"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.

Thursday, July 3, 2014

"Happy Jobs Thursday"; Copper Rocks, Gold Stumbles

The Jackson Mine, Ruby Hill, Nevada

*** Local Mining News ***

Midway Gold Newsletter - May | June

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 AmericaMariana Titus

Friday's AM prices used for this morning's early analysis: 

COMEX Gold price = $1,318.1/oz (August contract most active)
COMEX Silver = $21.115/oz (Sept)
COMEX Copper = $3.2630/lb (
Sept)



NYMEX WTI crude = $103.79/bbl (Aug)
ICE Brent crude = $110.75/bbl (Sept)



Eureka Miner’s Gold Value Index© (GVI) = 85.30 (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) = $1,291.2/oz
COMEX - VAGP = +26.94/oz; gold is trading at a declining premium to key commodities


As of 9:30 AM PDT:


Barrick Gold (ABX) = $18.41 up 0.38%
Newmont Mining (NEM) = $25.12 down 0.95%
Midway Gold (MDW) = $0.88 down 1.68%
General Moly (GMO) = $1.14 down 2.56% 
Timberline Resources (TLR) = $0.12 up 4.35%
S&P 500 = 1,984.88 up 0.52%




Morning Miners!

At 5:30 AM early market watchers were greeted by the monthly Labor Department numbers.

"Happy Jobs Thursday!" exclaimed an excited CNBC Business News reporter. The all important monthly nonfarm payroll report was a good one, released a day early to make room for the Fourth of July: 288,000 new jobs above the expected 215,000 and a drop in unemployment to 6.1% from last month's 6.3%.

Steady progress.

The U-6 employment rate fell another tenth to 12.1%. The U-6 is rarely in the news but includes not only people without work seeking full-time employment (the above 6.1% U-3 rate), but also counts "marginally attached workers and those working part-time for economic reasons." That's everyone except the family dog. 

U-6 used to be 17-18% if my memory serves me so we have come a long way but have a lot further to go. At least participation rate, although still low, is stabilizing - domestic recovery is truly underway.

Market reaction? The DOW crested 17,000 in morning trading and the S&P 500 is off off to setting new records currently scoring 1,984.88. And, you guessed it; gold down, dollar up. One nice surprise is new found copper strength even with a rising dollar. My thoughts in this week's Kitco Gold Survey (full report is included further down):

Although gold has held value for the week, this morning’s strong nonfarm payroll report erased most premium gained on building geo-political tensions in the Middle East. The weekly Comex intraday high touched $1,334.9 but gold is now trading at $1,318.1, a few dollars below last Friday’s close. 


The metallic hero for the week is copper gaining 3% to trade above $3.25 per pound on hopes of a stronger than expected domestic recovery and stabilizing conditions in China. The red metal has gained considerable value compared to gold and falling oil prices. Gold has now lost most premium to copper trading very close to a fair value of 400 pounds per ounce.

It's hard to be a bear in gold country but the ole Colonel still sees more downside to go for the yellow metal:

For the short term, persistent trouble in Iraq, Ukraine and now Israel will likely maintain the yellow metal above the key $1,300-level. Longer term I remain bearish on gold forecasting $1,100 to 1,180 per ounce territory by year-end. Lacking geo-political lift, gold’s fortunes are likely grim until inflation expectations materially rise and real interest rates fall.

Nuts.

Economic recovery and a strong U.S. dollar are still good news and a great way to start the July Fourth break - have a good'un!




Kitco Gold Survey

Here is my input to the Weekly Kitco Gold Survey:

07/03/2014 (10:35 AM CDT)

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

A. Down. My target price is $1,315 per ounce.

Q. Why?

Although gold has held value for the week, this morning’s strong nonfarm payroll report erased most premium gained on building geo-political tensions in the Middle East. The weekly Comex intraday high touched $1,334.9 but gold is now trading at $1,318.1, a few dollars below last Friday’s close.

The metallic hero for the week is copper gaining 3% to trade above $3.25 per pound on hopes of a stronger than expected domestic recovery and stabilizing conditions in China. The red metal has gained considerable value compared to gold and falling oil prices. Gold has now lost most premium to copper trading very close to a fair value of 400 pounds per ounce.

For the short term, persistent trouble in Iraq, Ukraine and now Israel will likely maintain the yellow metal above the key $1,300-level. Longer term I remain bearish on gold forecasting $1,100 to 1,180 per ounce territory by year-end. Lacking geo-political lift, gold’s fortunes are likely grim until inflation expectations materially rise and real interest rates fall.

For $1,315 gold we can expect to see silver in a statistically bounded range* of $19.6-$21.4 per ounce. Silver is expected to have a positive bias with respect to a range mean of $20.257 per ounce. Future copper price is in a statistical range* of $3.07-$3.27 per ounce. Copper is expected to have a positive bias with respect to a range mean of $3.1685 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 record breaking S&P 500 at 1,980.6 is up 1.0% for the week in morning trading. Comex gold is down 0.1% for the week but losing 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 47.6% of value relative to the November peak (AUSP=1.2710).

The yellow metal gained value on oil but has lost considerably to copper; oil also lost much 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 404.0 pounds of copper.” Percentages are deltas over one week.



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 85.30, below the key-100 level and the 1-month moving average of 86.30. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,291.2 per ounce or $26.94 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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