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


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) 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 5, 2013

Shocking Jobs Report, Breathing Room for General Moly; The Colonel's Metal Prices for Next Week

Sun Angles, Eureka, Nevada


This 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...

Below are the morning prices used in today's analysis:

COMEX Gold price = $1,562.8/oz (June contract most active)

COMEX Silver = $27.010/oz (May)
COMEX Copper = $3.3465/lb (May)
NYMEX WTI crude = $92.60 (May)
ICE Brent crude = $105.20/bbl (May)
Eureka Miner’s Gold Value Index© (GVI) = 95.735 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,364.0/oz
COMEX - VAGP = $198.8/oz; gold is trading at a premium to key commodities.

Good Morning Miners!

Since March 2009, the Eureka Miner has brought you the monthly U.S. employment report and my thoughts on how it impacts the metals & miners. Released by the U.S. Labor Department promptly at 5:30 AM PDT on the first Friday of the month, the announcement of nonfarm payrolls and unemployment rate have become quite a media event for early birds, this morning was no exception. The ole Colonel watches CNBC Business News and records the quotes from talking heads as the jobs numbers are digested. Here's a sample:

"A punch to the gut!"
"A puzzler for the Fed!"
"A tough report..."
"Massive decline in retail..."
"Terrible numbers!"
"Struggling to find anything good!"
"It's all about the sequester!"
"No it's not!"

Yup, it was a bad one. The consensus going into the announcement was 200,000 new jobs; the answer was a meager 88,000 and lower than even the gloomiest economic pessimists predicted. Oddly, the unemployment rate ticked down from February's 7.7% to 7.6% - the lowest since December 2008. The catch is that both the unemployed actively looking for work and folks currently employed both ticked down, so the rate is nothing to cheer about.  The simple way to state this is there are more workers leaving the labor force than getting jobs. The labor force participation rate, at 63.3%, is at its lowest level since 1979. Ouch.

OK, what are the positives? The Federal Reserve will no doubt continue their present quantitative easing program (aka QE3) to prop up the U.S. stock markets and put a floor under commodity prices, including metals. Scary reports generally boost gold prices making an absolutely horrible week for gold just a horrible week as I explain in my weekly input to the Kitco Gold Survey below. Copper prices that were falling through the floor yesterday (intraday Comex low of  $3.306 per pound) are trading presently at $3.3465. The S&P 500 fell to 1,539.8 shortly after the open but has since crawled up to 1,541.39. Earlier in the week the S&P made an all-time closing high of 1,570.25 - shucks, we're only down 1.8% on a bum report!

Nonetheless, a tough environment for miners who have been heading down, down lately as the broader markets go up, up. It will take some time to determine whether today's report is a game changer or not. Stay tuned.

General Moly Update

The torrent of negative Liu Han headlines has thankfully subsided this week and General Moly received some welcome breathing room on their Hanlong bridge loan:

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.

I asked General Moly's Zach Spencer how things were going and he replied just prior to the press release:

Mt. Hope is a world class molybdenum deposit, we have a great management team with decades of experience and we have all of our permits in place. Pre-construction activities are continuing and as soon as we have an update we will certainly share it with you, the market, and the media.

The markets seem to agree with Zach; General Moly (GMO) share price is up 2% at $2.07 on an otherwise down day in the markets. This report has set the $2 as an important level to watch and this week the markets tested $2.01 for three days in a row but did not break lower - so far so good.

The best of luck to the General Moly team.

Molybdenum Prices

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

Metals Week Weekly Average: US$10.766 As of April 1, 2013 (updated weekly)

Ryan's Notes Average: US$10.75 As of April 2, 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 $25,240 per metric ton ($11.45 per pound)

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

Here is my weekly input to Kitco Gold Survey :

04/05/2013 (10:49 AM CT)

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

A. Up, $1,570 per ounce target.

Q. Why?

A. After a horrible week for gold, silver and copper prices, it took a horrible Friday jobs report to make it a little less horrible for gold and silver on a short covering rally. Even the embattled red metal finds itself above its Thursday low. With an expected 200,000 nonfarm payrolls becoming reality at only 88,000, the metals find themselves in a conflicted environment. The poor number reinforces the notion that QE3 is here to stay for a long time but casts another shadow of uncertainty on the robustness of the U.S. recovery against the gray backdrop of a slowing China and contracting Europe.

Aggressive monetary easing in the U.S. and Japan have buoyed their stock markets to new highs as other global equity markets are lack luster to down for the year. For gold, a plot of the gold-to-S&P 500 ratio, or AUSP, tells the story:

Inline image 1

Since mid-November, the ratio has been in a descending channel dropping briefly below parity yesterday (AUSP=0.9972). 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 finds some relief at 1.0139 but still constrained within the channel.

My target is therefore only slightly up for the yellow metal at $1,570 per ounce – the geometric mean between February’s high ($1,620.6) and Thursday’s low ($1,539.4). Since yesterday’s low may prove a double-bottom from last May’s $1,545 per ounce, a floor of $1,540-$1,550 may be in for the year.

For $1,570 per ounce gold we can expect to see silver in a range of $26.7-$29.1 per ounce; and copper in a range of $3.29-$3.57 per pound. Silver is expected to have a neutral bias with respect a range mean of $27.900 per ounce; copper, a negative bias with respect to a mean of $3.4280 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 95.74, below the key-100 level but above the 1-month moving average of 94.85. The 2012 high was 103.73 on Nov. 13.

Background Notes:
  1. My gold target price of $1,570 per ounce is below Wednesday’s resistance at $1,577.3
  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 95.74 or 7.7% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 94.56; 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 467.00 pounds per ounce and now above its 3-month moving average of 452.69 but below its 6-1/2 year trend of 490.39. The 1-month gold-to-copper ratio stability is a low 2.01%. The 1-month rolling correlation is +0.17; 3-month is +0.80. 3-month relative volatility is 0.1.37X gold and price sensitivity (beta) is +1.09.
  5. The gold-to-silver ratio (GSR) is above its historical norm at 57.860; the 3-month rolling correlation is +0.94, relative volatility is 1.91X gold and price sensitivity (beta) is +1.81. The GSR is above its 3-month average of 54.51; the 1-month gold-to-silver ratio stability is a low 2.01% (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 -0.80 sigma below 6-1/2 year trend line; Au:Cu -0.37 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 2.0% (3.2% 10/6/11); Au:Cu 2.0% (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)


Colonel Possum

Inset painting and headline photo by Mariana Titus

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

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