The Gold Price Seesaw: $1,250 or $1,450? GMO Surges

Willow Creek Ranch, Eureka County, Nevada

*** GENERAL MOLY NEWS ***

***BREAKING NEWS*** General Moly (GMO) stock surges on high volume trading up 7.4% to $1.88 per share. 1,346,652 shares - 6.5 times 90-day average volume.

General Moly Announces Implementation of Cost Reduction Program While Actively Pursuing Mt. Hope Financing (9/09/2013)
General Moly Announces Preliminary Injunction Motion Denied, Without Prejudice, Related to Mt. Hope Record of Decision Appeal (8/26/2013)

A very detailed General Moly briefing for investors on the status of the 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:  Copper & Gold – The Long Ride from Lehman Brothers (10/08/2013)
Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday's morning's prices used for this morning's analysis (Comex gold has since slumped further, down $34.1/oz at $1,335.2/oz):

COMEX Gold price = $1,353.0/oz (December contract most active)
COMEX Silver = $22.640/oz (December)
COMEX Copper = $3.3345/lb (December)
NYMEX WTI crude = $105.90/bbl (October)
ICE Brent crude = $109.29/bbl (November)
Eureka Miner’s Gold Value Index© (GVI) = 84.20 (gold value is trading at a discount to oil and and a slight premium to copper)
Value Adjusted Gold Price© (VAGP) = $1,342.7/oz
COMEX - VAGP = $10.33/oz; gold is trading at a vanishing net premium to key commodities.

General Moly (GMO) = $1.64 up 1.73%
Barrick Gold (ABX) = $17.58 down 0.17%
Newmont Mining (NEM) = $28.22 down 0.05%

Morning Miners!

Gold has had a wild ride this week getting a solid boost higher with Wednesday's U.S. Federal Reserve announcement of "no taper"  to a broad sell-off this morning. Comex gold went from a pre-announcement intraday low of $1,291.5 per ounce to close Thursday at $1,369.3 - a nearly $78 move up. Today, almost half of that has been given back with gold now trading at $1,335.2 per ounce.

We can expect more volatility ahead as I explain in my input to Kitco's Weekly Gold Survey (below) and latest commentary, Gold Trapped In A Value Wedge.

Although I expect to see lower prices later this year and into the first quarter of 2014, the contentious debt debate in Washington could give the yellow metal some safe-haven "levitation." I believe moves higher will be capped around $1,450 per ounce. Later this year gold could revisit the $1,250-level.

Many moons ago the Eureka Miner used this seesaw photo to illustrate the plight of gold price then; the same metaphor and image is appropriate today.

Last week we wrapped up an eight-part summer series on Mt. Hope. You can access the series with the links in the column to your right. We'll be back with a second series on Mt. Hope later this year or next. The second  road trip is longer (110 miles) and will include ranches of early settlers, a second portion of the Pony Express Trail and a challenging section of the old Eureka-Palisade Railroad. The headline photo today is of the Damele family's Willow Creek Ranch looking north to Pine valley - one of the many ranches we will visit.

Loop # 1 (65 miles) was a fun trip - I hope you enjoyed the Mt. Hope journey in space and time and look forward to the next trip too!

General Moly (GMO) got a nice 5% pop today to $1.84 per share. Gold miners are down on plunging gold price: Barrick, $18.88 and Newmont, $28.43 per share.

Molybdenum Prices

Spot moly oxide prices have 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$9.475 as of September 13, 2013 (updated weekly)

Ryan's Notes Average: US$9.852 as of September 17, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are above spot prices on the 3-month contract but fallen below $10 per pound on the longer contract. 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 $21,000 per metric ton ($9.526 per pound)

15-month seller's contract $21,720 per metric ton ($9.852 per pound)

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

Here is my weekly input to the weekly Kitco Weekly Gold Survey:

09/20/2013 (10:37 AM CT)

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

A. Up. My target price is $1,360 per ounce.

Q. Why?

A. U.S. dollar gold price got a boost from the FOMC “no taper” announcement and held its ground with the S&P 500 as equities set new record highs. Gold and copper both recovered value relative to oil which has pulled back with easing tensions in the Middle East and improving output from Libya.

