a safety trade given mixed global economic data. China PMI disappointed but Europe came in stronger than expected with the exception of France. It is noteworthy that gold rallies as the U.S. dollar index gaps higher – the two typically trading in opposition. Gold gained significantly on global commodities oil and copper for the week as those two bellwethers feel the headwinds of strong dollar and re-emerging concerns about the global growth trajectory.

My gold target of $1,240 per ounce anticipates the rally will extend into next week but find significant resistance around the $1,250-level.

For $1,240 per ounce gold we can expect to see silver in a statistically bounded range* of $19.4-$20.6 per ounce; and copper in a range of $3.16-$3.53 per pound. Silver is expected to have a positive bias with respect to a range mean of $19.980 per ounce; copper, a positive bias with respect to a range mean of $3.3458 per pound.

(* +/- 2-standard deviations, 1-month basis)

The S&P 500 closed at an all-time high for 2013 but has had a wobbly start for the New Year; gold gained 1.5% on the S&P for the week. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:



The ratio slid into a descending channel mid-November 2012 as money rotated away from gold assets into the U.S. stock market. This trend transitioned to a sideways channel July 5, 2013 (dashed blue lines, AUSP=0.7431). More recently the AUSP has broken decisively below the lower boundary and is on a second leg of descent (dashed red lines) with this morning’s gold trading at a loss of 47.3% of value relative to the November peak (AUSP=1.2710). Breaking above the upper boundary of the second channel would be a very bullish indication for the yellow metal.


This week, Comex gold is up 1.25% for the week in U.S. dollar terms and 14.3% below August’s high ($1,434.0). The yellow metal gained significant value relative to copper and oil for the week; oil also lost value relative to the red metal. The chart below is a week-over-week valuation matrix. The first row is the current commodity price in the given currency. For all other rows, read “1 unit of row A buys X units of column B”; for example, “1 ounce of gold buys 372.9 pounds of copper.” Percentages are deltas over one week.


Since November 2012, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil and copper.




As measured by the Eureka Miner’s Gold Value Index (GVI, Ref 1), the value of gold relative to global commodities copper and oil and companion metal silver is 82.10, below the key-100 level and below the 1-month moving average of 82.21. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,250.9 per ounce or a $21.73 premium to actual gold price (i.e. gold is trading at a discount to a basket of key commodities).

Happy New Year!

Cheers,

Colonel Possum

Photos by Mariana Titus

Please checkout bayoutales.com for books and book orders


Paintings by Mariana Titus, The Three Anas, are presently at Lafitte Guest House & Gallery, New Orleans
 

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market


Friday, November 22, 2013

Gold's Dilemma; Midway Gold (MDW) Milestone, Tough Week for Miners


Willow Creek Ranch, Eureka County, Nevada

*** HOLIDAY BREAK ***


The Eureka Miner will be on holiday until later this month. 







*** Local Mining News ***

Midway Begins Long Lead-Time Orders For Pan Project, Nevada (Press release, Nov 21, 2013)

Midway Gold - Final Environmental Impact Statement Is Done Pan Project, Nevada (Press release, Nov 20, 2013)

Barrick's Ruby Hill shuts down temporarily (11/05/2013, Elko Daily Free Press, Marianne McKown)

The latest General Moly briefing on the status of the Mt. Hope molybdenum project (with Webcast): General Moly - John Tumazos Very Independent Independent  Research Conference (10/16/2013)

See earlier March 22 and March 29 reports for a full chronology of the $665 million Hanlong loan suspension.

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:  Copper & Gold – The Long Ride from Lehman Brothers (Part II) (10/28/2013)


Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday's AM prices used for this morning's analysis: 


COMEX Gold price = $1,245.1/oz (December contract most active)
COMEX Silver = $19.935oz (December)
COMEX Copper = $3.2055/lb (
December)
NYMEX WTI crude = $94.35/bbl (
December)
ICE Brent crude = $110.00/bbl (December)



Eureka Miner’s Gold Value Index© (GVI) = 84.96 (gold value relative to a basket of commodities that include oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,224.5/oz
COMEX - VAGP = +$20.56/oz; gold is trading at a declining premium to key commodities.




