"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, June 7, 2013

Gold Tumbles on Jobs Report; Elko Mining Expo; The Colonel's Metal Prices Next Week

Newmont's Gold Chopper Returns, Elko Mining Expo, Elko, Nevada


Mt. Hope construction continues despite financial issues (by Marianne Kobak McKnown, Elko Daily Free Press, 5/31/2013)
General Moly Provides Finance Update (5/15/2013)

General Moly Quarterly Report (Released 5/3/2013)

Here is a very detailed General Moly briefing for investors on the status of Mt. Hope molybdenum project:

General Moly Investor Presentation

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:  Oil, Copper & $1,200 Gold – A Wild Ride Ahead (05/28/2013)

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

Friday's morning prices...

Below are the morning prices used for today's analysis. COMEX gold has since pulled back to $1,382.2/oz (9:16AM):

COMEX Gold price = $1,385.8/oz (August contract most active)

COMEX Silver = $21.930/oz (July)
COMEX Copper = $3.2730/lb (July)
NYMEX WTI crude = $93.98 (July)
ICE Brent crude = $103.06/bbl (July)

Eureka Miner’s Gold Value Index© (GVI) = 90.74 (gold value is elevated with respect to a basket of key commodities oil, copper and silver given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,276.1/oz
COMEX - VAGP = $109.7/oz; gold is trading at a declining premium to key commodities.

Morning Miners!

Comex August gold tumbled more than $30 on a slightly-better-than-expected U.S. monthly jobs report. Gold down, stock markets up - yup. The S&P 500 is recapturing lost ground this week moving up more than 1% in morning trading to the 1,640-level. The non-farm payrolls came in at 175,000 versus 170,000 expected increase in May. Headline unemployment headed north to 7.6% from 7.5% in April.

Presently Comex gold is at $1,382.2 per ounce; last week the ole Colonel called $1,380. This is one of those times I wish I were wrong - no fun being in the bear campground! More downside around the corner too, pardner (see my input to the Weekly Kitco Gold Survey below). Nuts.

The 2013 Elko Mining Expo

No one would have guessed gold prices were in the shaft at the 2013 Elko Mining Expo. With more than 500 exhibitors, the place was hopping. If you haven't made it, there is still time - Mining Exhibits are up until 3 PM today. Great food, cold beer, mining goodies and free admission - how can you do better than that?

General Moly was very kind to let Mariana and I camp out at their spacious booth complete with sofas, chairs and tables - felt just like home. Hats off to Zach Spencer for being a great host and letting us pile up three brimming bags of assorted mining doo-dads in the corner of their tent.

There was quite a range of stuff to see: a pretty Wyoming cowgirl selling hot tubs made from old haul truck tires, real haul trucks and engines, a huge mine pump that looked like a Roots blower on steroids (from my drag racing days of yore) and, of course, a return of the famous Newmont golden chopper. This is a Paul Jr. custom that I'm sure many of you have seen on television, if not in close proximity. It is 9 feet long, weighs 1,000 pounds and has over 2.2 ounces of local gold integrated into the sleek and shiny design. The motor is a Crazy Horse 100 cubic inch Twin-V with bottle-cap heads - that's a yee-ha for gear heads.

While admiring the bike I had an opportunity to talk with a senior Newmont manager who was surprisingly candid about the state of his business. When asked about gold prices, he made this memorable comment, "If we can remember being excited about $1,000 gold, we SHOULD be able to find a way to make a profit at $1,200."

In my view, the bad news for gold is entering the $1,200-level. The good news is that prices probably won't drop below that number as good physical demand from India and China brings into balance massive investor outflows from Exchange Traded Funds. The long-term prospects for gold price are still intact (see below)

General Moly (GM) Update

Besides being good hosts, the ole Colonel remains upbeat on General Moly's prospects for finding a new financial partner. If you missed it last week, Marianne Kobak McKnown of the Elko Daily Free Press did an excellent column on the current progress at the Mt. Hope mine site:

Mt. Hope construction continues despite financial issues (by Marianne Kobak McKnown, Elko Daily Free Press, 5/31/2013)

Be sure to check out the latest Summer 2013 Mining Quarterly for great articles on Eureka mining (front cover), Eureka history and Mt. Hope!