However I believe as QE3 carries on, oil and copper will get more boost from easy money than gold so gold value erosion relative to real things will continue. This morning gold has recovered a $10 per ounce premium relative to a commodity basket of oil, copper & silver. Even if gold can recover a $50 premium, I don't think the yellow metal will get above $1,450 per ounce in the near term as explained in my latest commentary, Gold Trapped in a Value Wedge.

The wild card is the actions of the U.S. Congress in the current debt debate. Expectations of a government shut-down could give gold a safe-haven transient shot to higher levels. The poor start to these negotiations may rally support for the yellow metal as early as next week so my target is up from this morning’s trading at $1,360 per ounce (the geometric mean of the August high and September low).

Once the headlines clear, the yellow metal should trade at a discount to key commodities limiting future advances and may presage a return to much lower prices later this year or by Q1 2014. Based on prior quantitative easing cycles, this trend must reverse, “before a serious recovery in gold price is possible – typically, after or near the end of each QE program.”

For $1,360 per ounce gold we can expect to see silver in a statistically bounded range* of $22.4-$23.7 per ounce; and copper in a range of $3.11-$3.40 per pound. Silver is expected to have a negative bias with respect to a range mean of $23.058 per ounce; copper, a positive bias with respect to a mean of $3.2542 per pound.

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

The S&P 500 made new all-time highs this week and gold recovered some value relative to equities. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

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 nearly losing 38% of value relative to equities from the November peak (AUSP=1.2710). Bullishly, gold had breached the channel to the upside but is now just keeping its head just above the channel’s upper boundary.

This week, Comex gold is up 3.4% for the week but down 5.6% from August’s high ($1,434.0). The yellow metal gained value relative to oil and lost only slightly to copper; oil lost to copper rather significantly. 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 405.8 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 84.20, below the key-100 level and the 1-month moving average of 84.74. The 2012 high was 103.73 on Nov. 13.

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

Mt. Hope - A Journey in Space and Time (Part VIII, Calderas and the Witches' Magma Brew)

Mt. Hope at 8,000 feet, Eureka County, Nevada

*** GENERAL MOLY NEWS ***

General Moly Announces Implementation of Cost Reduction Program While Actively Pursuing Mt. Hope Financing (9/09/2013)
General Moly Announces Preliminary Injunction Motion Denied, Without Prejudice, Related to Mt. Hope Record of Decision Appeal (8/26/2013)

A very detailed General Moly briefing for investors on the status of the 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:  A Bear Case For Lower Gold Price (With A Happy Ending) (09/03/2013)
Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday's morning's prices...
COMEX Gold price = $1,314.6/oz (December contract most active)
COMEX Silver = $21.840/oz (December)
COMEX Copper = $3.1970/lb (December)
NYMEX WTI crude = $107.53/bbl (October)
ICE Brent crude = $111.05/bbl (October)
Eureka Miner’s Gold Value Index© (GVI) = 83.95 (gold value is trading at a discount to oil and and a slight premium to copper)
Value Adjusted Gold Price© (VAGP) = $1,308.5/oz
COMEX - VAGP = $6.12/oz; gold is trading at a vanishing net premium to key commodities.

General Moly (GMO) = $1.64 up 1.73%
Barrick Gold (ABX) = $17.58 down 0.17%
Newmont Mining (NEM) = $28.22 down 0.05%

Morning Miners!

Gold and global commodities have had a lousy week with Comex gold touching $1,304.6 per ounce in the wee hours. Prices have since recovered some but it has been a long fall from August's highs. Please checkout my input to the weekly Kitco News Gold Survey (below) and most recent Kitco News commentary for my latest thoughts on gold,  A Bear Case For Lower Gold Price (With A Happy Ending) .

Today we wrap up our eight-part summer series on Mt. Hope. We'll be back with a second series on Loop # 2 later this year or next - stay tuned.

Loop # 1 has been a fun trip - I hope you have enjoyed the journey in space and time too!

