"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, September 19, 2014

Gold Tests $1,214 on Strong Dollar & Alibaba Propelled Stocks


Barbeque time at John Brown's, Eureka, Nevada

*** BREAKING NEWS***

Since the early morning analysis below, Comex gold has slipped further to an intraday low of $1,214.6 per ounce - it may go lower before the close...

*** Local Mining News ***

MIDWAY ADVANCES CONSTRUCTION AND MINING BEGINS AT PAN GOLD PROJECT, NEVADA (Press release, 9/15/2014)

MIDWAY GOLD FILES TECHNICAL REPORT FOR UPDATED RESOURCE AT SPRING VALLEY PROJECT, NEVADA (Press release, 9/9/2014) 


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 Fall 2014 Edition of the Mining Quarterly:

C.C. Goodwin, the Early Mines of Eureka  (Fall 2014 Edition: online pages 76-83; printed pages 70-77)

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 = $1,224.6/oz (December contract most active)
COMEX Silver = $18.440/oz (Dec)
COMEX Copper = $3.0995/lb (
Dec)




NYMEX WTI crude = $92.20/bbl (Nov)
ICE Brent crude = $98.23/bbl (Nov)



Eureka Miner’s Gold Value Index© (GVI) = 87.71 (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) = $1,166.6/oz
COMEX - VAGP = +58.02/oz; gold is trading at a premium to key commodities


As of 10:00 AM PDT:


Barrick Gold (ABX) = $15.66 down 2.13%
Newmont Mining (NEM) = $24.08 down 1.67%
Midway Gold (MDW) = $0.9877 down 2.21%
General Moly (GMO) = $0.8710 down 5.33% 
Timberline Resources (TLR) = $0.0781 up 6.26%

S&P 500 = 2,009.22 down 0.11% 




Morning Miners!

Another one of those action packed Friday mornings when it is hard keep up with falling gold prices. 

The ole Colonel started the early morning analysis at $1,224 per ounce. Comex gold punched in a new intraday low of $1,214.6 as I sent that report to Kitco News. My target price at that time was $1,220 for next week. Kitco Global Editor Debbie Carlson quickly wrote me back for a sanity check noting the $10 drop. I sheepishly revised my target to $1,210 - No fun being a bear in gold country!

As summarized in my input to the Kitco News Weekly Gold Survey  (full analysis below):

This has been an exciting week for markets with new FOMC projections on interest rates, Scotland’s referendum vote to stay united and this morning’s frenzy over the Alibaba IPO – the S&P 500 reacted by setting a new intraday high in morning trading.

By contrast, commodities are marching to the dull beat of broad decline. Brent crude oil, silver, copper and corn touched multi-month lows on futures exchanges this week. Not surprisingly, gold followed the pack scoring a new low in its dollarized commodity value ($1,166.6 per ounce) when compared to an aggregate of Nymex oil, Comex copper and Comex silver (see discussion below).

The primary driver this for these declines has been a stronger U.S. dollar boosted by a rise in the median projection for the federal funds rate at the end of 2015. The U.S. on a path to tighten monetary policy while other central backs provide additional accommodation propels the dollar higher. This puts pressure on dollarized commodities and makes gold more expensive to buy in other countries...

My target for next week is $1,210 per ounce.



Is the new gold orange?

The slippery slope continues...

On August 25, I wrote a column on the dilemma gold and key commodities face:

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

I measure the "commodity value" of gold against a basket that includes Nymex oil, Comex copper and Comex silver as explained in this commentary and a similar piece in  the Summer 2014 Mining Quarterly (p. 99-101 online edition). On August 14, gold carried a premium of $100 per ounce compared to this basket and it has slowly drifted down to $58. 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. This morning, the commodity value of gold scored a new low of $1,166.6 per ounce - Ouch!



Fall 2014 Mining Quarterly

Make sure you checkout the latest Elko Daily Free Press Mining Quarterly!

Marianne Kobak McKown and her team have done another terrific job of capturing all the latest mining news in Northern Nevada including a special series of reports on how mining affects the environment, jobs and taxes. Public perception of mining is important as Marianne reminds us that this November voters will decide if the long-standing cap on mining stays or goes.

