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 America: Mariana 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

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

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