Mt. Hope - A Journey in Space and Time (Calderas and the Witches' Magma Brew) 

A multi-part series that circumnavigates the Mt. Hope molybdenum mine site on Eureka County back roads and highways.  Starting with the creation of molybdenum in the early universe, this journey will cover the geology of the area as well as its colorful history. There will be two trips, Loop#1 and #2, which include ranches of early settlers, a portion of the Pony Express Trail, a challenging section of the old Eureka-Palisade Railroad and a mine site tour. If you'd like to visit Mt. Hope, please make arrangements beforehand with Zach Spencer, General Moly's Director of Media Relations. Like any mine site, there are both security and safety concerns at Mt. Hope, but Zach and the Mt. Hope team do everything possible to accommodate public interest in their project. You can contact Zach by e-mail: zspencer@generalmoly.com

Mt. Hope Loop # 1 – Calderas and the Witches’ Magma Brew

This series started with the beginning of the Universe and the very elements that came together to form our planet. Most evolved over eons in the bellies of stars; a process that continues today and includes our own sun. We learned, however, that elements heavier than a very stable isotope of iron needed an extra push from the cradle – putting it mildly. The heavier elements including molybdenum, gold and silver were formed in the fleeting seconds of stellar explosions - not just supernovae, but big whopper Type II supernovae. If Miss Moly entered the stage with explosive drama, it is fitting that her journey to the surface of the earth conclude with a bang too. Volcanoes provide the perfect encore setting for our brave heroine.

Today’s episode concludes our eight-part summer series on Mt. Hope as we drive the last miles of Loop #1. The next Mt. Hope series will cover a longer loop around the mountain including a tour of the historic Damele ranches, a challenging section of the Eureka & Palisade Railroad and another leg of the Pony Express Trail.

We can’t properly finish our present adventure without describing Miss Moly’s encore performance and a view from 8,000 feet.

Mile 26.1 – HWY 278

Leaving the fire pit at the base of Mt. Hope (Part VII), Henderson Road heads northeast about six miles and joins Highway 278 at Mile 26.1.

Loop#1 then heads south on 278 over Garden Pass, past the mine site entrance to Mt. Hope and then back to Eureka. The distance from the Henderson intersection with HWY 278 to Eureka is 24 miles for a total travel of 65 miles – not a bad way to spend a spring afternoon in the country!

We’ll cover this stretch in more detail during the Loop #2 tour in the next series. Before a quick stop at the mine site, let’s take a peek inside the mountain.

Tuff stuff

Nevada’s basin and range is covered over, under and through with the evidence of violent volcanic activity. On a trip to Austin, we see ash flow tuff and welded tuff in the road cuts near Hickison Summit - the hot silicate-rich breath of volcanoes settled back to earth. But we don’t need to go to Austin, Eureka’s east canyon has at least two large exposures of white rhyolite tuff that old timer’s fashioned into building material for many of the structures that still stand today. The Nevada State Bank is a classic example of masonry stone crafted from volcanic tuff; the now closed J & S Saloon (formerly Jim & Lorraine’s) is another although stone placement and precision of fit may require a more creative eye to appreciate. Anyone that has tried to lay water pipe below the freeze-line on either side of the canyon has run into this tuff stuff.

Felsic Volcanism

Rhyolite is considered the “extrusive equivalent to the plutonic granite rock.” Chemically similar, the former extruded from the throats of volcanoes while the more sedate granite was compressed under extreme pressures and temperatures beneath earth’s surface before tectonically rising to the occasion. The High Sierras are made of granite; Nevada favored the more wild and crazy cousin. Who do you think Miss Moly chose to date? Granite is for statues!

In Part VI we learned that intermediate to mafic volcanism was responsible for spreading Nevada’s topography apart in the Miocene after a lot of tectonic compression during the Paleozoic. This was characterized by a relatively low concentration of silicates in the lava flows that emanated from a long north-south feature called the Northern Nevada Rift (NNR). As we roll south on HWY 278 to the Mt. Hope mine site we skirt the eastern boundary of the NNR zone; our picnic at Mile 17.3 was square in the middle.

