"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, May 30, 2014

Gold's $1,242 Lament; Midway Gold Up & Down - Undervalued?

Eureka High School Rodeo, Eureka, Nevada

*** Local Mining News ***

Midway Gold Announces US$25 Million Bought Deal Offering Of Common Shares (Press release, May 29, 2014)

Midway Announces Filing Of Technical Report For Gold Rock Project, Nevada (Press release, May 29, 2014)

Midway Announces Substantial Resource Increase At Gold Rock Project, Nevada (Press release, May 28, 2014)

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:

Gold’s June Surprise? (Kitco News, June 2, 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 = $1,253.7/oz (August contract most active)
COMEX Silver = $18.965/oz (July)
COMEX Copper = $3.1500/lb (
July)



NYMEX WTI crude = $102.83/bbl (July)
ICE Brent crude = $109.45/bbl (July)



Eureka Miner’s Gold Value Index© (GVI) = 85.99 (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) = $1,218.2/oz
COMEX - VAGP = +35.50/oz; gold is trading at a declining premium to key commodities


As of 9:29AM PDT:


Barrick Gold (ABX) = $15.86 up 0.57%
Newmont Mining (NEM) = $22.74 down 0.09%
Midway Gold (MDW) = $0.834 down 6.76%
General Moly (GMO) = $1.03 down 1.90% 
Timberline Resources (TLR) = $0.115 up 3.23%
S&P 500 = 1,919.90 down 0.01%






Morning Miners!

Some mornings you just can't write fast enough to keep up with falling gold prices. When I did my early morning analysis Comex gold was trading around $1,250 per ounce; now at 9:06 a.m. the yellow metal plumbs $1,242 - nuts. Both of these numbers are several levels lower in the shaft than Friday's close of $1,291.7 (June contract) and my prediction of $1,300 for this week.

I thought the Ukraine weekend elections would return some shine to the Lustrous One but perhaps it's because I come from the "Duck n' Cover" generation that never trusts the Russians. Alas, the Pentagon announced very early today:

ABOARD A U.S. MILITARY AIRCRAFT (AP) — U.S. defense officials said Thursday that Russia has pulled most of its forces away from the Ukraine border, a withdrawal that the U.S. has been demanding for weeks (AP, Friday May 29, 2014 2:27 AM)

Without a little geo-political tail wind, gold is lately in a world of hurt as I explain in my input to the Kitco Weekly Gold Survey (full analysis below):

Gold price faces a double-threat: record-breaking U.S equities and a strengthening U.S. dollar. As the unloved step-child in the commodity family for the last 6 weeks, the family now finds itself under pressure with downturns in oil and copper and ominous warning signals coming from tumbling iron ore prices in China. The yellow metal is likely oversold and some technical relief may come in the new month. Russian troops pulling away from Ukraine’s border removes most geo-political reasons to rally back to the $1,300-level but gold could challenge this week’s high of $1,267 per ounce.

With gold now at $1,242 will I change my prediction for next week? Heck no! We've got the Elko Mining Expo coming, let's have an uptick in gold price for Pete's sake! See you there, pardner.

I still don't trust the Russians.

Midway Up & Down - Undervalued?

With no less than three press releases this week (below headline photo), Midway gold (MDW) has had a roller coaster ride in share price: from a weekly low of $0.80 per share it shot up to $1.07 and then fell back to $0.82 earlier this morning, presently trading at $0.834.

Some folks are quite optimistic about Midway's future now that the Pan Project is gathering steam. Here's an excellent article that posted this week in Seeking Alpha:

Undervalued Midway Gold Poised To Bounce Back: Financing Arranged And Fast-Tracking Towards Production (May. 28, 2014 5:00 AM ET)

The ole Colonel presently holds no shares of MDW but I'm watching these developments like a hawk.

The best of luck to the Midway team!

Please do your own research; markets can turn on you faster than a feral cat.





Market Anxiety Low

The following is an update from last week's look at market anxiety - or lack thereof!

