Gold Breaks $1,385; Red Metal Mineshaft

Gold Country, Roberts Range, Nevada

*** Local Mining News ***

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

General Moly Announces Fourth Quarter and Full Year 2013 Results (Press Release, March 12, 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 = $1,385.2/oz (April contract most active)
COMEX Silver = $21.695/oz (May)
COMEX Copper = $2.9555/lb (May)
NYMEX WTI crude = $98.76/bbl (April)
ICE Brent crude = $107.23/bbl (May)


Eureka Miner’s Gold Value Index© (GVI) = 93.45 (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) = $1,238.5/oz
COMEX - VAGP = +146.71/oz; gold is trading at a premium to key commodities (bullish implication - "bottom is in for gold")

As of 9:26 AM (percentages are from yesterday's closing prices; parentheses are a comparison to last Friday's morning price):

Barrick Gold (ABX) = $20.855 up 0.31% (Last Friday AM $19.92)
Newmont Mining (NEM) = $25.97 up 1.92% ($24.24)
Midway Gold (MDW) = $1.28 (unchanged) ($1.25)
General Moly (GMO) = $1.11 up 1.83% ($1.25)
Timberline Resources (TLR) = $0.19 up 0.69% ($0.155)

S&P 500 = 1,846.60 up 0.01% (1,875.55)

Morning Miners!

Gold breaking above $1,385 per ounce while copper falls below $3 per pound makes a pretty exciting week for market participants but a mixed picture for miners. If you're busting rocks for the yellow metal, gold price heading for last August's $1,400+ highs  is something to cheer about - perhaps one more reason to put Ruby Hill mine back online this year. If base metals are your game, the bad news coming from China must be troubling indeed. As explained in my Kitco gold survey input (see below):

This has proved an exceptional week for gold with a notable bounce in U.S. dollar price and significant value gains relative to equities and key commodities. Safe-haven status has been re-established for the yellow metal given deteriorating conditions in the Ukraine and a slowing Chinese economy burdened with debt concerns. A strengthening euro and yen, the fall of copper prices to sub-$3 per pound levels and a reversal of oil prices to the downside have all buoyed gold price in U.S. dollars terms. One possible headwind is forward guidance from the FOMC meeting next week that may hint at higher interest rates but this outcome is far from certain.


My gold target for next week is $1,395 per ounce betting there will be more gremlins emerging from the Ukraine and China.

Kitco Global Editor Debbie Carlson did a terrific column on industrial metals this week and was kind enough to include one of the Colonel's charts:

Silver, Copper Could Weaken Further If Chinese Economic Data Disappoints; Copper Breaks $3/Lb (Kitco News March 11, 2014)

My chart points out the divergence between copper and crude oil relative to gold which has widened to levels not seen since the Arab Spring in 2011 or the onset of the Great Recession.

At last week's close Comex gold and Nymex oil (WTI) were trending up while the red metal was falling down the mineshaft. This led to the peak divergence shown in the chart. Oil then took a downturn on bad economic data from China leaving only gold in the lead. Divergence in the commodity family is rarely a good sign for other markets, especially when it reaches levels comparable to periods of significant market stress. This is reflected by the recent downturn in the equity markets - the S&P 500 is down 1.7% for the week.

I plan to write a Kitco commentary on these developments next week. In the meantime - keep the faith!

Spring 2014 Mining Quarterly

As mentioned last report, 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 (photo above).

Happy reading, pardner!

Kitco Gold Survey 

Here is my input for the weekly Kitco Gold Survey:

03/14/2014 (10:23 AM CT)

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

A. Up. My target price is $1,395 per ounce.

Q. Why?

This has proved an exceptional week for gold with a notable bounce in U.S. dollar price and significant value gains relative to equities and key commodities. Safe-haven status has been re-established for the yellow metal given deteriorating conditions in the Ukraine and a slowing Chinese economy burdened with debt concerns. A strengthening euro and yen, the fall of copper prices to sub-$3 per pound levels and a reversal of oil prices to the downside have all buoyed gold price in U.S. dollars terms. One possible headwind is forward guidance from the FOMC meeting next week that hints at higher interest rates but this outcome is far from certain.

April Comex contract is trading at $1,385.2 per ounce. Technically, the discounting process relative to the S&P 500, oil and copper all bottomed in 2013 and the store-of-wealth is now recovering considerable value from those lows. The precipitous fall in copper and oil prices strengthens the rise as gold continues to build a premium with respect to a basket of commodities (see value adjusted gold price at the bottom of this report).

My gold target for next week is $1,395 per ounce recognizing significant resistance at the $1,400-level. Bearish market influences evolving from the current Ukraine/China situation will continue to support the present uptrend:

For $1,395 per ounce gold we can expect to see silver in a statistically bounded range* of $21.2-$23.3 per ounce. Silver is expected to have a negative bias with respect to a range mean of $22.273 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 remain in sub-$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)

Last Friday the S&P 500 set a new intraday record of 1,883.57. Since then equity fortunes have turned and the S&P 500 is down 1.7% from Friday’s close at 1,846.74 in morning trading. In stark contrast gold is up 3.5% for the week gaining over 5% on the S&P. Comex April gold is presently trading at $1,385.2. 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 price represents a loss of 41.0% of value relative to the November peak (AUSP=1.2710). However, today’s ratio has bullishly broken above the lower boundary of the sideways channel (green circle & blue dashed line). This indicates the ratio at the end of last year is indeed the bottom of gold’s declining relation with equities, at least for the near-term.

This morning, Comex gold is only 3.4% below August’s high ($1,434.0). The yellow metal gained significant ground relative to oil and copper for the week; oil gained only slightly on 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 468.7 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).

Since November 2012, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil and copper. Using the 20% decline rule, gold has now marginally left bear country in terms of U.S. dollar price (-19.97%).

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 93.45, below the key-100 level but above the 1-month moving average of 87.62. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,238.5 per ounce or $146.71 discount to actual gold price (i.e. gold is trading again at a material 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