General Moly (GMO) = $1.24 down 8.15%
Barrick Gold (ABX) = $16.665 down 1.10%%
Newmont Mining (NEM) = $25.79 down 0.27%

Midway Gold (MDW) = 0.8812 down 0.99%
Timberline Resources (TLR) = $0.16 down 2.14%
S&P 500 = 1,792.59 up 0.88%




Morning Miners!

Another rough week for gold and not much whistlin' in the mine shaft for miners. This is what I said this morning in my input to the Kitco Weekly Gold Survey (full analysis below):

As it plunged to 4-month lows Thursday, gold continues to suffer from outflows in investment funds and a lack of robust physical buying support. Importantly, the yellow metal made new lows relative to the S&P 500 re-establishing a declining trend initiated one-year ago. The value spread with copper is also widening in the red metal’s favor; the same is true for oil but to a somewhat lesser extent. Continued losses in U.S. dollar price and value relative to equities and key commodities create a very bearish environment for the tarnished store-of-wealth.

Presently Comex gold is trading at $1,245.1 per ounce down over 3% from Friday's close. Copper is having a much better week up 1% at $3.2055 per pound.

Miners broadly are having a tough time. General Moly (GMO) gave us the chills when its share price dipped to $1.32 last week before recovering to a $1.43 close last Friday. This Friday GMO touched $1.23 and has crawled up to $1.24 as I write this report - ouch, 2009 levels! (see Update from General Moly below)

Gold miners Barrick Gold (ABX) , Newmont Mining (NEM), Midway Gold (MDW) and Timberline Resources (TLR) are all following gold price decline (see percentage declines above the photo) - Nuts!

Midway Gold (MDW) Milestone

Amid all this price calamity, Midway Gold (MDW) can score a big positive for their Pan Project in White Pine County. They issued two press releases this week:

Midway Begins Long Lead-Time Orders For Pan Project, Nevada (Press release, Nov 21, 2013)

Midway Gold - Final Environmental Impact Statement Is Done Pan Project, Nevada (Press release, Nov 20, 2013)

Although not in the royalty stream, this is positive for Eureka County with some Midway miners and contractors establishing home base in the Eureka area. Congratulations to the Midway team, a final EIS is a terrific milestone.

Update from General Moly (GMO)

[Nov. 26, 2013, 7:34AM Update: GMO share price dipped to $1.04 after the markets opened and is presently trading at $1.09 - levels not seen since March 27, 2009, very scary indeed]

This report contacted Scott Kozak, General Moly Director of Investor Relations, to ask how they were reading the tea leaves of the recent meeting of Chinese leaders reported in the Eureka Miner. Here is Scott's update:

We have also been tracking news from the 3rd Plenum and will continue to monitor the pace and degree to which the communicated reforms are implemented. More broadly, we continue to believe that the long-term fundamentals for moly consumption are sound, both in and outside of China. We are on the road meeting with investors and participating in a conference this week.


We're back to 2009 GMO share prices but Mt. Hope is now fully permitted with pre-mine construction work complete. The value of Mt. Hope as a molybdenum resource for the future has dramatically increased and now for the same price as the early days - what a deal from a valuation point-of-view.

This is offset by the glum environment for miners and uncertainty about 2014. Goldman Sachs has some interesting thoughts, not all bad certainly:

 Goldman Sachs’s Top Ten Macro Themes for 2014

Item #10 - "Stable China may be good enough" is relevant. Unfortunately, we are in a down-cycle for commodities which will put pressure on metals across the board (Item #9). As Scott notes, the world still needs molybdenum so if we're willing to wait something positive should happen as long as the GMO team has remaining funds to find financing (which they currently do).

An interesting wild card is POSCO and a seemingly booming South Korean economy - the ole Colonel wishes some additional support would come from the steel maker that presently owns a 20% share of Mt. Hope.

Please do your own research. As I always caution - markets can turn on you faster than a feral cat.

The best of luck to the General Moly Team!

Molybdenum Prices

Spot moly oxide prices remain stabilized above the $9 per pound-level. Here are the latest numbers compliments of moly benchmark miner  Thompson Creek (TC):

Metals Week Weekly Average: US$9.85 as of Nov. 15, 2013 (updated weekly)

Ryan's Notes Average: [no data] (updated twice weekly)

The London Metal Exchange (LME) futures are below the spot price on the 3-month contract with the 15-month at nearly $10 per pound. Remember that this is a thinly traded futures market and contract prices may reflect developments in Europe more than the global spot price averages above.