As the U.S. stock markets attempt to break all-time highs, market anxiety is approaching new lows. The Eureka Market Anxiety Index is derived from S&P 500 and its volatility index (aka VIX) together with the Comex price of gold and copper, U.S. dollar index and 10-year U.S. Treasury note. It is a measure of fear in the marketplace with a threshold value of 100 as shown in the following plot from mid-2011 (click on image for larger view):



During the 2011 U.S. debt debacle and resulting debt downgrade, the Anxiety Index peaked at 271 (i.e high anxiety) and then fell to a complacent  low of  39.3 last May. Fortunately since 2012, anxiety has remained below threshold (100) except for the flurry of uncertainty that followed the Federal Reserve's announcement that their bond buying program, or QE3, would taper from its $85B per month pace. The Index touched 100.9 on June 24, 2013 on what was then described as a "taper tantrum."

Interestingly, the Index is again approaching a low in the month of May scoring 42.0 in morning trading (green arrow). Will history repeat with a June surprise? Stay tuned, pardner - still pretty quiet out there in the sage. 

Kitco Gold Survey

Here is my input to the Weekly Kitco Gold Survey:

05/30/2014 (10:20 AM CDT)

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

A. Up. My target price is $1,265 per ounce.

Q. Why?

Gold price faces a double-threat: record-breaking U.S equities and a strengthening U.S. dollar. As the unloved step-child in the commodity family for the last 6 weeks, the family now finds itself under pressure with downturns in oil and copper and ominous warning signals coming from tumbling iron ore prices in China. The yellow metal is likely oversold and some technical relief may come in the new month. Russian troops pulling away from Ukraine’s border removes most geo-political reasons to rally back to the $1,300-level but gold could challenge this week’s high of $1267 per ounce.

Longer term, I remain bearish with gold prices headed to $1,100 to 1,180 per ounce territory by year-end. Lacking any geo-political lift, gold’s fortunes are likely grim until inflation expectations rise and real interest rates fall.

My gold target for next week is a return to the $1,265 per ounce-level:

For $1,265 gold we can expect to see silver in a statistically bounded range* of $18.8-$19.2 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $18.982 per ounce. Volatility in the gold-to-copper ratio has subsided substantially. Future copper price is in a statistical range* of $2.91-$3.20 per ounce. Copper is expected to have a positive bias with respect to a range mean of $3.0562 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 at 1,918.4 is up 0.9% for the week in morning trading and is again within striking distance of all-time closing highs. Comex gold is down 2.9% for the week losing more value to the S&P at $1,253,7 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 rose above the lower boundary of the sideways channel (blue dashed line) However, this advance has now bearishly retreated below the lower boundary into a second sideways channel bearishly lower than the first. This morning’s gold price represents a loss of 48.6% of value relative to the November peak (AUSP=1.2710) and is close to breaking another lower boundary.

The yellow metal lost value to oil and more to copper; oil also lost 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 398.0 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 troubling signs in the ether as explained in my March column, Oil, Copper & Gold Transmit a Distress Signal (Kitco news, 3/17/2014). Bearish trends have re-surfaced for the yellow metal and the light in the mineshaft (as explained in my latest commentary, Gold's Wild Ride - Up and Away?  Kitco News, 4/14/2014) has now grown very dim.

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 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 85.99, below the key-100 level and the 1-month moving average of 88.31. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,218.2 per ounce or $35.50 discount to actual gold price (i.e. gold is trading 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


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
 




Friday, May 23, 2014

Liu Han Gets Death Sentence; Midway Scores Money for Pan

McCoy Ridge, Eureka, Nevada

*** Local Mining News ***

Former Chinese Mining Tycoon Gets Death Sentence -- 2nd Update (James Areddy, WSJ May 23, 2014, 1:37 a.m. ET)

MIDWAY EXECUTES COMMITMENT LETTER FOR US$55 MILLION PROJECT FINANCE FACILITY WITH COMMONWEALTH BANK OF AUSTRALIA PAN PROJECT, NEVADA (Press Release, May 22, 2014)


MIDWAY FORECASTS CAPITAL REDUCTIONS PAN PROJECT (Press Release, April 24, 2014)

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:

Gold's Wild Ride - Up and Away? (Kitco News, Apr. 14, 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 = $1,293.8/oz (June contract most active)
COMEX Silver = $19.430/oz (July)
COMEX Copper = $3.1650/lb (
July)



NYMEX WTI crude = $103.98/bbl (July)
ICE Brent crude = $110.39/bbl (July)



Eureka Miner’s Gold Value Index© (GVI) = 87.48 (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) = $1,235.8/oz
COMEX - VAGP = +58.04/oz; gold is trading at a declining premium to key commodities


As of 8:51AM PDT:


Barrick Gold (ABX) = $16.59 (unchanged)
Newmont Mining (NEM) = $23.39 up 0.13%
Midway Gold (MDW) = $0.9365 down 0.74%
General Moly (GMO) = $1.02 up 0.99% 
Timberline Resources (TLR) = $0.09 down 24.37%
S&P 500 = 1,898.81 up 0.33%





Morning Miners!

