"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 25, 2013

Gold & Miners Get Some Giddy-Up-Go!


Tonkin Ranch, 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 (Part II) (10/28/2013)
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 = $1,342.9/oz (December contract most active)
COMEX Silver = $22.365/oz (December)
COMEX Copper = $3.2420/lb (
December)
NYMEX WTI crude = $97.29/bbl (
December)
ICE Brent crude = $106.76/bbl (December)



Eureka Miner’s Gold Value Index© (GVI) = 86.79 (gold value is trading at a premium to oil and copper)
Value Adjusted Gold Price© (VAGP) = $1,292.9/oz
COMEX - VAGP = +$49.97/oz; gold is trading at a premium to key commodities.


General Moly (GMO) = $1.66 down 2.35%
Barrick Gold (ABX) = $19.77 down 1.49%
Newmont Mining (NEM) = $27.62 down 0.11%

S&P 500 = 1.755.4 up 0.19%




Morning Miners!

Gold surprised almost everyone this week keeping pace with U.S. stock markets that made new highs and gaining significant value compared to global commodities oil and copper. This cannot all be explained by a weaker U.S. dollar which is revisiting the lows this January - a return of safe haven status?  The weak dollar certainly didn't help oil and the red metal which experienced wicked reversals to the downside - Western Intermediate Crude tumbled from its $100 per barrel perch on building inventories and copper has fallen below $3.25 per pound as a warning flag is raised in China (see Miners Rally).

Comex gold touched $1,352.3 per ounce Thursday and is presently trading at $1,342.9. As I explain in my input to the Weekly Kitco Gold Survey (below), gold should revisit the $1,350-level again next week.




Miners Rally

Today there's is some profit taking ahead of the weekend for the mining sector. However, the miners have had a good run from the time when the outcome of the latest U.S.debt crisis was all but clear. The President's meeting at the White house with Congressional Leaders on Oct. 9 marked a low point in the month for many miners. Copper giant and bellwether miner Freeport-McMorRan (FCX) is a good example. Since Oct.. 9, FCX has enjoyed an amazing 11 consecutive market-days of up-up and away with some consolidation of gains this morning:

Freeport-McMorRan (FCX) $37.41 down 0.03% (today); up 14.7% since 10/9

I like Freeport because it produces considerable quantities of gold and molybdenum in addition to copper - all three of this report's favorite metals. The recent rally in the yellow metal has also lifted the gold miners:

Barrick (ABX) $19.77 down 1.49% (today); up 15.1% since 10/9
Newmont (NEM) $27.62 down 0.11% (today); up 7.0% since 10/9

Benchmark moly miner Thompson Creek (TC) has had a good run too as General Moly (GMO) remains stuck in a trading range until new financing for Mt. Hope is secured:

Thompson Creek (TC) $3.38 up 0.59% (today); up 11.6% since 10/9
General Moly (GMO) $1.66 down 2.35%; up 4.4% since 10/9

A big cloud on the horizon for copper and moly miners is the unfolding money market credit crunch in China. A surge in short-term borrowing rates is a fallout from sky rocketing property values and a less than transparent shadow banking system that is showing signs of stress. On the positive, China manufacturing numbers were better than expected this week scoring an upbeat 50.9 versus 50.4 consensus. The startling reversal in copper prices this week is not a good sign going forward.

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 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$9.51 as of October 18, 2013 (updated weekly)

Ryan's Notes Average: US$9.60 as of October 22, 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 $20,750 per metric ton ($9.412 per pound)

15-month seller's contract $21,705 per metric ton ($9.866 per pound)




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

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

10/25/2013 (10:40 AM CT)

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

A. Up. My target price is $1,350 per ounce.

Q. Why?

Gold demonstrated surprising strength this week moving up not only in dollar price but gaining considerable value relative to global commodities oil and copper. It also held its ground with equities as the S&P 500 continued to make new highs. The U.S. dollar index has fallen to levels not seen since January, helping to boost gold but doing little to mitigate key reversals to the downside for both oil and copper.

A credit crunch developing in China and a strengthening yen have put a damper on Asian markets which may give gold more room to run next week. The expectation that tapering QE3 has now been pushed out to sometime in the first half of next year is also bullish for gold, at least from the low interest rate point of view.

My gold target for next week of $1,350 per ounce suggesting that gold should be able to trade near this week’s high ($1,352.3).

For $1,350 per ounce gold we can expect to see silver in a statistically bounded range* of $21.9-$23.1 per ounce; and copper in a range of $3.25-$3.51 per pound. Silver is expected to have a negative bias with respect to a range mean of $22.504 per ounce; copper, a negative bias with respect to a range mean of $3.3821 per pound.

Copper presently trading below this range at $3.24 per pound is bearish for the red metal and could be signaling a more accelerated depreciation relative to the yellow metal (bullish gold). This is a dramatic reversal in fortunes for these two metals.

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

The S&P 500 continued to make new records this week and gold held its own against equities rising slightly in value from last week’s close. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:



The ratio had been in a descending channel beginning 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 on Oct. 16: 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 a gradual trend higher from October’s low (0.7645 vs. 0.7418) - breaking the lower boundary of this channel would be very bearish for gold; breaking out of the channel to the upside would improve gold’s price outlook considerably.

This week, Comex gold is up 2.2% for the week but still 6.4% below August’s high ($1,434.0). The yellow metal gained significant value relative to oil and copper; oil lost value 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 414.2 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 86.79, below the key-100 level but above 1-month moving average of 84.12. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,292.9 or a $49.97 discount to actual gold price (i.e. gold is trading at a premium to key commodities).

Cheers,

Colonel Possum

Photos by Mariana Titus

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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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