*** Local Mining News ***
MIDWAY GOLD COMPLETES PERMITTING – RECEIVES RECORD OF DECISION PAN PROJECT, NEVADA (Press Release, 12/20/2013)
General Moly Announces Updated Operating Cost Estimate and Project Economics for Mt. Hope Project (Press release, 12/05/2013)
Latest Nevada Gas Prices (click this link)
My latest Kitco commentary: Gold (Still) Trapped in a Value Wedge (12/09/2013)
My latest column in the Mining Quarterly: Copper & Gold - The Long Ride from Lehman Brothers (p. 90-91 online, p. 84-85 printed copy, MQ Winter Edition 2013)
Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans
Monday's AM prices used for this morning's analysis:
COMEX Gold price = $1,204.8/oz (February contract most active)
COMEX Silver = $19.695/oz (March)
COMEX Copper = $3.3850/lb (March)
NYMEX WTI crude = $99.82/bbl (February)
ICE Brent crude = $111.37/bbl (February)
Eureka Miner’s Gold Value Index© (GVI) = 79.92 (gold value relative to a basket of commodities that include oil, copper and silver; 100 is a high value)
Value Adjusted Gold Price© (VAGP) = $1,259.6/oz
COMEX - VAGP = -54.76/oz; gold is trading at an increasing discount to key commodities (bearish trend)
General Moly (GMO) = $1.45 up 3.57%
Barrick Gold (ABX) = $17.44 down 0.11%%
Newmont Mining (NEM) = $23.315 down 1.17%
Midway Gold (MDW) = 0.8167 up 0.83%
Timberline Resources (TLR) = $0.1737 up 2.60%
S&P 500 = 1,840.24 down 0.06%
Morning Miners!
The Eureka Miner wishes a happy New Year to you and your family - thank you for following this report through a very tumultuous market year.
As 2013 draws to a close, U.S. markets are near all-time highs as gold loses more shine. MarketWatch's year in review:
The Dow is up nearly 26% year-to-date, leaving the index on track for its biggest annual percentage gain since 1996, while the S&P 500 is up around 29% over the same stretch, putting it on track for its best annual gain since 1997. (MarketWatch, New York, 12/30/2013)
This morning Comex gold is trading down $9.02 at $1,204.8 per ounce - a long way from the heady days of $1,900+ per ounce exuberance.
This report prefers to compare gold performance to November of last year when the yellow metal was experiencing a period of impressive strength relative to both stocks and key commodities. Here is the relative loss in value from Nov. 9, 2012 to this morning:
Comex gold price (U.S. dollars) down 30%
Value lost to Comex copper 29%
Value lost to Nymex oil 40%
An ounce of gold in November of last year could buy roughly 500 pounds of copper and 20 barrels of oil. This morning an ounce fetches only 350 pounds of red metal and 12 barrels of goo!
Even more startling, gold has lost nearly 49% of its value relative to the S&P 500 compared to when when it attained its peak strength November 15, 2012 - investors continue to liquidate gold positions to chase soaring equities. Asian bargain hunters and central bank buying of gold has mitigated some of the decline in U.S. dollar gold price but rallies have been short-lived and lackluster (pun intended).
So what can we expect in 2014? I've written two recent columns on gold's outlook for next year; in the Winter Edition of the Mining Quarterly and more recently, for Kitco News, Montreal:
Copper & Gold - The Long Ride from Lehman Brothers (p. 90-91 online, p. 84-85 printed copy, MQ Winter Edition 2013)
Gold (Still) Trapped in a Value Wedge (Kitco News, 12/09/2013)
By the way, if you haven't checked out the latest Mining Quarterly - do it! Elko Daily Free Press Mining Editor Marianne Kobak McKown has done a terrific job on this issue with the latest news on the mining industry in Northern Nevada.
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In the MQ article, I compare the price performance of copper and gold from the fateful collapse of Lehman Brothers Sep. 15, 2008 to the present. My argument is that monetary easing programs of the U.S. Federal Reserve have trumped supply/demand fundamentals for both metals for a significant portion of this 5 year period. There have been three quantitative easing cycles (QE or the printing of money to buy bonds) resulting in metal price reflation (QE1), inflation (QE2) and price stabilization for the current program (QE3).
Current stability in the metal markets is good for a global commodity such as copper which likely maintains a $3 per pound floor for the red metal as long as QE3 provides a supply of easy money. Monetary easing is less supportive for gold which has lost value to copper during all three QE programs. Sustainable gold rallies and even new records have typically occurred near the end or after these monetary interventions (e.g., QE1 and QE2 and respective benchmark gold records that followed). Is this a ray of light in the mine shaft?
