Gold Plunges, Copper Resilient, Stocks Rise

Three Bars Road, 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: Bank of America Merrill Lynch Canada Mining Conference 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 price = $1,268.9/oz (December contract most active)
COMEX Silver = $21.280/oz (December)
COMEX Copper = $3.2400/lb (December)
NYMEX WTI crude = $101.26/bbl (October)
ICE Brent crude = $111.06/bbl (November)


Eureka Miner’s Gold Value Index© (GVI) = 82.60 (gold value is trading at a discount to oil and copper)
Value Adjusted Gold Price© (VAGP) = $1,283.6/oz
COMEX - VAGP = -$14.69/oz; gold is trading at a discount to key commodities.

General Moly (GMO) = $1.65 down 1.79%
Barrick Gold (ABX) = $17.27 down 3.20%
Newmont Mining (NEM) = $25.84 down 1.75%
S&P 500 = 1,701.73 up 0.54%

Morning Miners!

With market sentiment running high for some positive resolution to the government shutdown and debt ceiling debacle, investors are moving back into equity markets leaving gold the unloved safe-haven without a catalyst. Comex gold plunged all the way to $1,259.6 peer ounce earlier this morning (see my input to the weekly Kitco Gold Survey below).

I wish the ole Colonel could be more bullish about gold prices going forward but it could be a rough road for the yellow metal. 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 - a tough time for gold miners indeed.

Miners got little help from rising stock markets today. With the S&P back above 1,700, General Moly (GMO) is down 1.79%  to $1.65 per share. Gold miners are down on plunging gold price: Barrick (ABX), $17.27 and Newmont (NEM), $25.84 per share.

Several weeks ago, 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 Three Bars Road which passes by the historic Three Bar 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$9.35 as of October 7, 2013 (updated weekly)

Ryan's Notes Average: US$9.425 as of October 4, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are above 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 $21,000 per metric ton ($9.526 per pound)

15-month seller's contract $21,725 per metric ton ($9.854 per pound)

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

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

10/11/2013 (10:50 AM CT)

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

A. Down. My target price is $1,260 per ounce.

Q. Why?

It has been a poor week for global commodities copper and oil but much worse for gold. This morning, Comex gold gapped down to $1,259.6 per ounce before recovering some but is still more than 3% down from last Friday’s close (see first table below).

With market sentiment running high for some positive resolution to the government shutdown and debt ceiling debacle, investors are moving back into equity markets leaving gold the unloved safe-haven without a catalyst.

I believe as QE3 carries on, oil and copper will get more lift from easy money than gold so gold value erosion relative to “real things” will continue. This morning gold is already trading at a $14.7 discount relative to a commodity basket of oil, copper & silver. I don't think the yellow metal will move above $1,380 per ounce in the intermediate term and could see a lot more downside as explained in my commentaries, Gold Trapped in a Value Wedge and Copper & Gold – The Long Ride from Lehman Brothers.

The yellow metal trading at a discount to key commodities limits 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 $1,260 per ounce gold we can expect to see silver in a statistically bounded range* of $20.3-$21.5 per ounce; and copper in a range of $3.05-$3.21 per pound. Silver is expected to have a positive bias with respect to a range mean of $20.902 per ounce; copper, a positive bias with respect to a mean of $3.1300 per pound.

Copper presently trading outside this range at $3.24 per pound is bullish for the red metal and could be signaling a more accelerated appreciation relative to the yellow metal (i.e. bearish gold).

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

The S&P 500 has reversed this week on upbeat sentiment as gold price has tumbled. 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 with gold losing 41.5% of value relative to equities from the November peak (AUSP=1.2710). Since then, the relation has moved in a sideways channel (dashed lines). Today comes closer to the July low (0.7564 vs. 0.7431); breaking the lower boundary of this channel would be very bearish for gold.

This week, Comex gold is down 3.1% for the week and over 11% from August’s high ($1,434.0). The yellow metal lost value relative to oil and copper; oil also lost to copper making the latter the strongest of the three. 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 391.6 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 82.6, below the key-100 level and the 1-month moving average of 84.04. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,283.6 or a $14.7 premium above actual gold price (i.e. gold is trading at a discount 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
 
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