"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.

Friday, April 12, 2013

Gold , Barrick (ABX) Down the Mineshaft; General Moly (GMO) Steady Eddy

Wash Day, Eureka, Nevada

*** MONDAY CLOSING NUMBERS ***

Comex gold $1,361.1 Intraday low = $1,355.1
Comex silver $23.360 Intraday low = $22.520
Comex copper $3.2730 Intraday low = $3.1935
Nymex crude (WTI) $88.71 Intraday low = $87.20

*** MONDAY MORNING UPDATE (0823 PDT) ***

Comex gold $1,362.1 Low = $1,355.3 (1110 ET)
Comex silver $23.255 Low = $22.920 (0605 ET)
Comex copper $3.2325 Low = $3.1935 (0605 ET)
Nymex crude (WTI) $88.18 Low = $87.86 (1045 ET)

*** MONDAY MORNING UPDATE (0720 PDT) ***

Horrific Sunday night and Monday morning for gold and commodities. Worst than expected China GDP (7.7% vs 8.0%), gold liquidation fears in the troubled eurozone countries, lackluster physical demand in India and China, and anticipation of the eventual Bernanke unwind of quantitative easing (QE3) are all weighing on the yellow metal.

Barrick (ABX) is gettting clobbered again trading at $20.11 and pushing the clock back to October 2008 for these levels.

Newmont (NEM) is faring only a little better trading at $34.20 or early December 2008 territory.

General Moly (GMO) has fallen below the key $2-level to trade at $1.94

Comex gold $1,397.3 Low = $1,385.0 (0600 ET)
Comex silver $22.985 Low = $22.920 (0605 ET)
Comex copper $3.2270 Low = $3.1935 (0605 ET)
Nymex crude (WTI) $88.55 Low = $$88.05 (0605 ET)

The fact that commodities and gold are going down together is actually a positive for gold in my view. This how I phrase it in my Kitco Monday commentary to be posted later this morning:

With dramatic sell off in progress, it is tempting to declare the end of the gold bull run and/or commodity super-cycle. My thesis has been that until the uptrend in gold valuation relative to oil and copper reverses, the longer-term prospects for higher currency prices remain intact. I ran my 6-1/2 year valuation models tonight [Sunday, 4/14] and there is statistically no cause for alarm (yet).

At this morning's prices an ounce of gold still buys 433 pounds of copper; in mid-2006 it was only 200 pounds. An ounce buys 15.8 barrels of Western Texas Intermediate Crude; in mid-2006 it only fetched 10 barrels.

Keep the faith!

*** GENERAL MOLY NEWS ***

Last week General Moly received some breathing room on the Mt. Hope molybdenum project financing:

General Moly Announces Financing Update (Press Release, Wednesday, 4/3/2012)

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 Weather Report (03/25/2013)

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

Friday's morning prices...

Events overtook timely calculation this morning, Comex gold plunged to $1,491.4 per ounce after my weekly gold report to Kitco News. Gold is presently trading at $1,501.1 down $63.8 from yesterday's close. Below are the morning prices used for the earlier analysis:

COMEX Gold price = $1,537.4/oz (June contract most active)

COMEX Silver = $26.890/oz (May)
COMEX Copper = $3.3820/lb (May)
NYMEX WTI crude = $91.55 (May)
ICE Brent crude = $102.46/bbl (May)
Eureka Miner’s Gold Value Index© (GVI) = 94.28 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,362.6/oz
COMEX - VAGP = $174.8/oz; gold is trading at a premium to key commodities.



Good Morning Miners!

This is one of those Friday's that moves faster then I can type...or think.

It has been another lousy week for the metals & miners so the ole Colonel didn't start the morning with any wild-eyed expectations. Comex gold plumbed $1,525.6 per ounce at 6:20 AM cowboy time but managed to struggle back up to $1,537.4 when I did my analysis for the weekly Kitco gold survey. This report predicted a $1,570 target for the week which was winning bets on the close yesterday ($1,564.9, close enough for ranch work). The early morning price dive didn't do much for my ego.

Several minutes after posting my analysis to Kitco Global Editor Debbie Carlson at 8:35 AM (see below), I noticed that gold had taken another nose dive! While I was busily typing, Comex gold had dipped to $1,491.4 per ounce at  8:00 AM - a $73.50 drop from yesterday's close - Ouch!

