"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, August 22, 2014

Gold tests $1,273; China Molybdenum; Liu Han Execution?

Mining Memories, Ruby Hill, Nevada

*** Local Mining News ***

Deal Success Prompts China Miner to Seek More Overseas (Bloomberg News, Aug 18,2014)


Former Hanlong chief Liu Han loses appeal against death sentence (Scott Murdoch, The Australian, Aug 07,2014)

Latest Nevada Gas Prices (click this link)

My latest column in Kitco News:

Oil, Copper & Gold on a Slippery Slope (Kitco News, August 25, 2014)


My latest column in the Mining Quarterly:

What is the Commodity Value of Gold? (p. 99-101 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 = $1,279.4/oz (December contract most active)
COMEX Silver = $19.400/oz (Sept)
COMEX Copper = $3.2060/lb (
Sept)



NYMEX WTI crude = $93.33/bbl (Oct)
ICE Brent crude = $102.39/bbl (Oct)



Eureka Miner’s Gold Value Index© (GVI) = 88.49 (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) = $1,208.1/oz
COMEX - VAGP = +71.27/oz; gold is trading at a rising premium to key commodities


As of 10:55 AM PDT:


Barrick Gold (ABX) = $18.265 down 0.67%
Newmont Mining (NEM) = $26.36 down 0.94%
Midway Gold (MDW) = $1.0150 down 1.46%
General Moly (GMO) = $0.9597 up 1.02%% 
Timberline Resources (TLR) = $0.1101 down 7.48%
S&P 500 = 1,991.50 up 0.04% 





Morning Miners!

The Dog Days of Summer are always a little crazy for markets and this week was no exception. Here is my summary for the Kitco News Weekly Gold Report (full analysis below): 

Gold has had a terrible week falling below its 200-day average as global tensions ease and money shifts back to record breaking U.S. stocks. This morning the yellow metal has recovered some from yesterday’s 2-month low ($1,273.4) to trade at $1,279.4 per ounce. After holding its ground with U.S. equities since early-June it is now at the bottom of that range (see chart below). 

Today the speeches of Fed Chief Janet Yellen and Europe’s Mario Draghi at the annual Jackson Hole meeting of central bankers are considered key to the near term directions of equities and gold. One benefactor so far has been the U.S. dollar which strengthened on a falling euro and a weakening Japanese currency; on Friday the yen breached 104. 

Against a backdrop of a strong U.S. dollar, copper is the star metal up a solid 3.3% for the week. Oil (Nymex WTI) has fallen to test $93 per barrel - a drop of 4%. After these extreme swings of gold, copper and oil it is likely that there will be some stabilization next week. My target is therefore up for gold at $1,285 per ounce.

Hmm...at least gasoline prices are down (Latest Nevada Gas Prices)

Copper needed a bump after skirting near with the key $3 per pound ($6,600 per tonne) level on August 14 (Comex September contract, $3.082 per pound). On that day I asked Janet Mirasola, Managing Director Metals Group Wells Fargo Securities, "Could Cu drop below $6,600 on waning QE3, contracting Germany, wobbly China and slower US growth?" Her reply, "Should be the first test – let's see what the macro picture looks like when we get there."

Not there yet, thankfully. Comex copper is a healthy $3.2060 per pound in morning trading.

The troubling aspect is the overall slump in commodities. The Goldman Sachs Commodity Index (GSCI), which includes everything from soy beans to palladium, has been plumbing 52-week lows lately. Until gold's latest oops, the yellow metal was staying  above $1,300 per pound on a broad array of geopolitical booger bears (Russia/Ukraine,ISIS, Israel/Hamas etc.). 

