The Eureka Miner: Gold, Copper & Miners in a Yo-Yo Market; Steady Progress for General Moly (GMO)

Mining Memories, Ruby Hill, Nevada

*** Local Mining News ***

General Moly Announces U.S. District Court Order Confirming Bureau of Land Management's Record of Decision Approving the Mt. Hope Project (Press release, July 25, 2014)

General Moly Announces Updated Pre-Feasibility Study for Liberty Project
(Press release, July 24, 2014)

Latest Nevada Gas Prices (click this link)

My latest column in Kitco News:

Oil, Copper & Gold Reunite - What Next? (Kitco News, July 7, 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)

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 = $1,293.6/oz (August contract most active)
COMEX Silver = $20.735/oz (Sept)
COMEX Copper = $3.2550/lb (Sept)

NYMEX WTI crude = $102.95/bbl (Sept)
ICE Brent crude = $107.80/bbl (Sept)

Eureka Miner’s Gold Value Index© (GVI) = 50.93 (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) = $1,268.9/oz
COMEX - VAGP = +26.83/oz; gold is trading at a declining premium to key commodities

As of 10:11 AM PDT:

Barrick Gold (ABX) = $18.62 up 1.80%
Newmont Mining (NEM) = $25.10 up 1.29%
Midway Gold (MDW) = $0.8605 up 0.06%
General Moly (GMO) = $1.10 up 3.77%
Timberline Resources (TLR) = $0.13 (unch)

S&P 500 = 1,978.93 down 0.46%

Morning Miners!

Even though the S&P 500 made a new record high yesterday, the ole Colonel found the overall market troubling for metals & miners. I dashed off this e-mail to Tom McClellan of McClellan Financial:

Hi Tom - interesting morning CAT [Caterpillar], FCX [Freeport-McMoran] reversals; Cu up; S&P record highs...Au wobbly...

Janet Mirasola [Wells Fargo Metals] this morning, "With the recent run up in prices on the LME, we think the markets look vulnerable given the elevated open interest levels in metals like aluminium and zinc, but low freight rates at the moment also indicate a real slow down in consumption. The Baltic Dry Bulk Freight Index is trading at levels not seen since early 2013 showing further evidence of the lack of industrial activity at the moment and hence orders for materials like Iron Ore, Steel and Base Metals. Its hard to build a bullish view on the back of technical and stimulus led buying interest. Trying to pick the top of a market is always difficult and a number of macro players have stopped out in recent days as they tried to go short, but watch out. Once the buying runs its course, the correction is likely to be severe. $7000 remains an importance psychological level for the red metal. Look for a convincing close below to signal the start of the correction."

and Ann Duignan [JP Morgan] on CNBC this AM...where's the bottom in mining?

http://video.cnbc.com/gallery/?video=3000294463

Good day to walk the dog....Cheers - Richard

Tom replied:

Walk the dog, that’s good advice for a yo-yo market.

Besides a having a terrific sense of humor (I encourage you to checkout his link), Tom is presently the #1 Gold Timer thus far for 2014 according to Timer Digest . I listen to Tom. He has been signalling a major cycle low for the yellow metal for some time - possibly below the December sub-$1,200 low - in the July-August time frame. Ouch.

I'm not that bearish short term but I do believe by year-end we could be in that neighborhood. Here's how I summarized yesterday's events in my input to the Kitco Weekly Gold Survey (full analysis below):

Thursday was a day of strong cross-currents that may be signaling corrections ahead for both equities and the metals complex. The S&P 500 scored a new closing record, Comex copper surged above $3.26 per pound and the U.S. dollar made a 6-week high. Against this backdrop bellwether miner Freeport McMoran (FCX) and Caterpillar (CAT) experienced key reversals to the downside. The red metal looks vulnerable given lack luster industrial activity and gold is likely to continue its trend lower.

For the short term, persistent trouble in Ukraine, Israel and Iraq will likely maintain the yellow metal from falling below its 200-day moving average. Longer term I remain bearish on gold forecasting $1,100 to $1,210 per ounce by year-end. Lacking geo-political lift, gold’s fortunes are likely grim until inflation expectations materially rise.

My target for next week is at the 200-day average or $1,285 per ounce.

Could we both be wrong? You bet, it's a yo-yo market.