Silicate-rich felsic lava is more viscous than the mafic or intermediate variety (think molasses versus maple syrup) and is thereby slower to rise in the magma chamber of volcanoes. This often produces tremendous pressures that can explosively erupt into plumes and flows of tuffaceous ash and pumice.

A child’s cartoon of a volcano (I drew many myself at a younger age) is typically a cone with lots of hot stuff blowing out the top. This is called a shield volcano and is generally associated with the mafic variety. The felsic volcanoes of the basin and range are associated with a caldera-forming process illustrated in this cartoon:

A caldera is a cauldron-like feature formed by the collapse of land following a volcanic eruption. A collapse is triggered by the emptying of the magma chamber beneath the volcano. I found this cool visualization of the process:

It is simply a box filled with flour that hides a balloon attached to a tube. The balloon inflates and once it stops, the air begins to escape and starts to drop its elevated flour –similar to the process of filling and emptying of magma followed by a drop in the caldera.

The Big Smoky Valley has lots of calderas, some very large. Mt. Hope has two cauldrons 3,300 and 900 feet across (General Moly FEIS).

Porphyry

Famed geologist Ralph Roberts, who we met in Part IV, said, "Mt. Hope is an intrusive plug of rhyolitic porphyry.” The FEIS makes a similar comment at the beginning of their geology & mineralization section, "The Mount Hope deposit is a classic Mo [molybdenum] porphyry." Porphyry deposits are formed when a column of rising magma is cooled in several stages. At each stage, a separation of dissolved metals is deposited into distinct zones. At Mt. Hope, deposits of molybdenum are found in quartz stockwork containing molybdenite.

The most common are copper porphyry as found in the massive Robinson copper mine in Ely, Nevada. Typically, within copper porphyry are zones containing molybdenum and gold. It is no coincidence that copper giant Freeport-McMoran is also a significant producer of gold and molybdenum!

In Mt. Hope’s case the witches’ magma brew tilted in favor of molybdenum with smaller deposits of copper, gold and other metals. Here is an “old school” USGS diagram showing classic copper porphyry with molybdenite and gold deposits:

Putting all the puzzle pieces together…

At the risk of upsetting my geologist friend who has been so helpful in supporting this series, I will now try to put all of Mt. Hope’s puzzle pieces together. Oh-oh, I can hear him already, “It’s more complex and puzzling than that!” He is right of course but hopefully this is at least start in the right direction.

First, his comments on Mt. Hope:

Mt. Hope, greater Rawhide and the mountains around Tonopah (Virginia City area, too) represent examples of mountains being more closely related (both space and time) to the forces that created the rocks.  All have examples of plugs or shallower level intrusive bodies that now appears as everything from eroded stumps to nearly intact domes or cones.

And,

I usually see Mt. Hope discussed as part of the Cortez-Eureka trend that includes both precursor intrusive bodies and (mostly?) slightly younger caldera-related tuff units.  The gold deposits (like Cortez, Pipeline, Cortez Hills, and even Archimedes) are believed related to certain phases of intrusive activity (in the 35 to 40 My range).  The NNR [Nortern Nevada Rift] just happens to cut across the older trend, or so I’ve read.  In the BIG picture the two may be related, but that's out of my league.  As I said above, it gets complicated.

Mt. Hope is included in the NNR zone of Part VI but this mafic volcanism of a more recent period wasn’t directly responsible for Mt. Hope’s mineralogy. That process was more closely tied to the earlier caldera process discussed above.

Much of the rock supporting the base and sides of Mt. Hope is from the Paleozoic Period of Part III. For example, Lone Mountain dolomite of Silurian age and Devonian limestone of the Nevada Formation can both be found both be found at Mt. Hope. To give this some spatial perspective checkout this photo I took at the 8,000 foot level of Mt. Hope looking back at Lone Mountain.