The December meeting of the Federal Reserve began the tapering of their massive bond buying program signalling that QE3 will wind down sometime in 2014. Before this cycle is complete, the MQ column submits that "...if continued easing returns [gold/copper valuations] to pre-QE2 levels of 350 pounds per ounce, a $3-to-$4 range for copper would imply a $1,050-to-$1,400 range for gold." This morning the gold/copper valuation is 356 pounds per ounce so we're right on track going into the New Year.
The Kitco article takes a broader view and includes not only copper but oil and silver for a relative value comparison. According to this analysis, gold will enter 2014 trading at a substantial discount to both copper and oil and be trapped in a range of $1,150-to-$1,375 for the first half of the year.
The MQ column concludes:
Absent future price shocks, continuation of the present QE3 program will likely mean less volatile copper and gold prices stabilized within trading ranges. As monetary accommodations fade, metals will naturally revert to the laws of supply and demand. As inflation expectations return, the market should eventually reverse in gold’s favor with a resumption of higher sustainable prices.
With tame inflation in the U.S. and the threat of deflation in Europe, we may have to wait some time to ride the up-elevator of our favorite metal. Always the optimist - let's see what the second-half of 2014 may bring!
[Note: the above analysis and conclusions are not materially changed by the gold price update below]
Kitco Gold Survey (for Friday morning 01/03/14)
Here is my input for the weekly Kitco Gold Survey:
01/03/2013
(10:33 AM CT)
Q. Where
do you see gold’s price headed next week, up, down or unchanged?
A. Up. My target
price is $1,240 per ounce.
Q.
Why?
Gold
has a strong start for 2014, gaining not only on stocks but gaining value
relative to key commodities as well. The S&P 500 has stumbled from an all-time
high close for 2013 as gold gains traction with reinvigorated Asian physical
buying and recovering some shine as a safety trade given mixed global economic data.
China PMI disappointed but Europe came in stronger than expected with the
exception of France. It is noteworthy that gold rallies as the U.S. dollar index
gaps higher – the two typically trading in opposition. Gold gained significantly
on global commodities oil and copper for the week as those two bellwethers feel
the headwinds of strong dollar and re-emerging concerns about the global growth
trajectory.
My
gold target of $1,240 per ounce anticipates the rally will extend into next
week but find significant resistance around the $1,250-level.
For
$1,240 per ounce gold we can expect to see silver in a statistically bounded
range* of $19.4-$20.6 per ounce; and copper in a range of $3.16-$3.53 per
pound. Silver is expected to have a positive bias with respect to a range mean
of $19.980 per ounce; copper, a positive bias with respect to a range mean of $3.3458
per pound.
(*
+/- 2-standard deviations, 1-month basis)
The
S&P 500 closed at an all-time high for 2013 but has had a wobbly start for
the New Year; gold gained 1.5% on the S&P for the week. The relation
between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or
AUSP:
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The
ratio slid into a descending channel mid-November 2012 as money rotated away
from gold assets into the U.S. stock market. This trend transitioned to a
sideways channel July 5, 2013 (dashed blue lines, AUSP=0.7431). More recently
the AUSP has broken decisively below the lower boundary and is on a second leg
of descent (dashed red lines) with this morning’s gold trading at a loss of 47.3%
of value relative to the November peak (AUSP=1.2710). Breaking above the upper boundary of the second channel would be a very
bullish indication for the yellow metal.
This
week, Comex gold is up 1.25% for the week in U.S. dollar terms and 14.3% below August’s
high ($1,434.0). The yellow metal gained significant value relative to copper
and oil for the week; oil also lost 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 372.9 pounds of
copper.” Percentages are deltas over one week.
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Since
November 2012, gold has experienced bearish value destruction not only in U.S.
dollar terms but value relative to oil and copper.
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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 82.10, below the key-100 level and below the 1-month
moving average of 82.21. The 2012 high was 103.73 on Nov. 13. The value
adjusted price of gold is $1,250.9 per ounce or a $21.73 premium to actual gold
price (i.e. gold is trading at a discount to a basket of key commodities).
Cheers,
Colonel Possum
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Paintings by Mariana Titus, The Three Anas, are presently at Lafitte Guest House & Gallery, New Orleans
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Hey Rich, I enjoy your posts, thanks for that and Happy New Year to you and Mariana. Jim Bonsell
ReplyDeleteHey Jim, Thank you - the very best to you and your family for 2014!!!
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