Here is the link to the online Fall 2014 Edition togther with past issues:

http://elkodaily.com/mining/special_sections/

The ole Colonel has a column on C.C. "Charlie" Goodwin, one of the early mining pioneers of the Eureka Mining District:

C.C. Goodwin, the Early Mines of Eureka  (online pages 76-83; printed pages 70-77)

The Goodwin legacy teaches operators to match the best ores with the latest technology to maximize return on investment. He was also a trailblazer in vertical integration of mining operations from ore extraction to reduction as exemplified by his Ruby Hill Jackson Mine and Jackson Smelter in nearby Eureka.  I hope you enjoy reading about his contributions to the Silver States on this SesquicentennialHats off to Charlie Goodwin!



Kitco Gold Survey

Here is my input to the Weekly Kitco Gold Survey:

09/19/2014 (10:43 AM CDT, revised later in the morning)

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

A. Down. My target price is $1,210 per ounce.

Q. Why?

This has been an exciting week for markets with new FOMC projections on interest rates, Scotland’s referendum vote to stay united and this morning’s frenzy over the Alibaba IPO – the S&P 500 reacted by setting a new intraday high in morning trading.

By contrast, commodities are marching to the dull beat of broad decline. Brent crude oil, silver, copper and corn touched multi-month lows on futures exchanges this week. Not surprisingly, gold followed the pack scoring a new low in its dollarized commodity value ($1,166.6 per ounce) when compared to an aggregate of Nymex oil, Comex copper and Comex silver.



On August 14, gold carried a premium of $100 per ounce compared to this basket which has slowly drifted down to $58. If the premium continues to decline, gold will follow commodities on a downhill slope in U.S. dollar price. In the above chart (click on plot for larger image), price (blue line) is converging with its commodity value (red line) as both move lower within the wedge indicated by red dashed lines.

The primary driver this for these declines has been a stronger U.S. dollar boosted by a rise in the median projection for the federal funds rate at the end of 2015. The U.S. on a path to tighten monetary policy while other central backs provide additional accommodation propels the dollar higher. This puts pressure on dollarized commodities and makes gold more expensive to buy in other countries. 

The shared pain in the commodity house is exemplified by increasing positive correlation of the yellow metal with oil and copper (1- and 3-month correlations are all positive and greater than 0.5).

My target for next week is $1,210 per ounce.

For $1,210 gold we can expect to see silver in a statistically bounded range* of $18.2-$18.4 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $18.311 per ounce. Copper price is in a statistical range* of $2.95-$3.09 per ounce. Copper is expected to have a positive bias with respect to a range mean of $3.0222 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 is presently on its way to setting new records, up 1.7% from last Friday’s close. Gold lost 2.2% in value compared to the S&P. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP (click on graph for larger image):



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 (middle blue dashed line) However, the recent trend down in gold price has bearishly created a third leg of descent (dashed red lines in the bottom-right corner) below the lower boundary of a second sideways channel. This morning’s gold price represents a loss of 52.3% of value relative to the November peak (AUSP=1.2710).

For the week, the yellow metal lost only marginal value to oil and some to copper; oil gained fractionally 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 395.1 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 87.71, below the key-100 level and below the 1-month moving average of 88.27. The 2012 high was 103.73 on Nov. 13. The commodity price of gold sets a new low today at $1,166.6 per ounce or $58.02 discount to actual gold price (i.e. gold is still trading at a premium to a basket of key commodities).

Cheers,

Colonel Possum

Photos by Mariana Titus

Please checkout bayoutales.com for books and book orders

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

Friday, September 12, 2014

Gold Tests $1,228; C.C. Goodwin, the Early Mines of Eureka


McCoy Hill, McCoy Ridge & Goodwin Canyon, Eureka, Nevada

*** BREAKING NEWS***

Since the early morning analysis below, Comex gold has slipped further to an intraday low of $1,228 per ounce - it may go lower before the close...

*** Local Mining News ***

MIDWAY GOLD FILES TECHNICAL REPORT FOR UPDATED RESOURCE AT SPRING VALLEY PROJECT, NEVADA (Press release, 9/9/2014)


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 Fall 2014 Edition of the Mining Quarterly:

C.C. Goodwin, the Early Mines of Eureka  (Fall 2014 Edition: online pages 76-83; printed pages 70-77)

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 = $1,235.0/oz (December contract most active)
COMEX Silver = $18.580/oz (Dec)
COMEX Copper = $3.0930/lb (
Dec)




NYMEX WTI crude = $92.62/bbl (Oct)
ICE Brent crude = $101.52/bbl (Nov)



Eureka Miner’s Gold Value Index© (GVI) = 88.15 (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) = $1,170.7/oz
COMEX - VAGP = +64.29/oz; gold is trading at a premium to key commodities


As of 10:00 AM PDT:


Barrick Gold (ABX) = $16.65 down 1.25%
Newmont Mining (NEM) = $25.26 down 1.33%
Midway Gold (MDW) = $0.9121 up 2.48%
General Moly (GMO) = $0.8999 up 2.26% 
Timberline Resources (TLR) = $0.0782 up 11.71%

S&P 500 = 1,986.94 down 0.53% 





Morning Miners!