It's good to be back! A very eventful Friday before the long holiday weekend - infamous mining tycoon Liu Han faces the gallows and Midway Gold is on a roll to secure additional funding for their Pan Gold Mine in White Pine County. Liu Han, founder of the Hanlong Group, was arrested last year for corruption which upset Hanlong's funding plan of $790 million for construction of General Moly's Mt. Hope molybdenum mine. The General Moly management team has since been seeking alternative financing for the project.

Former Chinese Mining Tycoon Gets Death Sentence -- 2nd Update (James Areddy, WSJ May 23, 2014, 1:37 a.m. ET) 

General Moly (GMO) stock reacted positively to the early morning news trading up 1.0% at $1.02 at the time of this report. Although the original  funding plan was abandoned, Hanlong remains a 13% shareholder in General Moly. Some investors believe resolution of the Liu Han affair will simplify the Hanlong relation and thereby facilitate new funding options.

Yesterday, Midway Gold (MDW) announced they had signed a binding commitment letter with Commonwealth Bank of Australia for a $55M senior secured project finance facility for the development of the Pan Gold Mine. 

MIDWAY EXECUTES COMMITMENT LETTER FOR US$55 MILLION PROJECT FINANCE FACILITY WITH COMMONWEALTH BANK OF AUSTRALIA PAN PROJECT, NEVADA (Press Release, May 22, 2014)

An uptick in General Moly stock and money for Midway are positive ways to start the holiday!




Market Anxiety Low

As the U.S. stock markets attempt to break all-time highs, market anxiety is approaching new lows. The Eureka Market Anxiety Index is derived from S&P 500 and its volatility index (aka VIX) together with the Comex price of gold and copper, U.S. dollar index and 10-year U.S. Treasury note. It is a measure of fear in the marketplace with a threshold value of 100 as shown in the following plot from mid-2011 (click on image for larger view):



During the 2011 U.S. debt debacle and resulting debt downgrade, the Anxiety Index peaked at 271 (i.e high anxiety) and then fell to a complacent  low of  39.3 last May. Fortunately since 2012, anxiety has remained below threshold (100) except for the flurry of uncertainty that followed the Federal Reserve's announcement that their bond buying program, or QE3, would taper from its $85B per month pace. The Index touched 100.9 on June 24, 2013 on what was then described as a "taper tantrum."

Interestingly, the Index is again approaching a low  in the month of May scoring 45.4 in morning trading (green arrow). Will history repeat with a June surprise? Stay tuned, pardner - pretty quiet out there in the sage. Looks like a bump up to $1,300 next week may be in the cards for our lustrous friend....




Kitco Gold Survey

Here is my input to the Weekly Kitco Gold Survey:

05/23/2014 (10:23 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?

After the long holiday weekend, the outcome of Ukraine presidential elections should restore some air to the slowly leaking tire of gold price in U.S. dollars. Consensus suggests that any result will bring more tension to the region which should be short-term bullish for the yellow metal.

Longer term, I remain bearish with gold prices headed to $1,100 to 1,180 per ounce territory by year-end. Lacking any geo-political lift, gold’s fortunes are likely grim until inflation expectations rise and real interest rates fall.

My gold target for next week is an uptick to the familiar $1,300 per ounce-level:

For $1,300 gold we can expect to see silver in a statistically bounded range* of $19.3-$19.8 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $19.516 per ounce. Volatility in the gold-to-copper ratio has subsided substantially. Future copper price is thereby in a narrower statistical range* of $3.01-$3.21 per ounce. Copper is expected to have a positive bias with respect to a range mean of $3.1131 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 at 1,895.30 is 0.9% for the week in morning trading and within striking distance of all-time highs. Comex gold is virtually unchanged for the week losing more value to the S&P at $1,293.8 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 rising above the lower boundary of the sideways channel (blue dashed line). However, this advance has now bearishly retreated below the lower boundary into a second sideways channel bearishly lower than the first. This morning’s gold price represents a loss of 46.3% of value relative to the November peak (AUSP=1.2710).

