"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, June 6, 2014

2014 Elko Mining Expo Rocks; Friday's Positive Jobs Report

2014 Elko Mining Expo, Elko, Nevada

*** Local Mining News ***

MIDWAY GOLD COMPLETES US$25 MILLION BOUGHT DEAL OFFERING  (Press release, June 6, 2014) 

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:

What is the Commodity Value of Gold? (p. 99-1010 online, p. 94-95, MQ Summer 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 = $1,248.3/oz (August contract most active)
COMEX Silver = $19.080/oz (July)
COMEX Copper = $3.0380/lb (
July)



NYMEX WTI crude = $102.78/bbl (July)
ICE Brent crude = $108.78/bbl (July)



Eureka Miner’s Gold Value Index© (GVI) = 86.81 (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) = $1,201.5/oz
COMEX - VAGP = +46.79/oz; gold is trading at a small premium to key commodities


As of 9:37AM PDT:


Barrick Gold (ABX) = $15.975 down 0.71%
Newmont Mining (NEM) = $23.01 down 0.04%
Midway Gold (MDW) = $0.83 unchanged
General Moly (GMO) = $1.04 up 0.97% 
Timberline Resources (TLR) = $0.1289 up 2.30%
S&P 500 = 1,948.51 up 0.42%






Morning Miners!

Attending the 2014 Elko Mining Expo Thursday and then waking up to a positive jobs report this morning was a great way to end the week. The effect on gold price from last Friday is a wash but at least we're holding $1,250 territory with some resolve as summarized in my input to this week's Kitco Gold Survey (my full report is included further down):

Morning gold trading finds Comex gold prices only a few dollars above last Friday’s close which is startling given a new European Central Bank (ECB) announcement mid-week and today’s nonfarm payroll report. Mario Draghi’s dovish comments and ECB interest rate reduction moved gold higher and the somewhat better-than-expected jobs report moved gold lower – on balance a small dollar gain returning gold back to the $1,250-level. In the commodity space, gold fared much better gaining nearly 3% in value relative to copper and keeping up with Nymex oil which remains elevated at $102 per barrel. The evolving Qingdao financial probe in China has rattled copper and aluminum markets pushing the red metal towards the key $3 per pound threshold.


According to the Labor department 217,000 jobs were added in May versus economist expectations of 215,000. Unemployment remains at 6.3%. The data reaffirm a moderate domestic recovery is underway.

Elko Mining Expo Rocks

Mariana and I camped out at the General Moly booth at the 2014 Elko Mining Expo. Our host was the ever gracious Zach Spencer. Here the two of us are fighting over a simulated chunk of processed molybdenum:



Zach is upbeat that the foam rubber stuff will be replaced by the real deal as the General Moly management team moves further along the process of finding funding alternatives for the Mt. Hope Molybdenum project 22 miles north of Eureka. Moly prices in the $14-15 per pound range are certainly helping. 

The Expo was also a chance to catch up with old friends. Here Mariana is with Tim Arnold, former General Manager of the Mt. Hope project:



Tim is now the Vice President Operations for the Nevada Copper Corp. in Yerrington which has a very exciting and sizable red metal project underway. The best of luck to Tim on his new adventure.

I had a chance to chat with Newmont's Derek Sikes about their outlook and plans for 2014. You may remember last year at the Expo, Newmont told the ole Colonel about a $1,400 and $1,200 plan as the industry faced tumbling gold prices.This year, Derek said the emphasis had shifted from gold price to an "all-in-sustainable" approach. At the heart of this effort is a laser focus on cost reduction as margins are pinched by the expensive infrastructure required to bring today's glitter to production. Derek believes (as I do) that economic recovery will someday bring inflation to bear and a reversal in gold's falling fortunes. The key is to sustain operations through the low spots and be ready to meet tomorrow's rising demand. The best to the Newmont team!

It was teriffic meeting up with Marianne Kobak McKown and the staff at the Elko Daily Free Press booth. Marianne has just finished her Summer Edition of the Mining Quarterly. It is a terrific edition that features a comprehensive and very positive report on reopening Barrick's Ruby Hill Mine. Ruby Hill General Manager Steve Yopps is on the cover overlooking the high-wall failure in the East Arichimedes Pit. The failure occurred last November shutting down most operations. Fortunately, proper planning and the installation of a radar system prior to the failure avoided any injury to the Barrick personnel.

The Eureka Miner contributed a column on gold price going forward:

What is the Commodity Value of Gold? (p. 99-101 online, p. 94-95 printed, MQ Summer Edition 2014)

Pick up an issue or check out the publication on-line. It is brimming full of local mining news and history including Newmont's Long Canyon and Silver Standard's new approach to mining Marigold.

All in all, the expo was packed with miners and vendors with a notable uptick in sentiment from last year's event. Very enjoyable!

Market Anxiety Low

The following is an update from last week's look at market anxiety. I have recently written a Kitco commentary about its potential for signalling a new market direction for June, Gold’s June Surprise? (Kitco News, 6/2/2014).

As the U.S. stock markets 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 scoring 43.0 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:

06/06/2014 (10:38 AM CDT)

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

A. Down. My target price is $1,244 per ounce.

Q. Why?

Morning gold trading finds Comex gold prices only a few dollars above last Friday’s close which is startling given a new European Central Bank (ECB) announcement mid-week and today’s nonfarm payroll report. Mario Draghi’s dovish comments and ECB interest rate reduction moved gold higher and the somewhat better-than-expected jobs report moved gold lower – on balance a small dollar gain returning gold back to the $1,250-level. In the commodity space, gold fared much better gaining nearly 3% in value relative to copper and keeping up with Nymex oil which remains elevated at $102 per barrel. The evolving Qingdao financial probe in China has rattled copper and aluminum markets pushing the red metal towards the key $3 per pound threshold.

Overall, China’s falling iron ore prices and financial controversies will likely produce more headwinds for the metal complex and some downward pressure on gold. My target for next week is therefore $1,244 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.

For $1,244 gold we can expect to see silver in a statistically bounded range* of $18.5-$18.9 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $18.713 per ounce. Future copper price is in a statistical range* of $2.91-$3.18 per ounce. Copper is expected to have a negative bias with respect to a range mean of $3.0456 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 1,947.89 is up 1.3% for the week in morning trading and is again within striking distance of all-time closing highs. Comex gold is up 0.2% for the week but still losing more value to the S&P at $1,248.3 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 49.6% of value relative to the November peak (AUSP=1.2710) and has broken another lower boundary.

The yellow metal lost value slightly to oil but has gained considerably 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 410.9 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 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 has now grown very dim. Market complacency and past history suggest there may be a June surprise for gold – the price direction is uncertain as explained in Gold’s June Surprise? (Kitco News, 6/2/2014).

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 86.81, below the key-100 level and the 1-month moving average of 87.47. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,201.5 per ounce or $46.79 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