"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, April 4, 2014

Jobs Report Lifts Gold: Looking Back One Year

Ray of Light, Gold Country, 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)


Or in the Elko Daily Free Press: Major McCoy and the rebellious ores of Eureka: How one man helped a small Nevada mining town boom (March 18)

Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans




Mariana's fine art prints are featured in Fine Art AmericaMariana Titus

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

COMEX Gold price = $1,299.0/oz (June contract most active)
COMEX Silver = $20.090/oz (May)
COMEX Copper = $3.0535/lb (
May)


NYMEX WTI crude = $101.21/bbl (May)
ICE Brent crude = $106.67/bbl (May)



Eureka Miner’s Gold Value Index© (GVI) = 88.38 (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) = $1,228.0/oz
COMEX - VAGP = +70.96/oz; gold is trading at a premium to key commodities (bullish implication - "bottom is in for gold"; bearish caution: premium is diminishing)


As of 9:15AM PDT (percentages are from yesterday's closing prices; parentheses are a comparison to last Friday's morning price):


Barrick Gold (ABX) = $18.70 up 1.91% (Last Friday AM $18.26)
Newmont Mining (NEM) = $24.42 up 1.33% ($23.77)
Midway Gold (MDW) = $0.9997 up 1.96% (unchanged) ($1.05)
General Moly (GMO) = $0.9299 down 1.18% ($1.05 )
Timberline Resources (TLR) = $0.153 up 2.00% ($0.155 )
S&P 500 = 1,877.75 down 0.58% (1,859.73)




Morning Miners!

Today started out just fine with the Labor Department's monthly jobs report (input to the weekly Kitco Gold Survey, see below):

This morning’s non-farm payroll report has something for everyone. Job growth at 192,000 fell short of the 200,000 expectation giving a boost to both Federal Reserve doves and metal prices which respond positively to hints of continued monetary accommodation. However, the closeness of the jobs number buoyed by modest upward revisions to previous months surged the S&P 500 to new all-time highs at the open as equity bulls divine slow but steady domestic growth from the data. Comex gold briefly broke the key $1,300 per ounce level and is presently trading near that number. Reduced anxiety about Federal Reserve tightening and simmering geo-political tensions in the Ukraine should support a further advance for the yellow metal. My gold target for next week is therefore up, likely stalling at $1,320 per ounce technical resistance.

Since I did my early morning analysis, Comex gold is up a bit more at $1,304.8 per ounce and the S&P 500 has lost some sizzzle dropping back from yesterday's close by 0.6% to trade at 1,877.75. The early all-time record nearly broke 1,900 at 1,897.28 - simply amazing [PM update: The S&P 500 lost a lot of sizzle as the trading day wore on closing at 1,865.09; Comex gold closed at a resilient $1,303.5 per ounce].

[This analysis was featured in today's Kitco Weekly Outlook: Gold Traders To Keep Eyeing U.S. Economy, Russia For Next Direction (April 4, 2014 3:10PM, Allen Sykora, Kitco News)]



Looking back one year...

I thought it would be fun to look at the labor report reaction one year ago less a day. On April 5, 2013 the expectation was also 200,000 new jobs but reality delivered a meager 88,000. On that dire note, The Eureka Miner observed:

OK, what are the positives? The Federal Reserve will no doubt continue their present quantitative easing program (aka QE3) to prop up the U.S. stock markets and put a floor under commodity prices, including metals. Scary reports generally boost gold prices making an absolutely horrible week for gold just a horrible week as I explain in my weekly input to the Kitco Gold Survey below. Copper prices that were falling through the floor yesterday (intraday Comex low of $3.306 per pound) are trading presently at $3.3465. The S&P 500 fell to 1,539.8 shortly after the open but has since crawled up to 1,541.39. Earlier in the week the S&P made an all-time closing high of 1,570.25 - shucks, we're only down 1.8% on a bum report!

