"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, November 15, 2013

Gold's Good & Bad Week; Copper & General Moly (GMO) Stumble


Mt. Hope, Eureka, Nevada

*** Local Mining News ***

Barrick's Ruby Hill shuts down temporarily (11/05/2013, Elko Daily Free Press, Marianne McKown)
General Moly Announces Third Quarter 2013 Results (11/04/2013)


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 = $1,287.1/oz (December contract most active)
COMEX Silver = $20.710/oz (December)
COMEX Copper = $3.1595/lb (
December)
NYMEX WTI crude = $94.02/bbl (
December)
ICE Brent crude = $108.14/bbl (December)



Eureka Miner’s Gold Value Index© (GVI) = 87.11 (gold value relative to a basket of commodities that include oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,234.6/oz
COMEX - VAGP = +$53.46/oz; gold is trading at a growing premium to key commodities.


General Moly (GMO) = $1.44 up 0.7%
Barrick Gold (ABX) = $18.14 up 0.17%
Newmont Mining (NEM) = $27.97 down 0.36%

Timberline Resources (TLR) = $0.17 down 2.80%
S&P 500 = 1,792.59 up 0.88%




Morning Miners!

A good and bad week for all that shines and a tougher week for its red companion. This is what I said this morning in my input to the Kitco Weekly Gold Survey:

Dovish comments by Federal Reserve nominee Janet Yellen during her confirmation hearing supported gold price and accelerated equity gains. However, disagreement about the impact of reforms coming from the conclusion of China’s Third Plenum meeting coupled with low growth/deflationary indications from Europe robbed the base metals of much lift from the Yellen testimony. Copper was particularly hard hit with a slowdown in China power grid spending and softening demand expectations form Germany (ranked third in world consumption of the red metal).

So, at least within the commodity space, gold had a good week. Although fairly flat in U.S. dollar price compared to last Friday’s close, the yellow metal gained on oil and moved notably above falling copper prices. However, gold made a very bearish break to the downside compared to the record breaking S&P 500. To put this in perspective, in one year, gold has lost nearly 45% of value to the S&P 500 compared to a 26% decline in U.S. dollar terms. Gold has shed about 20% of value relative to copper (see the first table below in the full survey analysis at the end of this report).

Presently Comex gold is trading at $1,287.1 per ounce and copper at $3.1595 per pound. If you want to form your opinion on the next directions for China here is a link to their official news site:




General Moly (GMO) Stumbles

It was not only a rough week for copper but also moly miners. Benchmark Thompson Creek (TC) dropped below $3 per share after being above that level solidly since early August. Presently TC is trading at $2.94 recovering some of its weekly loss.

If you've grown accustomed to watching General Moly (GMO) trade in a range of $1.50-to-$1.65 per share while the management team seeks new financing for Mt. Hope - this was a week of sheer terror. Everything was fine through Wednesday which closed near the bottom of the range at $1.51. Thursday was a trip down the mine shaft touching a low of $1.32 mid-day. The ole Colonel bought some shares at $1.44 earlier in the morning and quickly sold those at $1.38 when it looked like prices were headed for a bottomless pit. Fortunately, GMO was saved by the wings of a dove - Janet Yellen's remarks on continuing currently accommodative monetary policy at her confirmation hearing put GMO and other miners back in the up-elevator.

GMO closed Thursday at $1.43 or a penny below my original purchase - we haven't seen these price levels since the spring of 2009. As I often say, be cautious - markets can turn on you faster than a feral cat! Fotunately, this cat is now purring as GMO trades this morning at $1.44 per share but a lot lower than the old $1.50-$1.65 range. Thursday volume on a down day was a bit troubling too - 541,274 shares. The 10-day average is 172K; the 90-day is 164K. However, this is not at the 1 million+ levels seen on high-volume up-days for GMO in September and August (9/20 & 6/28).

Fortunately, moly prices are still hanging in there in $9 per pound territory.

I'm getting too old for weeks like this.

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$9.80 as of Nov. 8, 2013 (updated weekly)

Ryan's Notes Average: US$9.70 as of Nov. 12, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures are below the spot price on the 3-month contract with the 15-month at nearly $10 per pound. 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 $21,300 per metric ton ($9.662 per pound)

15-month seller's contract $22,040 per metric ton ($9.993 per pound)




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

My input to the Weekly Kitco Gold Survey:


11/15/2013 (10:43 AM CT)

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

A. Down. My target price is $1,269 per ounce.

Q. Why?

Dovish comments by Federal Reserve nominee Janet Yellen during her confirmation hearing supported gold price and accelerated equity gains. However, disagreement about the impact of reforms coming from the conclusion of China’s Third Plenum meeting coupled with low growth/deflationary indications from Europe robbed the base metals of much lift from the Yellen testimony. Copper was particularly hard hit with a slowdown in China power grid spending and softening demand expectations form Germany (ranked third in world consumption of the red metal).

So, at least within the commodity space, gold had a good week. Although fairly flat in U.S. dollar price compared to last Friday’s close, the yellow metal gained on oil and moved notably above falling copper prices. However, gold made a very bearish break to the downside compared to the record breaking S&P 500. To put this in perspective, in one year, gold has lost nearly 45% of value to the S&P 500 compared to a 26% decline in U.S. dollar terms. Gold has shed about 20% of value relative to copper (see the first table below).

This week’s events suggest a continuation of present U.S. quantitative easing policy (QE3) with tapering likely delayed until the first half of next year. As I explain in my latest commentary, Copper & Gold – The Long Ride from Lehman Brothers (Part II), “Absent future price shocks, an extended QE3 will likely be characterized by low volatility with copper and gold prices stabilized within trading ranges. As monetary accommodations fade and inflation expectations return, this trend should reverse again in gold’s favor with the return of sustainable higher prices.”

My gold target of $1,269 per ounce anticipates further downside next week.

For $1,269 per ounce gold we can expect to see silver in a statistically bounded range* of $20.2-$21.4 per ounce; and copper in a range of $3.08-$3.27 per pound. Silver is expected to have a negative bias with respect to a range mean of $20.795 per ounce; copper, a negative bias with respect to a range mean of $3.1739 per pound.

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

The S&P 500 has is blazing to new records while gold is presently trading near last Friday’s close ($1,284.6). 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 with a slightly lower low closing last week (AUSP=0.7255): This relation established a sideways channel (dashed lines) until this week when Thursday’s low broke decisively below the lower boundary (AUSP=0.7134) – a loss of 43.9% of value relative to equities from the November peak (AUSP=1.2710). This morning’s trading offers only modest relief (AUSP=0.7128) and sadly, breaking the lower boundary of this channel is a very bearish indication for gold.

This week, Comex gold is fairly flat for the week in U.S. dollar terms but 10.2% below August’s high ($1,434.0). The yellow metal gained significant value relative to copper; oil also gained value relative to the red metal. 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 407.4 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 87.11, below the key-100 level but above 1-month moving average of 85.73. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,234.6 or a $52.46 discount to actual gold price (i.e. gold is trading at a growing premium to a basket of 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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