Most of our Loop#1 off-road travel lies within the frame of this image. I believe the ridge between Lone Mountain and Mt. Hope is the western boundary of the NNR zone and not far from our picnic location at Mile 17. The Silurian age dolomite can be found near the top of Lone Mountain; we encountered the Devonian limestone as we passed through Devil’s Gate (just outside this field-of-view to the left) – both are hundreds of millions of years old.

The FEIS has a terrific close-up geologic map of the Mt. Hope showing some of the Paleozoic features (Permian and Ordovician), Tertiary porphyry and vent breccia elements (tens of millions of years old) and the much more recent alluvium from the Quaternary Period (recent to several million years ago):

The pay dirt for General Moly is the “Mt. Hope Tuff” shown in the two blue zones and by cooling units. According to the FEIS, “The Mount Hope deposit contains a nearly 1.0 billion ton molybdenite ore body that would produce approximately 1.1 billion pounds of recoverable Mo [molybdenum] during its 44-year lifetime.”

In today’s headline photo (also shown below), clearing on Mt. Hope’s south-east face is presumably over some or the entire blue zone in preparation for mine construction (Diamond Valley and the Diamond Range are in the distance).

The Eureka Miner would like to especially thank the General Moly team for enabling this photo opportunity at 8,000 feet. My tour guide Nate Garner was particularly helpful in pointing out the unique features of a mountain that has played such a central role in Eureka County’s history from pre-Archaic times to the present.

If you'd like to visit Mt. Hope, please make arrangements beforehand with Zach Spencer, General Moly's Director of Media Relations. Like any mine site, there are both security and safety concerns at Mt. Hope, but Zach and the Mt. Hope team do everything possible to accommodate public interest in their project. You can contact Zach by e-mail: zspencer@generalmoly.com

This completes the summer series on Mt. Hope’s Loop #1. Give it a run when the weather is nice!

Molybdenum Prices

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

Metals Week Weekly Average: US$9.579 as of September 6, 2013 (updated weekly)

Ryan's Notes Average: US$9.625 as of September 10, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are above spot prices on the 3-month contract and slightly above $10 per pound on the longer contract. 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 $21,500 per metric ton ($9.752 per pound)

15-month seller's contract $22,230 per metric ton ($10.084 per pound)

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

Here is my weekly input to the weekly Kitco Gold Survey:

09/13/2013 (10:23 AM CT)

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

A. Down. My target price is $1,295 per ounce.

Q. Why?

A. Gold had a horrible week as global commodities oil and gold experienced a bad one. Gold and oil suffered from an easing in Syria tensions; all three experienced the headwinds of an expected taper announcement at next week’s FOMC meeting. Gold is also threatening to test its July low relative to S&P 500 (see plot below). Importantly, the yellow metal physical demand from Asia has also disappointed during a season that is typically very strong.

A failure of the current diplomatic effort in Syria or the lengthening shadow of Congressional debt debates may add some zest to the fallen safe-haven but it is undeniable that gold U.S. dollar price remains in a bear market now that August’s bull run has faded.

Even though the taper may be mild or delayed, QE3 is likely to continue for some months to come and will further erode gold’s value to key commodities as explained in my latest commentary, A Bear Case for Lower Gold Price (With A Happy Ending). The long term prospects remain bullish for gold.

Once the headlines clear, the yellow metal will eventually trade at a discount to a basket of commodities that include oil, copper and silver; this should limit future advances and may presage a return to much lower prices later this year. Based on prior quantitative easing cycles, this trend must reverse, “before a serious recovery in gold price is possible – typically, after or near the end of each QE program.”

With this backdrop, my target price for gold next week is $1,295 per ounce.

For $1,295 per ounce gold we can expect to see silver in a statistically bounded range* of $21.2-$22.7 per ounce; and copper in a range of $2.96-$3.23 per pound. Silver is expected to have a neutral bias with respect to a range mean of $21.951 per ounce; copper, a positive bias with respect to a mean of $3.0959 per pound.

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

The S&P 500 has traded up on the week gaining considerable ground on gold. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

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 nearly losing 39% of value relative to equities from the November peak (AUSP=1.2710). Bullishly, gold had breached the channel to the upside but is now posed to re-enter, possibly putting the July 5 bottom to a test.