A year later,  U.S. employment recovery is not stellar but fairly decent. The morning employment rate is unchanged at 6.7%; a year ago it was 7.6%. A sample of last April's CNBC Business News post-report comments:

"A punch to the gut!"
"A puzzler for the Fed!"
"A tough report..."
"Massive decline in retail..."
"Terrible numbers!"
"Struggling to find anything good!"
"It's all about the sequester!"
"No it's not!"

Hmm, the rhetoric has at least tamed down a bit nowadays.

QE3 is still with us. Although now tapering off, monetary easing continues to provide some floor to metal prices. It is encouraging that Comex copper has recovered above $3 to trade at $3.0535 per pound this morning but discouraging when compared to the April 5, 2013 price of $3.3465. Champagne corks would be hitting the Jackson House ceiling if gold prices were $1,540 today - last year that number made "an absolutely horrible week for gold just a horrible week." So it goes.

One thing consistently bullish is rising U.S. stock markets. They were punching out new highs then and are still punching out new highs. When will these brave equities be punched out? Who knows? Only the wildest-eyed bulls were predicting S&P 500 at 1,900 in 2014 - we're almost there, pardner, and it's only April.

Take some heart, things really are getting better even if you don't believe in stock market exuberance or find little joy in recent metal prices. Here's a positive thought from the Wall Street Journal today:

All of March's gains came from the private sector, bringing non-government employment to a new milestone. Private payrolls reached 116.09 million last month, surpassing the former high of 115.98 million reached in January 2008. "The private sector lost 8.8 million jobs during the labor market downturn and has gained 8.9 million since the employment low in February 2010," said Bureau of Labor Statistics Commissioner Erica Groshen. (WSJ, April 4, 2012)

May 21, 2013, the ole Colonel turned bearish on gold prices. On January 15, I turned bullish and remain so.

It's not a return to gold's heydays of recent years but I believe the lows are in.

I don't think any gold miners will complain if prices hover around $1,350 per ounce and that is certainly in the cards for 2014. An improving U.S. economy and China achieving (albeit lower) 7% GDP this year should keep copper prices above $3 per pound with or without QE3.

There's a  growing ray of  light over Gold Country, Nevada.

Keep the faith, pardner!



Kitco Gold Survey

My weekly input to the Kitco Gold Survey:


04/04/2014 (10:25 AM CDT)

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

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

Q. Why?

This morning’s non-farm payroll report has something for everyone. Job growth at 192,000 fell short of the 200,000 expectation giving a boost to both Federal Reserve doves and metal prices which respond positively to hints of continued monetary accommodation. However, the closeness of the jobs number buoyed by modest upward revisions to previous months surged the S&P 500 to new all-time highs at the open as equity bulls divine slow but steady domestic growth from the data. Comex gold briefly broke the key $1,300 per ounce level and is presently trading near that number.

Reduced anxiety about Federal Reserve tightening and simmering geo-political tensions in the Ukraine should support a further advance for the yellow metal. My gold target for next week is therefore up, likely stalling at $1,320 per ounce technical resistance.

For $1,320 per ounce gold we can expect to see silver in a statistically bounded range* of $20.0-$20.8 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $20.355 per ounce. Volatility in the gold-to-copper ratio has decreased allowing the first range prediction in several weeks for copper price. Future copper is in a wide but statistically bounded range* of $2.75-$3.21 per ounce. Copper is expected to have a positive bias with respect to a range mean of $2.9776 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)

The S&P 500 opened with an all-time high of 1,897.28 but has fallen back some at 1,891.95, up 1.9% for the week in morning trading. Comex gold is up 0.4% for the week surrendering 1.5% in value to the S&P at $1,299.0 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 46.0% of value relative to the November peak (AUSP=1.2710).

The yellow metal halted its loss in value to oil and copper for the week, fractionally close to both; oil lost slightly 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 425.4 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 but gold got a welcome breather this week.

Since November 2012, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil. However, its value relation with respect to copper has recovered 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 88.38, below the key-100 level and the 1-month moving average of 90.65. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,228.0 per ounce or $70.96 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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Mariana's fine art prints are featured in Fine Art AmericaMariana Titus

Paintings by Mariana Titus, The Three Anas, are presently at Lafitte Guest House & Gallery, New Orleans
 




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