Gold Below $1,300 (Again); More Yuan per Buck; Timberline Gets Another Breather

Main Street, Austin, Nevada

*** Local Mining News ***

Timberline’s Plan of Compliance Accepted by NYSE MKT (Press release, 3/25/2014)

African Barrick seeks new name after partially splitting from Canadian parent (Mining News, March 19,2014) 

Timberline and Wolfpack Gold to Merge (Press Release, March 13, 2014)

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:

Oil, Copper & Gold Transmit a Distress Signal (Kitco News, Mar. 18, 2014)

My latest column in the Mining Quarterly:

Major McCoy and the Rebellious Ores of Eureka (p. 83-87 online, MQ Spring Edition 2014)


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 early analysis: 

COMEX Gold price = $1,288.5/oz (June contract most active)
COMEX Silver = $19.760/oz (May)
COMEX Copper = $3.0405/lb (May)
NYMEX WTI crude = $102.07/bbl (May)
ICE Brent crude = $108.26/bbl (May)


Eureka Miner’s Gold Value Index© (GVI) = 88.20 (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) = $1,220.6/oz
COMEX - VAGP = +67.91/oz; gold is trading at a premium to key commodities (bullish implication - "bottom is in for gold"; bearish caution: premium is diminishing)

As of 10:20AM (percentages are from yesterday's closing prices; parentheses are a comparison to last Friday's morning price):

Barrick Gold (ABX) = $18.26 up 1.00% (Last Friday AM $19.325)
Newmont Mining (NEM) = $23.77 up 3.62% ($24.58)
Midway Gold (MDW) = $1.05 up 3.96% (unchanged) ($1.10)
General Moly (GMO) = $1.05 down 0.94% ($1.045 )
Timberline Resources (TLR) = $0.155 up 6.09% ($0.1598)

S&P 500 = 1,859.73 up 0.58% (1,877.90)

Morning Miners!

Here is the most bullish comment the ole Colonel can make on recent gold price declines - sometimes it's smart to throw a rock in the mineshaft to test its depth.

As the issues with Russia and the Ukraine fade and market participants mull thoughts of Federal Reserve tapering and rising interest rates, gold prices will fall until physical buyers return in earnest - that marks the bottom of the current shaft. This morning Comex gold dipped to $1,286.1 per ounce before trading up to $1,288.5 (as I write this column, June contract most active).

Is this the bottom or just a false echo? I threw a rock down the shaft with Kitco News Global Editor Debbie Carlson in a second Q&A yesterday (see below). Not much has changed.

My most recent thoughts on price direction next week are given in the input to this week's Kitco Gold Survey (following the Q&A):

This week, the yellow metal continued its broad decline, losing not only U.S. dollar price but significant value relative to equities and global commodities oil and copper. With the Ukraine crisis in idle for the time being, gold is lacking a catalyst to reverse its recent decent below $1,300 per ounce. A test for a physical buying floor may be in the offing although most of the selloff has been technical in nature. Continued weakening of the yuan versus the U.S. dollar also creates headwinds for buying in China. Although volatile, the U.S. dollar index is ending flat for the week and thereby less of a factor on the price movements of dollarized commodities. My gold target for next week is $1,300 per ounce assuming there may be one more charge to go in the land of the Light Brigade.

On a positive note, Comex copper is back above the key $3-level at $3.0405 per pound and the gold miners are mostly up on a down day for the yellow metal (above).

Keep the faith, pardner.

Carlson on Gold Price & Chinese Yuan Devaluation (Part II)

We have been following the dramatic weakening of the Chinese yuan since late-February. Last week, I asked Kitco Global Editor Debbie Carlson to explain some of the dynamics behind this change. This is a follow-up Q&A with Carlson conducted yesterday before today's dip to $1,286.1 per ounce.

Thursday, March 27 Q&A

Eureka Miner: On a morning with gold below $1,300 and the Ukraine Crisis in pause mode, a good test of physical support may be in the offing - no?

Carlson:  Definitely of technical chart support, not sure yet about physical demand. Asian analysts said the slip under $1,300 didn't inspire any buying. It's only at a month low so perhaps shoppers are keeping their purses shut.

Eureka Miner: I noticed TD securities thinks it may be at the $1,295-level.

Carlson: Yes, that area as of Wednesday was the 200-day moving average for spot prices. That caused some excitement in the markets when we moved above it on the way up. This story by Kitco's Allen Sykora talks about what might happen if gold futures close under $1,300:

Technical Activity In Focus As Gold Futures Fall Back To 50, 200-Day Averages (Allen Sykora, Kitco news, March 26, 2014)

Eureka Miner: Continuing our conversation from last week, Chinese demand has been lackluster for a variety of reasons with SGE still trading at a discount to spot gold.

Carlson:Indeed, it has. Several traders who watch physical demand have said as much.

Eureka Miner: One factor we discussed was the recent devaluation of the yuan relative to the U.S dollar. Last Friday the yuan hit a high for the year at 6.2127 (USD/CNY), up 3.1% from its January low. This week the yuan retreated from this peak but appears to be on the march higher again. My understanding is that the new 2% trading band, moved from 1% March 15, gives a sense for how much higher the PBOC is willing to go in the near term. Thursday's reference rate is 6.1465 up from Wednesday's 6.1440. Using their latest target, a 2% rise would give 6.2694 - nearly 4% above January's number. How do these moves compare to seasonal softness?

