"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, October 18, 2013

Gold Bounce, Gartman's Gold & Miners Rally


Tonkin Resevoir, Eureka County, Nevada

*** GENERAL MOLY NEWS ***

General Moly to Attend the John Tumazos Very Independent Research Metals & Mining Conference (10/10/2013)
General Moly Announces Implementation of Cost Reduction Program While Actively Pursuing Mt. Hope Financing (9/09/2013)

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 (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 AM prices used for this morning's analysis: 


COMEX Gold price = $1,315.4/oz (December contract most active)
COMEX Silver = $21.945/oz (December)
COMEX Copper = $3.3035/lb (
December)
NYMEX WTI crude = $101.07/bbl (
October)
ICE Brent crude = $109.52/bbl (
November)


Eureka Miner’s Gold Value Index© (GVI) = 84.10 (gold value is trading at a small premium to oil and copper)
Value Adjusted Gold Price© (VAGP) = $1,306.9/oz
COMEX - VAGP = +$8.46/oz; gold is trading at a premium to key commodities.


General Moly (GMO) = $1.75 up 2.94%
Barrick Gold (ABX) = $18.50 unchanged
Newmont Mining (NEM) = $26.95 down 0.41%

S&P 500 = 1.739.6 up 0.37%




Morning Miners!

What a week! Last minute resolution of the recent U.S. debt debacle Wednesday has brought equities to new all-time highs and given gold a much needed bounce above $1,300 per ounce. Gold strength and U.S. dollar weakness may very well reflect that a second round of calamitous political wrangling awaits us early next year - stock markets appear less concerned.

The devil is always in the details. Although gold is presently trading 4% above last Friday's closing price, on Wednesday it had its weakest performance relative to the S&P 500 since July. The yellow metal fared better against key commodities, recovering lost ground to both oil and copper but is still in deep bear country in terms of the U.S. dollar price and relative valuations (see my input to the weekly Kitco Gold Survey below).

As explained in the survey input, gold rallies are probably capped around the $1,380 per ounce level and the yellow metal could go a lot lower from here. A pickup in Asia gold buying should put a floor in somewhere below $1,300 per ounce but I see more downside next year possibly testing the June low.

The Gartman Gold Bet

On July 22, Dennis Gartman of the renowned Gartman Letter accepted this wager from the ole Colonel:

I'll bet you a chunk of gold-bearing slag from Eureka's 1890s mining heydays (photo attached) for a cup of Virginia Beach sand that gold will test June's low ($1,179.4) before breaking May's high ($1,488.5)

Here's a picture of Mr. Gartman's prize if he wins:


By the way, don't get too excited about that 150,000 tons of slag at the north end of town - my gold content estimate is an average less than 0.0004 troy ounce per ton. Most of the gold from the Eureka smelters probably left town as trace quantities in lead and silver bullion many, many moons ago.

It's hard to bet against the Commodity King and for the sake of our local economy I hope I'm wrong - it's just hard to argue with the data! My latest Kitco commentary,  Copper & Gold – The Long Ride from Lehman Brothers, is a 5-year retrospective on copper and gold prices which both saw record highs and punishing lows during that turbulent time. It appears we are entering a time of less volatile metal prices that should return to the good old laws of supply and demand as global monetary easing begins to pull back next year. So far the red metal has proved resilient but gold may need to see $1,100 per ounce territory before sustainable price recovery is possible.

Miners Rally

Aside from gold's travails, miners have been enjoying better times lately. Copper giant and bellwether miner Freeport-McMoran (FCX) has enjoyed a 7-market-day rally, heading to higher prices even through the darkest days of the debt ceiling debate. This is an important miner to watch because Freeport produces prodigious quantities of gold and molybdenum in addition to the red metal. Even though gold may have its challenges, many market experts (including Dennis Gartman) are predicting a pickup ion the steel industry which should favor higher moly prices.

This morning, General Moly (GMO) is up 2.9%  to $1.75 per share; Barrick (ABX) is trading unchanged from yeaterday's close at $18.50 and Newmont (NEM) is down 0.4% at $26.95 per share.

A Journey in Space and Time

In September, 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 photos today are from near the Tonkin Ranch - one of the many early Damele family 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!

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$9.42 as of October 11, 2013 (updated weekly)

Ryan's Notes Average: US$9.50 as of October 15, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are just below spot prices on the 3-month 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 $20,700 per metric ton ($9.389 per pound)

15-month seller's contract $21,500 per metric ton ($9.7523 per pound)




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

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

10/18/2013 (10:30 AM CT)

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

A. Down. My target price is $1,294 per ounce.

Q. Why?

Gold got a welcome bounce this week upon resolution of debt ceiling crisis and a falling U.S. dollar, presently trading nearly 4% up from last Friday’s close (see first table below). Stronger gold and weaker dollar are evidence that some investors fear a second debt debacle could resurface early next year. U.S. equities appear less concerned bullishly setting new record highs. As a consequence, gold registered a new value low relative to the S&P 500 Wednesday (see chart). Such is the give-and-take across gold, currency and equity markets.

The expectation that tapering QE3 has now been pushed out to sometime in the first half of next year will maintain low interest rates which is bullish for gold. However as QE3 carries on, oil and copper will get more lift from easy money, so gold value erosion relative to “real things” will continue. This puts a cap on future rallies - I don't believe the yellow metal will move above $1,380 per ounce in the intermediate term and could see a lot more downside next year as explained in my commentaries, Gold Trapped in a Value Wedge and Copper & Gold – The Long Ride from Lehman Brothers.

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.”

My gold target for next week of $1,294 per ounce is the geometric mean of October’s high ($1,337.8) and this week’s low ($1,251.0) suggesting a near-term equilibrium between bullish and bearish influences on price.

For $1,294 per ounce gold we can expect to see silver in a statistically bounded range* of $20.9-$22.0 per ounce; and copper in a range of $3.13-$3.30 per pound. Silver is expected to have a positive bias with respect to a range mean of $21.466 per ounce; copper, a positive bias with respect to a range mean of $3.2158 per pound.

Copper presently trading at the top of this range at $3.30 per pound is bullish for the red metal and could be signaling a more accelerated appreciation relative to the yellow metal (bearish gold).

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

The S&P 500 has set new records this week upon resolution of the debt ceiling crisis; gold gained too but at a slower pace. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:



The ratio was in a descending channel since mid-November as money rotated away from gold assets into the U.S. stock market. This trend bottomed July 5 although a slightly lower low was set this week on Wednesday: a loss of 41.6% of value relative to equities from the November peak (AUSP=1.2710). The relation is presently in a sideways channel (dashed lines). Today shows some relief from Wednesday’s low (0.7562 vs. 0.7418); breaking the lower boundary of this channel would be very bearish for gold.

This week, Comex gold is up 3.7% for the week but still 8% below August’s high ($1,434.0). The yellow metal gained value relative to oil and copper; oil also lost to copper. 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 398.2 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 84.10, below the key-100 level but above 1-month moving average of 83.91. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,306.9 or an $8.46 discount below actual gold price (i.e. gold is trading at a slight premium to 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


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