The yellow metal lost considerable value to oil and some to copper; oil also gained 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 408.8 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 March column, Oil, Copper & Gold Transmit a Distress Signal (Kitco news, 3/17/2014). Bearish trends have re-surfaced for the yellow metal and the light in the mineshaft (as explained in my latest commentary, Gold's Wild Ride - Up and Away?  Kitco News, 4/14/2014) is now growing very dim.

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 87.48, below the key-100 level and the 1-month moving average of 88.77. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,235.8 per ounce or $58.04 discount to actual gold price (i.e. gold is trading 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


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
 




Friday, May 2, 2014

"Blowout Jobs Report"; 10K New Mining Jobs; Russia/Ukraine Safety Net

Pancake Range, White Pine County, Nevada

*** Local Mining News ***


MIDWAY FORECASTS CAPITAL REDUCTIONS PAN PROJECT (Press Release, April 24, 2014)

The Liu Han trial:

Xinhua Insight: China ends first trials of tycoon-led gang (China English News, 2014-04-19 21:28:36)

Alleged mafia leader denies all charges (Ecns.cn 2014-04-18 09:03Xinhua)

Hanlong founder Liu Han denies murder of rivals in China (SCOTT MURDOCH, THE AUSTRALIAN APRIL 18, 2014 6:23PM)

A background column was posted in the Wall Street Journal April 14th by James Areddy:

Mining Tycoon's Trial Reverberates in Central China (By JAMES T. AREDDY, April 14, 2014 11:16 a.m. ET)

Several folks in Eureka including this report were interviewed by Mr. Areddy for his 2012 column about Mt. Hope and Liu Han, In Nevada, a Chinese King of the Hill.  Defendant Liu Han and his Hanlong Group had agreed to finance a large portion of the Mt. Hope Molybdenum Project.

General Moly: 3 Different Insiders Have Purchased Shares This Month (Markus Aarnio, Seeking Alpha, 4/17/2014)


The Liberty Starter Pit Project (Press release, 4/8/2014)

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:

Gold's Wild Ride - Up and Away? (Kitco News, Apr. 14, 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 = $1,282.8/oz (June contract most active)
COMEX Silver = $19.105/oz (May)
COMEX Copper = $3.0335/lb (
May)



NYMEX WTI crude = $99.37/bbl (May)
ICE Brent crude = $108.11/bbl (June)



Eureka Miner’s Gold Value Index© (GVI) = 89.62 (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) = $1,196.0/oz
COMEX - VAGP = +86.78/oz; gold is trading at a premium to key commodities (bullish implication - "bottom is in for gold")


As of 9:24AM PDT (percentages are from yesterday's closing prices; parentheses are a comparison to last Friday's morning price):


Barrick Gold (ABX) = $17.39 up 1.64% (Last Friday AM $17.57)
Newmont Mining (NEM) = $24.78 up 1.02% ($26.09)
Midway Gold (MDW) = $0.8673 up 0.84% ($0.0.8551)
General Moly (GMO) = $1.15 up 5.50% ($1.13)
Timberline Resources (TLR) = $0.15 down 5.00% ($0.1615)
S&P 500 = 1,884.37 up 0.04% (1,867.88)





Morning Miners!

How about some good news? According to the morning report from the U.S. Labor Department, the U.S. labor market created 288,000 jobs in April. Economists estimated 215,000 so the actual number was a pleasant surprise - a CNBC Business News commentator called it a "blowout jobs report." It is reassuring that 10,000 of those jobs came from the mining sector, mostly in support services. The unemployment rate also tumbled to a surprisingly low 6.3% from 6.7% although some of that decrease was due to a lower participation rate (i.e. more people are giving up looking for a job and leaving the labor market altogether).