Carlson: I'm no expert on currency fluctuations, but when the band expansion was announced, at least one currency analyst said in the past the yuan never really tested its full 1% band, so maybe this will give the currency more room to move. As far as Chinese currency weakening, gold analysts have said that's likely a factor.

Eureka Miner: Thank you!

Timberline (TLR) Gets Another Breather

Good news - the New York stock exchange (NYSE) has accepted a Plan of Compliance from Timberline Resources (TLR):

Timberline’s Plan of Compliance Accepted by NYSE MKT (Press release, 3/25/2014)

The NYSE was threatening to de-list TLR from the exchange but the new plan puts that decision off to this summer as the submitted plan is reviewed. Timberline has a diverse footprint in Eureka County of claims and recent explorations:

Timberline's exploration is primarily focused on the major gold districts of Nevada, where it is advancing its flagship Lookout Mountain Project toward a production decision while exploring a pipeline of quality earlier-stage projects at its South Eureka Property and elsewhere. Timberline's leadership has a proven track record of discovering economic mineral deposits that are developed into profitable mines.

The Report wishes them the best of luck on their new direction forward.

Spring 2014 Mining Quarterly

As mentioned for the last several reports, the Spring 2014 Mining Quarterly is out and can be accessed online.

MQ editor Marianne Kobak McKown has done another terrific job putting together the latest mining news and events in Northern Nevada. The ole Colonel submitted a column on Eureka's Major William Wirt McCoy - someone we can be very proud as we celebrate Nevada's Sesquicentennial:

Major McCoy and the Rebellious Ores of Eureka (p. 83-87 online)

In his 70 years, Major McCoy was a physician, cattleman, statesman and mining entrepreneur. He served with distinction in the Mexican-American War and the legislatures of three states. Most importantly for Nevada, he found an economic way to reduce the stubborn argentiferous lead ores of the Eureka mining district. His solution brought Eureka from a struggling mining camp in 1869 to become Nevada’s second largest city with a population of 10,000 and a world class lead-silver producer by 1878. Before his death in 1881, this remarkable man had contributed to the creation of Nevada through his brave actions in the Mexican-American War, served as a Senator of the “Battle Born State” and helped form Eureka town site and County.

My most sincere thanks to the many folks in Eureka that contributed to the historical and field research for this article. This included locating the sites of the McCoy waterworks, Eureka Smelting Company, brickyard south of town and quarry for the sandstone that revolutionized smelting in the Eureka mining district.

Happy reading, pardner!

Kitco Gold Survey

My weekly inpt to the Kitco Gold Survey:

03/28/2014 (10:26 AM CDT)

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

A. Up. My target price is $1,300 per ounce.

Q. Why?

This week, the yellow metal continued its broad decline, losing not only U.S. dollar price but significant value relative to equities and global commodities oil and copper. With the Ukraine crisis in idle for the time being, gold is lacking a catalyst to reverse its recent decent below $1,300 per ounce. A test for a physical buying floor may be in the offing although most of the selloff has been technical in nature. Continued weakening of the yuan versus the U.S. dollar also creates headwinds for buying in China. Although volatile, the U.S. dollar index is ending flat for the week and thereby less of a factor on the price movements of dollarized commodities.

My gold target for next week is $1,300 per ounce assuming there may be one more charge to go in the land of the Light Brigade.

For $1,300 per ounce gold we can expect to see silver in a statistically bounded range* of $19.5-$20.9 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $20.200 per ounce. There is too much volatility in the gold-to-copper ratio to make a reliable range prediction for copper price. It is likely that red metal prices will hover around the $3 per pound territory until more positive data emerges from China.

(* +/- 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)

The S&P 500 is near where it closed last Friday trading at 1,861.00, down 0.3% for the week in morning trading. Comex gold is down 3.6% for the week surrendering nearly 2% in value to the S&P at $1,288.5 per ounce. 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 and then rose above the lower boundary of the sideways channel (blue dashed line)

However, this advance has now bearishly retreated below the lower boundary (red circle). This morning’s gold price represents a loss of 44.7% of value relative to the November peak (AUSP=1.2710).

The yellow metal lost significant ground relative to oil and copper for the week; oil gained only slightly on the red metal although both enjoyed substantial dollar gains. 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 423.8 pounds of copper.” Percentages are deltas over one week.

On Jan. 14, I changed sides from bear to bull on gold price 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). However, there are some troubling signs in the ether as explained in my latest column, Oil, Copper & Gold Transmit a Distress Signal (Kitco news, 3/17/2014). Bearish trends have re-surfaced for the yellow metal in the last two weeks.

Since November 2012, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil and copper. However, its value relation with respect to copper has recovered some ground in 2014.

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 88.20, below the key-100 level and below the 1-month moving average of 90.32. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,220.6 per ounce or $67.91 discount to actual gold price (i.e. gold is trading at a diminishing 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
 
Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market