This created a premium for gold compared to most other commodities. I measure the "commodity value" of gold against a basket that includes Nymex oil, Comex copper and Comex silver as explained in  the Summer 2014 Mining Quarterly (p. 99-101 online edition). On August 14, that premium was $100 per ounce and  it has slowly drifted down to $70. If the premium continues to decline, gold will follow commodities on a downhill slope in U.S. dollar price. Here's a chart from the Mining Quarterly column updated through this morning (click on the graph for a larger image):


Today's premium is the distance between the green and red arrows. As you can see both the price of gold (blue line) and its commodity value (red line) are still trending lower (red dashed lines) as the premium declines. Not the most bullish environment for gold or commodities. Nuts.

What's on the Moly Horizon?

Before we look to the horizon, a quick glance in the rear view mirror. It appears that the infamous Liu Han, former chairman of the Hanlong Group and investor in General Moly's Mount Hope Molybdenum Mine, is close to execution after losing his appeal:

Former Hanlong chief Liu Han loses appeal against death sentence (Scott Murdoch, The Australian, Aug 07,2014)

Han's departure from this world should make financing alternatives for Mt. Hope easier since Hanlong will probably be broken up or revert to state ownership.

The best of luck to the General Moly team!

As for the horizon, here's an interesting article about China Molybdenum and their take on metal diversification and the future of moly:


The take-away quotes from Chairman Li Chaochun,“The room for molybdenum prices to rise is much bigger than the room to drop” and, “We’ll prefer mining assets in developed countries or regions with stable political conditions...” 

Let's see where this takes us. The 3-month LME contract is currently $29,000 per tonne ($13.15 per pound) - a lot better than the sub-$10 per pound days of not so long ago. Interestingly, on a down day for miners, General Moly (GMO) stock is up 1% at $0.96 per share (benchmark moly miner Thompson Creek, TC, is down 1% at 2.98 per share).

Stay tuned, pardner - things could get interesting....

Please do you own research, the ole Colonel has been wrong before and markets can turn on you faster than a feral cat.



Kitco Gold Survey

Here is my input to the Weekly Kitco Gold Survey:

08/22/2014 (10:22 AM CDT)

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

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

Q. Why?

Gold has had a terrible week falling below its 200-day average as global tensions ease and money shifts back to record breaking U.S. stocks. This morning the yellow metal has recovered some from yesterday’s 2-month low ($1,273.4) to trade at $1,279.4 per ounce. After holding its ground with U.S. equities since early-June it is now at the bottom of that range (see chart below).
Today the speeches of Fed Chief Janet Yellen and Europe’s Mario Draghi at the annual Jackson Hole meeting of central bankers are considered key to the near term directions of equities and gold. One benefactor so far has been the U.S. dollar which strengthened on a falling euro and a weakening Japanese currency; on Friday the yen breached 104.

Against a backdrop of a strong U.S. dollar, copper is the star metal up a solid 3.3% for the week. Oil (Nymex WTI) has fallen to test $93 per barrel - a drop of 4%. After these extreme swings of gold, copper and oil it is likely that there will be some stabilization next week. My target is therefore up for gold at $1,285 per ounce.

For $1,285 gold we can expect to see silver in a statistically bounded range* of $18.9-$20.7 per ounce. Silver is expected to have a negative bias with respect to a range mean of $19.803 per ounce. Future copper price is in a statistical range* of $3.01-$3.29 per ounce. Copper is expected to have a positive bias with respect to a range mean of $3.1480 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)

After setting a new record high yesterday (1,992.35), the S&P 500 has pulled back slightly to 1,988.88 but still up 1.7% for the week in morning trading. Comex gold has dropped 2.1% for the week losing significantly 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 49.4% of value relative to the November peak (AUSP=1.2710). It is concerning that the AUSP is now at the bottom of the second sideways channel.

For the week, the yellow metal gained value on oil and lost to copper; oil gave up a startling 7.2% 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 399.1 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 88.49, below the key-100 level but above the 1-month moving average of 87.95. The 2012 high was 103.73 on Nov. 13. The commodity price of gold is $1,208.1 per ounce or $71.27 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
 

1 comment:

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