I wrote Debbie back and told her to throw my numbers in the trash bin. I revised my $1,550 target to a "pray we can hold" $1,500 number. She did like my words if not my numbers; here's how Debbie thankfully cast my thoughts:

Richard Baker, editor, Eureka Miners Report, said he thinks gold has a chance to bounce next week after Friday’s sell off, although the rebound could be limited as the larger sentiment toward gold is still negative.

There’s been “a rotation of money away from gold assets into the U.S. stock market with gold losing more than 20% of value relative to equities from the November peak… Other factors influencing gold price are fears of liquidation by central banks in the troubled southern countries of the eurozone and the eventual unwind of the Federal Reserve from its present generously accommodative policies. I have a sense that gold is presently oversold and will see some relief next week although (it will be) still constrained...” he said.

Barrick Gold (ABX) gasps for air

Diving gold prices is not what Barrick Gold (ABX) needs to hear on one of their worst weeks in recent memory. Work at their troublesome Pascua-Lama gold mine was halted by a Chilean court this week causing their share price to fall down the mineshaft with gold - a few levels further down. Barrick is presently trading at $23.24 per share, levels not seen since December 2008!

This is how the news broke early Wednesday morning:

TORONTO (04/10 06:30 AM)- Barrick Gold Corp. (ABX:$25.79,00$-0.90,00-3.37%) opened down about 3.3% in Toronto Wednesday after reports that a Chilean court has suspended construction of the Canadian company's massive Pascua-Lama gold project on environment grounds.

A spokesman from Barrick declined to comment on the court order, saying the company had yet to review it. The action was filed last September in the Court of Appeals of Copiapo, Chile, by representatives of four indigenous communities, the company said. It was filed against Compania Minera Nevada, Barrick's Chilean subsidiary and the local regulatory body with oversight authority over the project. A second action was filed the following month in the same court by a " representative of a Diaguita indigenous community and certain other individuals, " Barrick said. The mine, which would produce about 800,000 to 850,000 ounces of gold a year, was scheduled to start producing in 2014. While not expected to be Barrick's largest mine in terms of production, the Toronto-based company believed it would be its lowest-cost mine.


The mine has already been plagued by cost overruns, with Barrick announcing an increase of $500 million in February, bringing the total expected cost of the project to around $8 billion to $8.5 billion. (Newswire)

Mariana and I had dinner with a good friend and geologist that night who had visited the Pascua-Lama site some years ago. He said the conditions at 15,000+ feet elevation were extremely challenging with little oxygen and searing UV radiation. In those days coca leaves kept the miners rolling while baseball capped visitors from the North gasped for air and pondered why their exposed ears were quickly turning to burned bacon. Here's an informative follow-up article:

Barrick Gold And The Pascua-Lama Disaster (Seeking Alpha ,Apr 11 2013, 15:43)

Although this is becoming an extreme example of misfortune (and perhaps miscalculation), all miners are facing the challenges of falling metal prices, rising costs and growing environmental concerns. The ole Colonel threw a few shares of Barrick in the buckboard this morning figuring things couldn't be as bad as December 2008 - could they?

Please do your own homework, the Colonel has been dead wrong in the past and markets can turn on you faster than a feral cat.

General Moly (GMO) steady eddy

Even with blood in the streets for gold miners, General Moly (GMO) is still trading above $2; presently at $2.01. There was a brief sojourn to $1.92 on the same day investors were treating Barrick like useless overburden. This report maintains that a General Moly above $2 is evidence that investors are confident in GMO management's ability to secure new financing - so am I.

The best of luck to the General Moly team and the Barrick folks that are looking for a breath of air at Pascau-Lama.



Molybdenum Prices

Spot moly oxide prices are below the key-$11 per pound level but slightly up from last week. Here are the latest numbers compliments of moly benchmark miner  Thompson Creek (TC):

Metals Week Weekly Average: US$10.90 As of April 6, 2013 (updated weekly)

Ryan's Notes Average: US$10.75 As of April 9, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are still above $11 per pound this week which remains encouraging. Remember that this is a thinly traded futures market and contract prices reflect developments in Europe probably more than the global spot price averages above.