3-month seller's contract $21,300 per metric ton ($9.662 per pound)

15-month seller's contract $22,000 per metric ton ($9.979 per pound)




The Colonel's Gold, Silver & Copper Prices for Next Week

My input to the Weekly Kitco Gold Survey:


11/22/2013 (10:42 AM CT)

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Down. My target price is $1,244 per ounce.

Q. Why?

As it plunged to 4-month lows Thursday, gold continues to suffer from outflows in investment funds and a lack of robust physical buying support. Importantly, the yellow metal made new lows relative to the S&P 500 re-establishing a declining trend initiated one-year ago. The value spread with copper is also widening in the red metal’s favor; the same is true for oil but to a somewhat lesser extent. Continued losses in U.S. dollar price and value relative to equities and key commodities create a very bearish environment for the tarnished store-of-wealth.

The Federal Reserve minutes released this week suggest that tapering of the U.S. quantitative easing policy (QE3) will likely be delayed until the first half of next year [clarification - this is my interpretation given this analysis: Policymakers expected economic and labor market reports to "warrant trimming the pace of (bond) purchases in coming months," according to minutes of the Oct. 29-30 meeting. The minutes also say policymakers could "slow the pace of purchases at one of its next few meetings." Ref - USA Today, 11/20/2013. My take is that the December meeting is too soon but reductions may begin earlier in 2014 than expected before the minutes were released].

I explain in my latest commentary, Copper & Gold – The Long Ride from Lehman Brothers (Part II), “Absent future price shocks, an extended QE3 will likely be characterized by low volatility with copper and gold prices stabilized within trading ranges. As monetary accommodations fade and inflation expectations return, this trend should reverse again in gold’s favor with the return of sustainable higher prices.” The likelihood of the latter may be many months away with tame inflation in the U.S.  and deflationary pressures building in Europe.

My gold target of $1,244 per ounce anticipates further downside next week.

For $1,244 per ounce gold we can expect to see silver in a statistically bounded range* of $19.2-$20.7 per ounce; and copper in a range of $3.01-$3.23 per pound. Silver is expected to have a neutral bias with respect to a range mean of $19.957 per ounce; copper, a positive bias with respect to a range mean of $3.1197 per pound.

(* +/- 2-standard deviations, 1-month basis)

The S&P 500 had a volatile week posting a new high Monday, selling off Wednesday and rebuilding its way back towards $1,800 this morning. Gold in turn has shed more value to equities. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:



The ratio slid into a descending channel mid-November as money rotated away from gold assets into the U.S. stock market. This trend transitioned to a sideways channel July 5 (dashed blue lines, AUSP=0.7431). More recently the AUSP has broken decisively below the lower boundary and appears to be on a second leg of descent (dashed red line) with this morning’s gold trading at a loss of 45.5% of value relative to the November peak (AUSP=1.2710). Breaking the lower boundary of this channel is a very bearish indication for gold; however, it may presage a reversal of fortunes if stocks falter before year’s end.

This week, Comex gold is down 3.3% for the week in U.S. dollar terms and 13.2% below August’s high ($1,434.0). The yellow metal lost significant value relative to copper; oil also lost some value relative to the red metal. The chart below is a week-over-week valuation matrix. The first row is the current commodity price in the given currency. For all other rows, read “1 unit of row A buys X units of column B”; for example, “1 ounce of gold buys 388.4 pounds of copper.” Percentages are deltas over one week.



Since last November, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil and copper:




As measured by the Eureka Miner’s Gold Value Index (GVI, Ref 1), the value of gold relative to global commodities copper and oil and companion metal silver is 84.96, below the key-100 level and below the 1-month moving average of 86.09. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,224.5 or a $20.56 discount to actual gold price (i.e. gold is trading at a growing premium to a basket of key commodities).