Even with some large downdrafts in the broader markets, GMO share price has held above the key-$2 level, presently trading at $2.04 per share.

Keep the faith!

Molybdenum Prices

Spot moly oxide prices remain below the key-$11 per pound. Here are the latest numbers compliments of moly benchmark miner  Thompson Creek (TC):

Metals Week Weekly Average: US$10.895 as of June 3, 2013 (updated weekly)

Ryan's Notes Average: US$10.85 as of June 4, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are straddling $11 per pound this week. 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 $24,000 per metric ton ($10.89 per pound)

15-month seller's contract $25,200 per metric ton ($11.23 per pound)

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

Here is my weekly input to the Kitco Gold Survey:

06/07/2013 (10:45 AM CT)

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

A. Down, $1,365 per ounce target.

Q. Why?

A. Gold had a very volatile week buoyed by a falling Nikkei which lost more value relative to its May multi-year high but then taken down today by recovering domestic equities on a slightly better-than-expected U.S jobs report. The yellow metal is faltering relative to oil and neutral with respect to copper. The bear market for gold persists and could soon see a test of the April low and eventually enter $1,200 per ounce territory (Ref 4).

The S&P 500 has recovered some from its downturn this week but gold has lost momentum trading lower than last Friday’s close as illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

Inline image 1

The ratio has been in a descending channel since mid-November with rotation of money away from gold assets into the U.S. stock market with gold losing more than 30% of value relative to equities from the November peak (AUSP=1.2710). As equities recover ground, the channel is still intact. A pullback in gold price next week is likely and my target price of $1,365 per ounce anticipates that the AUSP will retreat to 0.83 as the S&P 500 moves up to the middle of its Bollinger range:

Target price = 0.83 x 1,645 = $1,365 per ounce

For $1,365 per ounce gold we can expect to see silver in a statistically bounded range* of $21.4-$22.3 per ounce; and copper in a range of $3.06-$3.32 per pound. Silver is expected to have a neutral bias with respect a range mean of $21.875 per ounce; copper, a positive bias with respect to a mean of $3.1903 per pound.

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

This week, gold has lost not only dollar price but has slipped in value relative to oil and is essentially unchanged relative to copper; copper has lost value relative to oil. The chart below is a week-on-week valuation matrix (Read the chart as “1 unit of A buys X units of B”; for example,”1 ounce of gold buys 423.3 pounds of copper. Percentages are change from last Friday’s closing numbers):

Inline image 2

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 but challenged (Note 4, Ref 23)

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 90.74, below the key-100 level and slightly above the 1-month moving average of 90.14. The 2012 high was 103.73 on Nov. 13.

Background Notes:
  1. My gold target price of $1,365 per ounce is based on the declining relation relative to the S&P 500
  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 90.74 or 12.5% below the 2012 high of 103.73; a value of 100 represents a historically high-value of gold relative to key commodities oil, copper and silver.
  4. Although gold has lost considerable value relative to oil and copper since early November, the long-term uptrend in gold value relative to these global commodities is still intact (mid-2006 to the present). If this relation gives way, gold could see considerable downside. The 1-month gold ratios relative to WTI & Cu are no loner showing signs of stability divergence (i.e. now <3 span="">
    1. Au:WTI -1.52 sigma below 6-1/2 year trend line; Au:Cu -1.13 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 2.24%;  Au:Cu 1.97% - I consider ratio stability > 3% to be potentially divergent & worrisome
(* stability defined as the standard deviation of the gold ratio normalized by its mean over 1-month)
Ref 2: The Emperor of Metals Heeds a Warning from Copper (Kitco News, 03/11/2013)
Ref 3: Copper & Gold – Is April the Cruelest Month? (Kitco News, 04/22/2013)
Ref 4: Oil, Copper & $1,200 Gold – A Wild Ride Ahead (Kitco News, 05/28/2013)


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