3-month seller's contract $24,500 per metric ton ($11.11 per pound)

15-month seller's contract $25,230 per metric ton ($11.44 per pound)

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




Here is my weekly input to Kitco Gold Survey :


04/12/2013 (10:32 AM CT)

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

A. Up, $1,550 per ounce target.

Q. Why?

A. Another challenging week for gold which retreated to new lows as domestic equity markets posted record highs. A plot of the gold-to-S&P 500 ratio, or AUSP, continues to illustrate this woeful dichotomy for the yellow metal:

Inline image 1

Since mid-November, the ratio has been in a descending channel falling below parity in the last several days to score a lowly 0.9665 this morning. This reflects a rotation of money away from gold assets into the U.S. stock market with gold losing more than 20% of value relative to equities from the November peak (AUSP=1.2710). This morning Comex gold plumbed $1,525.6 per ounce; yesterday the S&P 500 made its new record close at 1,593.37.

Other factors influencing gold price are fears of liquidation by central banks in the troubled southern countries of the euro-zone and the eventual unwind of the Federal Reserve from its present generously accommodative policies. I have a sense that gold is presently oversold and will see some relief next week although still constrained within the AUSP channel for the time being.
My target is therefore at the former level of support at $1,550 per ounce – below the mean of February’s high ($1,620.6) and this morning’s low ($1,525.6).

For $1,550 per ounce gold we can expect to see silver in a range of $26.7-$28.7 per ounce; and copper in a range of $3.32-$3.54 per pound. Silver is expected to have a neutral bias with respect a range mean of $27.662 per ounce; copper, a negative bias with respect to a mean of $3.4341 per pound.

If the long-term gold value uptrend relative to oil and copper remains intact, the longer term prospects for gold priced in dollars are good. The data suggest that this is still the case (Note 6, Ref 5)

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 94.28, below the key-100 level and the 1-month moving average of 94.83. The 2012 high was 103.73 on Nov. 13.

Background Notes:
  1. My gold target price of $1,550 per ounce was previously a thought-to-be solid level of support.
  2. Given the target gold price, the silver price ranges are derived from the 1-month gold ratio mean (GSR) and its respective ratio stability (CRS©). The same technique was used to predict the price range for copper.
  3. My Gold Value Index© (GVI) equals 94.28 or 9.1% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 94.83; a value of 100 represents a historically high-value of gold relative to key commodities oil, copper and silver.
  4. The gold-to-copper ratio today is 454.58 pounds per ounce and close to its 3-month moving average of 453.59 and below its 6-1/2 year trend of 491.24. The 1-month gold-to-copper ratio stability is a low 1.59%. The 1-month rolling correlation is +0.41; 3-month is +0.81. 3-month relative volatility is 1.40X gold and price sensitivity (beta) is +1.13.
  5. The gold-to-silver ratio (GSR) is above its historical norm at 57.174; the 3-month rolling correlation is +0.95, relative volatility is 1.94X gold and price sensitivity (beta) is +1.94. The GSR is above its 3-month average of 54.70; the 1-month gold-to-silver ratio stability is a low 1.81% (same as copper)
  6. Although gold has lost considerable value relative to oil and copper since early November, the uptrend in gold value relative to these global commodities remains on solid footing (mid-2006 to the present). If this relation gives way, gold is probably in a world of hurt. Also, 1-month gold ratios relative to WTI & Cu remain quite stable* unlike the early-October 2011 commodity debacle following the U.S. debt downgrade (Ref 4):
    1. Au:WTI -0.84 sigma below 6-1/2 year trend line; Au:Cu -0.58 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 1.9% (3.2% 10/6/11); Au:Cu 1.6% (5.7% 10/3/11) - I consider ratio stability > 3% to be divergent & worrisome
(* stability defined as the standard deviation of the gold ratio normalized by its mean over 1-month)
Ref 2: Oil, Copper & Gold – All in the Family (Kitco News, 01/22/2013)
Ref 3: Oil, Copper & Gold – Beware the Snake? (Kitco News, 02/11/2013)
Ref 4: Oil, Copper & Gold – Don’t Worry (Kitco News, 02/25/2013)
Ref 5: The Emperor of Metals Heeds a Warning from Copper (Kitco News, 03/11/2013)



Cheers,

Colonel Possum

Inset painting and headline photo by Mariana Titus

Please checkout bayoutales.com for books and book orders


Paintings by Mariana Titus, The Three Anas, are presently being featured 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

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