Cheers,

Colonel Possum

Photos by Mariana Titus

Please checkout bayoutales.com for books and book orders


Paintings by Mariana Titus, The Three Anas, are presently at Lafitte Guest House & Gallery, New Orleans
 

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market


Friday, November 15, 2013

Gold's Good & Bad Week; Copper & General Moly (GMO) Stumble


Mt. Hope, Eureka, Nevada

*** Local Mining News ***

Barrick's Ruby Hill shuts down temporarily (11/05/2013, Elko Daily Free Press, Marianne McKown)
General Moly Announces Third Quarter 2013 Results (11/04/2013)


The latest General Moly briefing on the status of the Mt. Hope molybdenum project (with Webcast): General Moly - John Tumazos Very Independent Independent  Research Conference (10/16/2013)

See earlier March 22 and March 29 reports for a full chronology of the $665 million Hanlong loan suspension.

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:  Copper & Gold – The Long Ride from Lehman Brothers (Part II) (10/28/2013)


Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday's AM prices used for this morning's analysis: 


COMEX Gold price = $1,287.1/oz (December contract most active)
COMEX Silver = $20.710/oz (December)
COMEX Copper = $3.1595/lb (
December)
NYMEX WTI crude = $94.02/bbl (
December)
ICE Brent crude = $108.14/bbl (December)



Eureka Miner’s Gold Value Index© (GVI) = 87.11 (gold value relative to a basket of commodities that include oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,234.6/oz
COMEX - VAGP = +$53.46/oz; gold is trading at a growing premium to key commodities.


General Moly (GMO) = $1.44 up 0.7%
Barrick Gold (ABX) = $18.14 up 0.17%
Newmont Mining (NEM) = $27.97 down 0.36%

Timberline Resources (TLR) = $0.17 down 2.80%
S&P 500 = 1,792.59 up 0.88%




Morning Miners!

A good and bad week for all that shines and a tougher week for its red companion. This is what I said this morning in my input to the Kitco Weekly Gold Survey:

Dovish comments by Federal Reserve nominee Janet Yellen during her confirmation hearing supported gold price and accelerated equity gains. However, disagreement about the impact of reforms coming from the conclusion of China’s Third Plenum meeting coupled with low growth/deflationary indications from Europe robbed the base metals of much lift from the Yellen testimony. Copper was particularly hard hit with a slowdown in China power grid spending and softening demand expectations form Germany (ranked third in world consumption of the red metal).

So, at least within the commodity space, gold had a good week. Although fairly flat in U.S. dollar price compared to last Friday’s close, the yellow metal gained on oil and moved notably above falling copper prices. However, gold made a very bearish break to the downside compared to the record breaking S&P 500. To put this in perspective, in one year, gold has lost nearly 45% of value to the S&P 500 compared to a 26% decline in U.S. dollar terms. Gold has shed about 20% of value relative to copper (see the first table below in the full survey analysis at the end of this report).

Presently Comex gold is trading at $1,287.1 per ounce and copper at $3.1595 per pound. If you want to form your opinion on the next directions for China here is a link to their official news site:




General Moly (GMO) Stumbles

It was not only a rough week for copper but also moly miners. Benchmark Thompson Creek (TC) dropped below $3 per share after being above that level solidly since early August. Presently TC is trading at $2.94 recovering some of its weekly loss.

If you've grown accustomed to watching General Moly (GMO) trade in a range of $1.50-to-$1.65 per share while the management team seeks new financing for Mt. Hope - this was a week of sheer terror. Everything was fine through Wednesday which closed near the bottom of the range at $1.51. Thursday was a trip down the mine shaft touching a low of $1.32 mid-day. The ole Colonel bought some shares at $1.44 earlier in the morning and quickly sold those at $1.38 when it looked like prices were headed for a bottomless pit. Fortunately, GMO was saved by the wings of a dove - Janet Yellen's remarks on continuing currently accommodative monetary policy at her confirmation hearing put GMO and other miners back in the up-elevator.

GMO closed Thursday at $1.43 or a penny below my original purchase - we haven't seen these price levels since the spring of 2009. As I often say, be cautious - markets can turn on you faster than a feral cat! Fotunately, this cat is now purring as GMO trades this morning at $1.44 per share but a lot lower than the old $1.50-$1.65 range. Thursday volume on a down day was a bit troubling too - 541,274 shares. The 10-day average is 172K; the 90-day is 164K. However, this is not at the 1 million+ levels seen on high-volume up-days for GMO in September and August (9/20 & 6/28).

Fortunately, moly prices are still hanging in there in $9 per pound territory.

