"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, July 18, 2014

Gold Has Lost Its Glitter - Will It Shine Before Year-end?

Mining Memories, Prospect, Nevada

*** Local Mining News ***

General Moly Announces Liberty Project Preliminary Economic Assessment Elevated to Pre-Feasibility Level Study (Press Release, July 7, 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 AmericaMariana Titus

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

COMEX Gold price = $1,308.2/oz (August contract most active)
COMEX Silver = $20.935/oz (Sept)
COMEX Copper = $3.1810/lb (
Sept)



NYMEX WTI crude = $102.07/bbl (Aug)
ICE Brent crude = $108.03/bbl (Sept)



Eureka Miner’s Gold Value Index© (GVI) = 86.10 (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) = $1,269.5/oz
COMEX - VAGP = +38.67/oz; gold is trading at a declining premium to key commodities


As of 8:43 AM PDT:


Barrick Gold (ABX) = $19.02 down 0.83%
Newmont Mining (NEM) = $25.19 down 1.02%
Midway Gold (MDW) = $0.94 up 0.84%
General Moly (GMO) = $1.04 up 0.97% 
Timberline Resources (TLR) = $0.14 down 5.41%
S&P 500 = 1,972.72 up 0.75%



Croesus Mine, Prospect, Nevada

Morning Miners!

With another Malaysian airliner falling out of the sky and an Israeli full-scale invasion of northern Gaza underway, one has to wonder why gold isn't doing better. Yesterday prices jumped $26 to $1,325.9 per ounce on the breaking news of these two calamitous events; this morning Comex gold is trading down at $1,308.2 -  down 2% from last Friday. Where are the good old $50 bounces and gold rallies counted in days and weeks, not hours?

It is not that safe-haven investors have vanished - there are still a lot of nervous folks in the world. The U.S. 10-year not dropped below a 2.5% yield on yesterday's two-fer of bad news and remains below that level this morning - lots of bond buying going on (bond prices move inversely to yields). Others are jumping into the Japanese yen which gained yesterday and today at the U.S. dollar's expense. These two safety trades are working - why not gold? Even U.S equities are in rally mode after yesterday's more than 1% pullback.

Gold is in a bear market - things haven't been much fun since mid-November 2012.

There is one bit of evidence that is puzzling the ole Colonel. On July 11, the divergence between copper and crude oil relative to gold widened to levels not seen since mid-March. This four-month period overlaps Comex gold's four-month intraday high of $1,346.80 per ounce. More ominously, the divergence spike repeats a ‘double-peak’ characteristic that preceded the Great Recession and market turmoil following Arab Spring 2011. The witches brew this time includes multi-regional conflicts -- Ukraine/Russia, Iraq/Syria, Israel/Hamas --  and re-emerging anxiety about the true economic health of Europe's peripheral countries and China. Here's the chart:



The double-peaks are shown by red circles, a larger view is possible by clicking on the graph. Here's the rub: gold records occurred following the dual divergence peaks in the former two cases as equities and commodities experienced significant corrections. Will the same happen later this year? The July 11 peak hadn't occurred when I wrote my last Kitco commentary:

Oil, Copper & Gold Reunite - What Next? (Kitco News, July 7, 2014)

I speculated in that piece that we may see a flip-flop response of falling gold prices with commodities and stocks on the rise by year-end - now I'm not so sure. For now, my weekly Kitco gold report (below) remains bearish for gold prices in the months ahead. Nuts.

Divergence may prove me wrong. Stay tuned.



Kitco Gold Survey

Here is my input to the Weekly Kitco Gold Survey:

07/18/2014 (10:35 AM CDT)

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

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

Q. Why?

Given the magnitude of geopolitical events this week, it is confounding that morning trading finds Comex gold down more than 2% from last Friday’s close. Although yesterday did see gold peak at $1,325.9 on the combination of a passenger jet being shot down near the Russia/Ukraine border and the beginning of an Israeli ground invasion of Gaza, the rally didn’t last. Safe haven investors preferred U.S. Treasuries and the yen over the yellow metal. Gold is losing additional value to the S&P 500 given the morning relief rally in U.S. equities.

Nymex WTI oil was the real winner on worsening regional tensions, jumping 2% on the week after a plunge below the key $100-level Tuesday. Gold did manage to marginally outperform copper which is off 3.5% from its Monday intraday high.

For the short term, persistent trouble in Ukraine, Israel and Iraq will likely maintain the yellow metal above the key $1,300-level. 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.

Gold will probably find some boost next week from escalating world tensions but have difficulty besting yesterday’s high. My target is therefore $1,315 per ounce for next week.

For $1,315 gold we can expect to see silver in a statistically bounded range* of $20.6-$21.3 per ounce. Silver is expected to have a positive bias with respect to a range mean of $20.964 per ounce. Future copper price is in a statistical range* of $3.08-$3.31 per ounce. Copper is expected to have a negative bias with respect to a range mean of $3.1959 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 1,965.27 is down 0.1% for the week in morning trading. Comex gold is down 2.2% and 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).

On the week, the yellow metal lost considerable value to oil but gained slightly on copper; oil also gained much 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 411.3 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 86.10, below the key-100 level but above the 1-month moving average of 86.00. The 2012 high was 103.73 on Nov. 13. The commodity price of gold is $1,269.5 per ounce or $38.67 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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