To leave on a more positive note, Commodity King Dennis Gartman of the Gartman Letter has this to say about gold:

Investor and newsletter writer Dennis Gartman describes gold’s ability to hold the 2013 low for a full year as technically significant. “Gold has obviously been under some pressure in the course of the past several days, as stock prices have gone on to new highs and as capital has gone there rather than to the gold market; however, we caution everyone to be aware of the fact that although there shall be a great deal of conversation in the media today about gold’s weakness, it is worthy of note…that gold even in U.S. dollar terms has held its lows for the past full year and that the low made eight and nine weeks ago were above the lows made in December of last year,” Gartman says. “This is the first time in quite some long while that seemingly important interim lows have held at progressively higher levels. The psychology of the market may seem bearish, but the price action in broad terms is not.” On a futures continuation chart, gold bottomed at $1,179.40 in June 2013, put in a slightly higher low of $1,181.40 in December and held at $1,240.20 on a pullback this June. The metal is now just shy of $1,300 an ounce (Kitco Market Nuggets, Allen Sykora, July 25, 2014)

What about Mining?

JP Morgan's Ann Duignan has a mining outlook about as bearish as you can find (video link above). She sees a bottom in the next one to two years. I'm much more optimistic, look at this chart of the Eureka Miner's Index (EMI) from mid-2011 to the present (click on the chart for a larger view):

The EMI (blue line) shows a bottom June 24, 2013 and a gradual trend higher since (parallel blue lines). A critical boundary is the upper dashed red line which indicates a procession of lower highs. If the blue line can push above the dashed line with conviction we may be headed for bluer skies. The 1-month average (solid red line) is pointed up, the right direction for the bull pasture. Go miners!

Steady Progress for General Moly (GMO)

Here are two recent press releases indicating steady progress for General Moly (GMO):

General Moly Announces U.S. District Court Order Confirming Bureau of Land Management's Record of Decision Approving the Mt. Hope Project (Press release, July 25, 2014)

General Moly Announces Updated Pre-Feasibility Study for Liberty Project
(Press release, July 24, 2014)

Bruce D. Hansen, Chief Executive Officer of General Moly, says, We are pleased that the BLM's thorough and inclusive process in approving the Mt. Hope Project's ROD has been confirmed by the Court. Obtaining the ROD for the Mt. Hope Project was the culmination of six years of hard work and dedicated effort from our team and the BLM, with significant input from all the cooperating and commenting agencies and the general public. We will continue working closely and collaboratively with all of our stakeholders to develop the Mt. Hope Project in an environmentally and socially responsible manner. and, We are pursuing financing alternatives for the Mt. Hope Project, and continue to have substantive dialogue with potential strategic partners capable of supporting a debt package to provide the bulk of the Mt. Hope Project’s capital requirements.

The best of luck to the General Moly team!

Kitco Gold Survey

Here is my input to the Weekly Kitco Gold Survey:

07/25/2014 (10:40 AM CDT)

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

A. Down. My target price is $1,285 per ounce.

Q. Why?

Thursday was a day of strong cross-currents that may be signaling corrections ahead for both equities and the metals complex. The S&P 500 scored a new closing record, Comex copper surged above $3.26 per pound and the U.S. dollar made a 6-week high. Against this backdrop bellwether miner Freeport McMoran (FCX) and Caterpillar (CAT) experienced key reversals to the downside. The red metal looks vulnerable given lack luster industrial activity and gold is likely to continue its trend lower.

For the short term, persistent trouble in Ukraine, Israel and Iraq will likely maintain the yellow metal from falling below its 200-day moving average. Longer term I remain bearish on gold forecasting $1,100 to $1,210 per ounce by year-end. Lacking geo-political lift, gold’s fortunes are likely grim until inflation expectations materially rise.

My target for next week is at the 200-d average or $1,285 per ounce.

For $1,285 gold we can expect to see silver in a statistically bounded range* of $20.4-$20.7 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $20.540 per ounce. Future copper price is in a statistical range* of $3.06-$3.25 per ounce. Copper is expected to have a positive bias with respect to a range mean of $3.1529 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)

Although down from yesterday’s record close, the S&P 500 at 1,982.02 is up 1.0% for the week in morning trading. Comex gold is down 1.0% for the week losing significantly more value to the S&P. 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 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).

On the week, the yellow metal lost value to both oil and copper; oil gave up more than 3% 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 396.9 pounds of copper.” Percentages are deltas over one week.

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 85.32, below the key-100 level and the 1-month moving average of 85.75. The 2012 high was 103.73 on Nov. 13. The commodity price of gold is $1,268.9 per ounce or $26.83 discount to actual gold price (i.e. gold is trading at a slight premium to a basket of key commodities).

Cheers,

Colonel Possum