This week, Comex gold is off 5% for the week and down more than 8% from August’s high ($1,434.9). The yellow metal lost value relative to oil and copper; oil lost to copper just slightly. 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 411.2 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 83.95, below the key-100 level and the 1-month moving average of 84.86. The 2012 high was 103.73 on Nov. 13.

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

Mt. Hope - A Journey in Space and Time (Part VII, Cooper's Peak, Jackass Mail & Olive Oil)

In the foothills of Mt. Hope, Eureka, Nevada

*** GENERAL MOLY NEWS ***

General Moly Announces Preliminary Injunction Motion Denied, Without Prejudice, Related to Mt. Hope Record of Decision Appeal (8/26/2013)
General Moly Announces Second Quarter 2013 Results (8/2/2013)
General Moly Announces Results of Annual Meeting (6/14/2013)
Mt. Hope construction continues despite financial issues (by Marianne Kobak McKown, Elko Daily Free Press, 5/31/2013)
General Moly Provides Finance Update (5/15/2013)

A very detailed General Moly briefing for investors on the status of the 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:  A Bear Case For Lower Gold Price (With A Happy Ending) (09/03/2013)
Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday's morning's prices...
COMEX Gold price = $1,386.4/oz (December contract most active)
COMEX Silver = $23.910/oz (December)
COMEX Copper = $3.2620/lb (December)
NYMEX WTI crude = $109.43/bbl (October)
ICE Brent crude = $115.56/bbl (October)
Eureka Miner’s Gold Value Index© (GVI) = 84.70 (gold value is trading at a discount to oil and and a slight premium to copper)
Value Adjusted Gold Price© (VAGP) = $1,367.6/oz
COMEX - VAGP = $18.8/oz; gold is trading at a slightly rising net premium to key commodities.

General Moly (GMO) = $1.68 up 5.66%
Barrick Gold (ABX) = $19.08 up 0.89%
Newmont Mining (NEM) = $30.54 up 0.79%

Morning Miners!

The morning started off with a softer-than-expected monthly jobs report with only 169,000 nonfarm payrolls added (175,000 expected) and a drop in the unemployment rate to 7.3% from 7.4%. The drop was partially attributed to a decrease in the so-called "participation rate" and there were downward revisions to previous months. Not too many cheers from the bleachers - Nuts!

Please checkout my input to the weekly Kitco News Gold Survey (below) and most recent Kitco News commentary for my latest thoughts on gold,  A Bear Case For Lower Gold Price (With A Happy Ending) .

I am really excited about today's series on Mt. Hope because the ole Colonel found a rare gem and a fool-proof plan to win two free beers at the Owl Club!

Mt. Hope - A Journey in Space and Time (Cooper's Peak, Jackass Mail & Olive Oil) 

A multi-part series that circumnavigates the Mt. Hope molybdenum mine site on Eureka County back roads and highways.  Starting with the creation of molybdenum in the early universe, this journey will cover the geology of the area as well as its colorful history. There will be two trips, Loop#1 and #2, which include ranches of early settlers, a portion of the Pony Express Trail, a challenging section of the old Eureka-Palisade Railroad and a mine site tour. If you'd like to visit Mt. Hope, please make arrangements beforehand with Zach Spencer, General Moly's Director of Media Relations. Like any mine site, there are both security and safety concerns at Mt. Hope, but Zach and the Mt. Hope team do everything possible to accommodate public interest in their project. You can contact Zach by e-mail: zspencer@generalmoly.com

The Foothills of Mt. Hope

We're going to take a break from our geology tour this episode and glimpse at some of the rich history near the base of Mt.Hope.

The Fire Pit (Mile 20.0)

Slow down as you approach the foothills near the 20 mile mark. Now, pull into the clearing by the large tree and let's do some exploring.

On a maiden trip down Henderson Road (M-108A), Mariana and I were drawn to this spot and soon discovered a large fire pit just south of the tree.

A few hundred feet to the east is the confluence of two natural runoffs from Mt. Hope. Although both were dry in June, one could imagine ample flow in early spring. The greenness and abundance of vegetation suggests an oasis of sorts - a beautiful place to camp!

