"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 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
 




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