I'm getting too old for weeks like this.

Molybdenum Prices

Spot moly oxide prices remain stabilized above the $9 per pound-level. Here are the latest numbers compliments of moly benchmark miner  Thompson Creek (TC):

Metals Week Weekly Average: US$9.80 as of Nov. 8, 2013 (updated weekly)

Ryan's Notes Average: US$9.70 as of Nov. 12, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures are below the spot price on the 3-month contract with the 15-month at nearly $10 per pound. Remember that this is a thinly traded futures market and contract prices may reflect developments in Europe more than the global spot price averages above.

3-month seller's contract $21,300 per metric ton ($9.662 per pound)

15-month seller's contract $22,040 per metric ton ($9.993 per pound)




The Colonel's Gold, Silver & Copper Prices for Next Week

My input to the Weekly Kitco Gold Survey:


11/15/2013 (10:43 AM CT)

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Down. My target price is $1,269 per ounce.

Q. Why?

Dovish comments by Federal Reserve nominee Janet Yellen during her confirmation hearing supported gold price and accelerated equity gains. However, disagreement about the impact of reforms coming from the conclusion of China’s Third Plenum meeting coupled with low growth/deflationary indications from Europe robbed the base metals of much lift from the Yellen testimony. Copper was particularly hard hit with a slowdown in China power grid spending and softening demand expectations form Germany (ranked third in world consumption of the red metal).

So, at least within the commodity space, gold had a good week. Although fairly flat in U.S. dollar price compared to last Friday’s close, the yellow metal gained on oil and moved notably above falling copper prices. However, gold made a very bearish break to the downside compared to the record breaking S&P 500. To put this in perspective, in one year, gold has lost nearly 45% of value to the S&P 500 compared to a 26% decline in U.S. dollar terms. Gold has shed about 20% of value relative to copper (see the first table below).

This week’s events suggest a continuation of present U.S. quantitative easing policy (QE3) with tapering likely delayed until the first half of next year. As I explain in my latest commentary, Copper & Gold – The Long Ride from Lehman Brothers (Part II), “Absent future price shocks, an extended QE3 will likely be characterized by low volatility with copper and gold prices stabilized within trading ranges. As monetary accommodations fade and inflation expectations return, this trend should reverse again in gold’s favor with the return of sustainable higher prices.”

My gold target of $1,269 per ounce anticipates further downside next week.

For $1,269 per ounce gold we can expect to see silver in a statistically bounded range* of $20.2-$21.4 per ounce; and copper in a range of $3.08-$3.27 per pound. Silver is expected to have a negative bias with respect to a range mean of $20.795 per ounce; copper, a negative bias with respect to a range mean of $3.1739 per pound.

(* +/- 2-standard deviations, 1-month basis)

The S&P 500 has is blazing to new records while gold is presently trading near last Friday’s close ($1,284.6). The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:



The ratio had been in a descending channel beginning mid-November as money rotated away from gold assets into the U.S. stock market. This trend bottomed July 5 with a slightly lower low closing last week (AUSP=0.7255): This relation established a sideways channel (dashed lines) until this week when Thursday’s low broke decisively below the lower boundary (AUSP=0.7134) – a loss of 43.9% of value relative to equities from the November peak (AUSP=1.2710). This morning’s trading offers only modest relief (AUSP=0.7128) and sadly, breaking the lower boundary of this channel is a very bearish indication for gold.

This week, Comex gold is fairly flat for the week in U.S. dollar terms but 10.2% below August’s high ($1,434.0). The yellow metal gained significant value relative to copper; oil also gained value relative to the red metal. The chart below is a week-over-week valuation matrix. The first row is the current commodity price in the given currency. For all other rows, read “1 unit of row A buys X units of column B”; for example, “1 ounce of gold buys 407.4 pounds of copper.” Percentages are deltas over one week.



Since last November, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil and copper.




As measured by the Eureka Miner’s Gold Value Index (GVI, Ref 1), the value of gold relative to global commodities copper and oil and companion metal silver is 87.11, below the key-100 level but above 1-month moving average of 85.73. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,234.6 or a $52.46 discount to actual gold price (i.e. gold is trading at a growing premium to a basket of key commodities).

Cheers,

Colonel Possum

Photos by Mariana Titus

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