A good friend of mine once told me if you like a location in Nevada's back country it probably also appealed to old timers as well as indigenous people many moons ago. Fire pits are a particularly important clue. Even though the pit may have expanded in diameter and the rocks rearranged and added to over the years, a fire pit in a remote area may have been in the same location for hundreds and perhaps thousands of years. Used over and over again by different peoples for different reasons, a fire pit near a water source in a protected area with lots of game bouncing down the foothills at sunset is about as good as it gets for either today's 4-wheeled adventurers or ancient travelers on foot.

Is that a point to the left of the flower by the triangular rock? I first saw that potential artifact in Adobe Photoshop zoom-mode after returning home!

Simply beautiful. Oh...and there's a monitoring well for the Mt. Hope mine project - apparently everyone is drawn to this spot!

A Rare Gem

Due to its rich history, General Moly hired Kautz Environmental Consultants to perform field mitigation activities for 32 cultural sites near the initial mine construction site on the southeast face of Mt. Hope. Their activities, closely coordinated with the Bureau of Land Management and the State Historical Preservation Office, are presently complete for the year.

I believe our fire pit on the west side of the mountain is outside their area of investigation but no doubt typical of what would perk the interest of the Kautz archaeological team. A little digging around on the internet uncovered a rare gem that catalogs a similar study done years ago by Exxon when they had a similar interest in the molybdenum deposits of Mt. Hope.

I suspect this may have provided a starting point for the Kautz folks and is a remarkably interesting catalog that touches just about every aspect of Eureka County history from thousands of years ago to Captain Simpson's survey, the Pony Express days, early mining activities and the Eureka & Palisade Railroad. Mining and the railroad brought the Italians (Carbonari) and Chinese to the base of Mt. Hope and their colorful history is explored in detail. I encourage followers of this report to check it out, here's the link:

Archaeological Data Recovery Associated with the Mt. Hope Project (1985)

I just started reading this report last night and it will provide a valuable source for future articles. Let's close with a few tidbits you can share at the Owl Club over lunchtime or a Friday night beer.

Pre-Archaic, Archaic and Numic People

There is one small pre-Archaic site that lies roughly to the east-south-east of our location. Please make no attempt to find this or other archaeological sites out of respect for the ancient people that once came to this area. Many sites are also within the security perimeter of the present General Moly mine project.

The Pre-Archaic period (9,000 B.C. to 6,000 B.C.) represents the earliest well documented evidence of man's presence in North America. Most Great Basin pre-Archaic sites are located along valley margins similar to Mt. Hope and include fluted projectile points and edge-ground stemmed points.

The report also discusses more numerous evidence from the Archaic (6,000 B.C. to 1300 A.D.) and Numic (A.D. 1300 to 1850) periods. According to the report, "Occupations dating to the Numic period represent the prehistoric forebearers of the modern Shoshoni. The period begins around A.D. 1000 to A.D. 1300, when Numic-speaking Shoshoni, Southern Paiute, and Northern Paiute migrated into the Great Basin from an area near Death Valley." and "The Numic period is marked by several diagnostic artifacts, including Shoshonean brownware pottery and Desert Side-notched and Cottonwood Triangular projectile points."

Amazing, and there is a lot more on this subject.

Cooper's Peak & Jackass Mail

Here's a trick question, the correct answer is worth at least a free beer, "Where's Cooper Peak in Eureka County?"

The answer is, "Mt. Hope."

According to the Exxon report, when Captain James H. Simpson came to this area in 1859 seeking a feasible road route between Salt Lake city, Utah, and Genoa, Nevada, he named Mt. Hope "Cooper's Peak." We first met the good Captain in Part V of this series.

Now a double-trick question, "What was the first four-legged mail service in Eureka County?"

The answer is not the obvious, "Pony Express" - not even close!