Additionally, the Labor Department revised March’s employment numbers to 203,000 jobs up from the original figure of 192,000. February was revised up to 222,000 jobs from 197,000.  This reaffirmed the economic recovery is on tract and that it is unlikely that the Federal Reserve will slow the taper of their current bond buying program - a bearish outcome for gold price

Gold price reports are tricky to write when early morning prices are overcome by mid-morning events. This week, the ole Colonel returned to a more bearish outlook on the yellow metal after crossing the fence to bull pasture January 14. As I wrote about the reasons for my switch, Russia requested a United Nations Security Council emergency meeting. That request combined with a President Obama/German Chancellor Merkel press conference pushed Comex gold price from $1,282 per ounce to over the $1,300-level. Markets awaited a U.S./European joint statement to decisively counter Russia's mischief in the Ukraine.

Here's the chart, Eastern Daylight Time:



The press conference fell short of a Chruchillian "We will fight on the beaches..." speech; something less than the finest hour for a coordinated Western leadership response to naked aggression. Nonetheless, gold continues to hover around $1,300 - a Russia/Ukraine safety net for the lustrous metal.

Other than such geo-political moves, my outlook is now bearish for the remainder of 2014:

Last week’s metaphor remains intact: gold price is a slowly leaking tire saved only by bursts of pressure from escalating but sporadic tensions in the Ukraine. Today’s blowout jobs report has erased any expectation that the Federal Reserve will slow the taper of their bond buying program. As an investment bellwether, the SPDR gold ETF plumbed its lowest inventory level since January 2009 – both very bearish outcomes.

Furthermore, physical demand from the world’s largest consumers continues to disappoint. The Akshaya Tritiya festival has failed to stir much demand in India given continued high gold import duty and uncertainty about the outcome of ongoing elections. The yuan made a new high this week against the U.S. dollar (USD/CNY) supporting another headwind to lackluster Chinese consumption.

My gold target for next week follows the 7-week downtrend to $1,276 per ounce:(input to the weekly Kitco Gold Survey, see full report below).

Kitco Gold Survey

Here is my input to the Weekly Kitco Gold Survey:

05/02/2014 (10:42 AM CDT)

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

A. Down. My target price is $1,276 per ounce.

Q. Why?

Last week’s metaphor remains intact: gold price is a slowly leaking tire saved only by bursts of pressure from escalating but sporadic tensions in the Ukraine. Today’s blowout jobs report has erased any expectation that the Federal Reserve will slow the taper of their bond buying program. As an investment bellwether, the SPDR gold ETF plumbed its lowest inventory level since January 2009 – both very bearish outcomes.

Furthermore, physical demand from the world’s largest consumers continues to disappoint. The Akshaya Tritiya festival has failed to stir much demand in India given continued high gold import duty and uncertainty about the outcome of ongoing elections. The yuan made a new high this week against the U.S. dollar (USD/CNY) supporting another headwind to lackluster Chinese consumption.

My gold target for next week follows the 7-week downtrend to $1,276 per ounce:

For $1,276 gold we can expect to see silver in a statistically bounded range* of $18.9-$19.7 per ounce. Silver is expected to have a negative bias with respect to a range mean of $19.321 per ounce. Volatility in the gold-to-copper ratio has subsided considerably. Future copper price is thereby in a narrower statistical range* of $2.91-$3.08 per ounce. Copper is expected to have a positive bias with respect to a range mean of $2.9980 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 at 1,886.81 is up a strong 2.9% for the week in morning trading and within striking distance of recent highs. Comex gold is down 1.4% for the week losing more value to the S&P at $1,282.8 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 rising above the lower boundary of the sideways channel (blue dashed line) However, this advance has now bearishly retreated below the lower boundary into what appears a second sideways channel bearishly lower than the first. This morning’s gold price represents a loss of 46.5% of value relative to the November peak (AUSP=1.2710).

The yellow metal lost some value to oil but managed to gain on copper; oil also gained 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 422.9 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 March column, Oil, Copper & Gold Transmit a Distress Signal (Kitco news, 3/17/2014). Bearish trends have re-surfaced for the yellow metal and the light in the mine shaft (as explained in my latest commentary, Gold's Wild Ride - Up and Away? , Kitco News, 4/14/2014) is now growing very dim.

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 88.47, below the key-100 level and the 1-month moving average of 89.62. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,196.0 per ounce or $86.78 discount to actual gold price (i.e. gold is trading at a 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