Gold, Dollar, Yuan - Very Strange Day in the Marketplace

"Titan" Now that's a Pacific storm!

*** Local Mining News ***

General Moly Announces Results of an Optional Mine Planning Scenario with Improved Economics for Mt. Hope Project, Should the Molybdenum Market See Sustained Lower Prices (Press release, 2/25/2014)

Thompson Creek to suspend output at molybdenum mine as market weak (2/21/2014)

Timberline could potentially be de-listed by the NYSE but received more time to submit a plan of compliance:

Timberline Receives Extension from NYSE MKT (2/20/2014)

 "...the NYSE MKT LLC (the "Exchange") has granted Timberline's request for a two week extension to submit a plan of compliance (the "Plan") to the Exchange. Based in part on the Company's progress to date on numerous alternatives, the previous deadline of February 20, 2014 has been extended to March 6, 2014."

Form 8-K Timberline Resources For: Feb 05

Barrick Reports Fourth Quarter and Full Year 2013 Results (Press Release, 2/13/2014)

Barrick Gold's CEO Discusses Q4 2013 Results - Earnings Call Transcript (Seeking Alpha, 2/13/2014)

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:

From Gold Bear to Gold Bull (Kitco News, Feb.18,2014)

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 early analysis: 

COMEX Gold price = $1.329.6/oz (April contract most active)
COMEX Silver = $21.315/oz (March)
COMEX Copper = $3.2020/lb (March)
NYMEX WTI crude = $102.15/bbl (April)
ICE Brent crude = $108.84/bbl (April)


Eureka Miner’s Gold Value Index© (GVI) = 86.69 (gold value relative to a basket of commodities that include oil, copper and silver; 100 is a high gold value)
Value Adjusted Gold Price© (VAGP) = $1,281.5/oz
COMEX - VAGP = +48.09/oz; gold is trading at a premium to key commodities (bullish implication - "bottom is in for gold")

As of 9:51 AM:

Barrick Gold (ABX) = $20.44 down 1.23% (Last Friday AM $20.831)
Newmont Mining (NEM) = $23.18 down 1.74% ($22.90)
Midway Gold (MDW) = $1.23 up 1.65% ($1.25)
General Moly (GMO) = $1.19 down 1.65% ($1.32)
Timberline Resources (TLR) = $0.147 up 0.75% ($0.16675)

S&P 500 = 1,866.78 up 0.25% ($1,844.74)

Morning Miners!

This is a very strange day in the marketplace.

First some good stuff. A U.S. GDP report of 2.4% was inline with analysts expectations for the fourth quarter of last year - that's not too bad. The S&P 500 is rewarding the data by surging to new record intraday highs, presently trading at 1,866.78 - that's not too bad either.

Now the more bizarre. The U.S. dollar fell on its face this morning relative to a bouncing euro (>1.38) as the U.S. dollar index (.DXY or "Dixie") plumbed a 2 1/2-month low. On the other hand, the U.S. dollar is showing remarkable strength against the Chinese yuan. This makes gold more expensive for Chinese buyers because the global market is priced in dollars. The yuan is not included in the Dixie so weakness there does not reflect dollar strength against the currency of the world's top consumer of gold - China. A falling Dixie generally supports higher gold prices but not today - a headwind for physical buying in Asia trumps euro strength. Got it? Very strange stuff indeed.

[Note: the closing price for the yuan renminbi was 0.162209 Friday, 2/28 - a 2% decline from its March high last year and a 1.7% drop from Feb. 1, 2014. The accelerated pace of decline this week caught gold traders' attention. A good way to remember this rate is that a U.S. dollar buys 6+ yuan renminbi or 0.16+ dollars per yuan]

Strong euro but Europe's giant neighbor Ukraine is spiraling into financial and geo-political chaos. This supports gold from a "risk aversion" standpoint  but not enough to bounce above the key $1,350 per ounce level - nuts! On Wednesday, Comex gold kissed $1,345.6 per ounce but that was it. Comex gold is now trading down at $1,329.6. (I explain in the Kitco gold survey below why these levels are so important).