Our trusty report informs us, "The first mail service through Nevada was Woodward and Chorpenning's 'Jackass Mail' which began operating in 1851. In 1858, Chorpenning used a new route which ran through the northern end of Diamond Valley and into Pine Valley before rejoining the Humboldt route near Beowawe. Later, Chorpenning moved his line, following Simpson's 1859 route which passed through the project area [i.e. near southeast face of Mt. Hope]. This change required the construction of stage stations, at approximately 13 mile intervals, along the route west of Jacob's Well in White Pine County. He was able to complete only some of the stations before the mail contract was taken over by the Pony Express, which used not only the central route but also Chorpenning's stations."

Ardoino & Bonavera Olive Oil

Our last tidbit pays homage to the proud Italian and Italian-Swiss heritage of Eureka. Immigrants form the alpine areas of Italy and Switzerland were expert at producing charcoal for Eureka's mine smelters and to fuel the Eureka & Palisade Railroad. They were called the Carbonari and the Exxon archaeologists found this extraordinarily intact half-gallon can of Ardonio & Bonavera olive oil at one of their many camps (the Colonel loves these old school drawings of artifacts):

Mt. Hope has  50 identified charcoal production sites that processed the then abundant pinyon-juniper. Charcoal production was halted in 1887 when the clear cutting of the pinyon-juniper woodlands was stopped by the U. S. Department of the Interior. In 1890 a change to coal was made for the Eureka & Palisade choo-choo.

The pinyon-juniper has since returned. I got my allocation of senior firewood from Mt. Hope compliments of Generla Moly - thanks!

This quick review just scratches the surface of this wonderful report - happy reading!

Molybdenum Prices

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

Metals Week Weekly Average: US$9.487 as of September 2, 2013 (updated weekly)

Ryan's Notes Average: US$9.625 as of September, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are above spot prices on the 3-month contract and slightly above $10 per pound on the longer contract. 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 $21,500 per metric ton ($9.752 per pound)

15-month seller's contract $22,250 per metric ton ($10.093 per pound)

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

Here is my weekly input to the weekly Kitco Gold Survey:

09/06/2013 (10:44 AM CT)

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

A. Up. My target price is $1,396 per ounce.

Q. Why?

A. Gold has traded flat for the week after failing to reach August’s high this Tuesday. Any U.S. action in Syria has been delayed but the yellow metal should get a boost next week if the U.S. Congress supports a strike. Given the President’s remarks in St. Petersburg today, an attack may wait until the following week. Gold’s pre-strike advance is expected to fall short of $1,400 per ounce, hence my target of $1,396 (the geometric mean of August’s high and September’s low).

Price volatility will continue with “taper talk” and debate whether today’s disappointing jobs report will have any effect on timing and magnitude. Whatever the outcome, QE3 is likely to continue for some months to come which will slowly erode gold’s value to key commodities as explained in my latest commentary, A Bear Case for Lower Gold Price (With A Happy Ending).

Once the headlines clear, the yellow metal will eventually trade at a discount to a basket of commodities that include oil, copper and silver; this should limit future advances and may presage a return to much lower prices later this year. Based on prior quantitative easing cycles, this trend must reverse, “before a serious recovery in gold price is possible – typically, after or near the end of each QE program.”

For $1,396 per ounce gold we can expect to see silver in a statistically bounded range* of $21.3-$25.2 per ounce; and copper in a range of $3.18-$3.55 per pound. Silver is expected to have a positive bias with respect to a range mean of $23.248 per ounce; copper, a negative bias with respect to a mean of $3.3639 per pound.

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

The S&P 500 has traded up on the week but lost some ground to gold. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

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 34% of value relative to equities from the November peak (AUSP=1.2710). Bullishly, gold breached the channel to the upside but the advance stalled this week.

Comex gold is trading flat after failing to reach August’s high Tuesday ($1,416.4 versus $1,434.9). The yellow metal lost value relative to oil and copper; oil gained on copper just slightly. 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 423.3 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. The yellow metal has recently recovered value relative to the red metal.

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 84.56, below the key-100 level and the 1-month moving average of 85.14. The 2012 high was 103.73 on Nov. 13. 

Cheers,

Colonel Possum

Photos by Mariana Titus

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