"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, March 7, 2014

Strong Employment Report & China Woes - Gold Stumbles, Copper Dives; Spring 2014 Mining Quarterly

Good to Go!


*** Local Mining News ***

Chilean court revokes Barrick’s Pascua-Lama $16-million fine, but orders new ones (3/4/2014, Mining.com)

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)

MIDWAY FORMALIZES JOINT VENTURE WITH BARRICK SPRING VALLEY, NEVADA (2/24/2014, Press Release)

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

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:

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

Monday's AM prices used for this morning's early analysis: 


COMEX Gold price = $1.333.6/oz (April contract most active)
COMEX Silver = $20.880/oz (May)
COMEX Copper = $3.0905/lb (
May)
NYMEX WTI crude = $102.15/bbl (
April)
ICE Brent crude = $108.84/bbl (April)



Eureka Miner’s Gold Value Index© (GVI) = 88.81 (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) = $1,254.6/oz
COMEX - VAGP = +78.95/oz; gold is trading at a premium to key commodities (bullish implication - "bottom is in for gold")


As of 8:48 AM (percentages are from yesterday's closing prices; parentheses are a comparison to last Friday's AM price):


Barrick Gold (ABX) = $19.915 down 2.14% (Last Friday AM $20.44)
Newmont Mining (NEM) = $24.24 down 2.77% ($23.18)
Midway Gold (MDW) = $1.25 down 1.57% ($1.23)
General Moly (GMO) = $1.25 down 1.57% ($1.19)
Timberline Resources (TLR) = $0.155 down 2.52% ($0.147)
S&P 500 = 1,875.55 down 0.08% (1,866.78)




Morning Miners!

Gold broke above the ephemeral $1,350 per ounce-level this week on worsening conditions in the Ukraine and a falling U.S. dollar. Today, a strong employment report from the Labor Department put a damper on gold's rally which is presently trading at $1,333.6. An additional 175,000 jobs added in February compared to an expected 150,000 is good news indeed together with upward revisions to previous months. However, a loan default in China is a potentially serious event as explained in my Kitco gold survey input (see below):

This morning there are many cross-currents affecting gold price. A surprisingly strong U.S. employment report brought the U.S. dollar off its 4.5-month low and raised the 10-year Treasury note above 2.8% - both headwinds for gold’s recent rally to the $1,350 per ounce-level. Before the NFP [Nonfarm Payroll Report], gold had been buoyed by the crisis in the Ukraine and a falling dollar. Another important influence is continued credit concerns in China highlighted by a loan default of a solar company yesterday. Some have likened this to a “Bear Sterns” event which could, if true, reverse China’s flagging physical demand for the yellow metal. The default has already savaged red metal prices with May Comex copper plunging to $3.0890 per pound, recovering some to presently trade at $3.0905.


My gold target for next week is $1,345 per ounce betting there will be slightly more bullish than bearish influences evolving from a very mixed global picture.

Spring 2014 Mining Quarterly



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:

03/07/2014 (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 $1,345 per ounce.

Q. Why?

This morning there are many cross-currents affecting gold price. A surprisingly strong U.S. employment report brought the U.S. dollar off its 4.5-month low and raised the 10-year Treasury note above 2.8% - both headwinds for gold’s recent rally to the $1,350 per ounce-level. Before the NFP report, gold had been buoyed by the crisis in the Ukraine and a falling dollar. Another important influence is continued credit concerns in China highlighted by a loan default of a solar company yesterday. Some have likened this to a “Bear Sterns” event which could, if true, reverse China’s flagging physical demand for the yellow metal. The default has already savaged red metal prices with May Comex copper plunging to $3.0890 per pound, recovering some to presently trade at $3.0905.

April Comex contract is trading at $1,333.6 per ounce off more than $18 from yesterday’s close. Technically, the discounting process relative to the S&P 500, oil and copper appears to have bottomed in 2013 and the store-of-wealth has recovered considerable value from those lows. Today’s fall in copper price strengthens this rise as gold continues to develop a premium with respect to a basket of commodities (see value adjusted gold price at the bottom of this report).

Finally, as the S&P 500 posts a new intraday high, gold has lost its upward momentum relative to equities. This may only be a temporary setback if the Ukraine crisis or China’s debt woes have a negative impact on soaring U.S. equities.

The average gold price since the Lehman Brothers’ bankruptcy filing is $1,345 per ounce. 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 $1,345 per ounce betting there will be slightly more bullish than bearish influences evolving from this very mixed global picture:

For $1,345 per ounce gold we can expect to see silver in a statistically bounded range* of $20.7-$22.4 per ounce. Copper should be in a range of $3.12-$3.49 per pound, however the fall to $3.09 this morning signals a change in market direction. Silver is expected to have a negative bias with respect to a range mean of $21.556 per ounce; copper, a very negative bias with respect to a range mean of $3.3039 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 1,883.57 and is up a 1.0% for the week; gold is up 0.9% 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 44.2% of value relative to the November peak (AUSP=1.2710). Today’s ratio remains below the lower boundary of the sideways channel has 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 7.0% below August’s high ($1,434.0). The yellow metal gained ground relative to oil for the week; gold and oil gained significant 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 431.5 pounds of copper.” Percentages are deltas over one week.



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).

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 88.81, below the key-100 level but above the 1-month moving average of 85.96. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,254.6 per ounce or $78.95 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

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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