[Sunday night update: escalating tensions in the Ukraine pushed Comex gold (April contract) to $1,345.0 per ounce in electronic trading; presently $1,344.3 at 10:16 PM PT]

Oh...and it's the end-of-the-month so there is profit taking going on for those that bought gold earlier and are pretty satisfied with the 7-week uptrend in price.

Let's see how all this confusion pans out next week. I'm still bullish on gold price but we may be in for a pause. Stay dry and warm - the radar image in the headline photo looks more like a Gulf hurricane than a strong Pacific storm!

Kitco Gold Survey 

Here is my input for the weekly Kitco Gold Survey:

02/28/2014 (10:27 AM CT)

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

A. Down. My target price is $1,320 per ounce.

Q. Why?

On Jan. 14, I changed sides from bear to bull on gold price going forward as explained in my Kitco commentaries, From Gold Bear to Gold Bull (Kitco News, 2/18/2014),  Gold’s Wild Ride Down May Soon Be Up (Kitco News, 1/21/2014).

This morning the April Comex contract is trading at $1,329.6 per ounce. Technically, the discounting process relative to the S&P 500, oil and copper appears to have bottomed in 2013 and the store-of-wealth is recovering some safe haven status from the unrest in Ukraine which poses both financial and geo-political risks.

However, there are several signals this week that gold price may pause its 7-week ascendancy. Gold has received little benefit on a day when the U.S. dollar is very weak relative to the euro (>1.38, .DXY is at a 2.5-month low) and its strength versus the falling Chinese Yuan may hurt physical demand. A weakened Yuan makes dollarized gold more expensive in China, the top consumer of the yellow metal. Finally, as the S&P 500 posts a new intraday high, gold is losing its upward momentum relative to equities.

The coming months may be more about stabilizing gold prices about long-term means than bouncing to new highs. Gold remains above its 200-day moving average but failed this week to close above the average gold price since the Lehman Brothers’ bankruptcy filing of $1,345 per ounce (Comex intraday Wednesday $1,345.6). Until gold closes above the Lehman mean, the 7-week uptrend is in jeopardy. Breaking above the $1,350-level would be a bullish development; retreat from the Lehman mean, bearish.

My gold target for next week is therefore $1,320 per ounce:

For $1,320 per ounce gold we can expect to see silver in a statistically bounded range* of $20.0-$22.1 per ounce; and copper in a range of $3.15-$3.45 per pound. Silver is expected to have a positive bias with respect to a range mean of $21.025 per ounce; copper, a negative bias with respect to a range mean of $3.3010 per pound.

(* +/- 2-standard deviations, 1-month basis: prices that fall outside this range likely signal a market-changing event. Bias from mean infers expected market direction from a 1-month gold ratio average)

This morning, the S&P 500 set a new intraday record of 1,866.16 and is up a 1.5% for the week; gold is up 0.5% losing ground to the S&P. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

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). The AUSP then broke decisively below the lower boundary for a second leg of descent (dashed red lines). This channel was bullishly broken to the upside in late-January. This morning’s gold trading represents a loss of 43.9% of value relative to the November peak (AUSP=1.2710). Today’s ratio remains below the lower boundary of the sideways channel and appears to have lost upward momentum. A break above this boundary would be a bullish indication for the yellow metal; a retreat, bearish.

This morning, Comex gold is 7.3% below August’s high ($1,434.0). The yellow metal gained ground relative to copper and oil for the week; oil 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 415.2 pounds of copper.” Percentages are deltas over one week.

Since November 2012, 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 86.69, below the key-100 level but above the 1-month moving average of 85.55. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,281.5 per ounce or $48.09 discount to actual gold price (i.e. gold is trading again at a premium to a basket of 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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