Make sure you checkout the latest Elko Daily Free Press Mining Quarterly!

Marianne Kobak McKown and her team have done another terrific job of capturing all the latest mining news in Northern Nevada including a special series of reports on how mining affects the environment, jobs and taxes. Public perception of mining is important as Marianne reminds us that this November voters will decide if the long-standing cap on mining stays or goes.

Here is the link to the online Fall 2014 Edition togther with past issues:

http://elkodaily.com/mining/special_sections/

The ole Colonel has a column on C.C. "Charlie" Goodwin, one of the early mining pioneers of the Eureka Mining District:

C.C. Goodwin, the Early Mines of Eureka  (online pages 76-83; printed pages 70-77)

The Goodwin legacy teaches operators to match the best ores with the latest technology to maximize return on investment. He was also a trailblazer in vertical integration of mining operations from ore extraction to reduction as exemplified by his Ruby Hill Jackson Mine and Jackson Smelter in nearby Eureka.  I hope you enjoy reading about his contributions to the Silver States on this SesquicentennialHats off to Charlie Goodwin!

It was a bumpy ride for gold and metals as I summarized in my input to the Kitco News Weekly Gold Report (full analysis below): 

It has been a terrible week for gold and copper, both down more than 2% from last Friday’s close in morning trading: presently, $1,235.0 per ounce and 3.0930 per pound respectively. To put this in perspective, the mean gold and copper price since the Lehman Brothers’ bankruptcy is $1,341 per ounce and $3.33 per pound. Although well below their means, the gold-to-copper ratio is surprisingly close to its Lehman mean: 399 versus an average valuation of 403 pounds per ounce.

This suggests that gold price is following key commodities down in a broad decline. The S&P Goldman Sachs Commodity Index just plumbed a new 52-week low today. Although there are many drivers, the impressive U.S. dollar rally against the euro, yen and pound sterling coupled with weakening China demand for raw materials are major factors.

My sense is that U.S. dollar strength will weaken next week. Scotland will likely vote no to separation lifting the pound, and the yen and euro should moderate from their recent declines. This will provide needed relief to gold and the metal complex. My target for next week is $1,250 per ounce.

The slippery slope continues...

On August 25, I wrote a column on the dilemma gold and key commodities face:

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

I measure the "commodity value" of gold against a basket that includes Nymex oil, Comex copper and Comex silver as explained in this commentary and a similar piece in  the Summer 2014 Mining Quarterly (p. 99-101 online edition). On August 14, gold carried a premium of $100 per ounce compared to this basket and it has slowly drifted down to $65. 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. On Tursday, September 11, the commodity value of gold scored a new low of $1,168.6 per ounce - Ouch!


Kitco Gold Survey

Here is my input to the Weekly Kitco Gold Survey:

09/12/2014 (10:42 AM CDT)

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

A. Up. My target price is $1,250 per ounce.

Q. Why?

It has been a terrible week for gold and copper both down more than 2% from last Friday’s close in morning trading: presently, $1,235.0 per ounce and 3.0930 per pound respectively. To put this in perspective, the mean gold and copper price since the Lehman Brothers’ bankruptcy is $1,341 per ounce and $3.33 per pound. Although well below their means, the gold-to-copper ratio is surprisingly close to its Lehman mean: 399 versus an average valuation of 403 pounds per ounce.

This suggests that gold price is following key commodities down in a broad decline. The S&P Goldman Sachs Commodity Index just plumbed a new 52-week low today. Although there are many drivers, the impressive U.S. dollar rally against the euro, yen and pound sterling coupled with weakening China demand for raw materials are major factors.

My sense is that U.S. dollar strength will weaken next week. Scotland will likely vote no to separation lifting the pound, and the yen and euro should moderate from their recent declines. This will provide needed relief to gold and the metal complex. My target for next week is $1,250 per ounce.

For $1,250 gold we can expect to see silver in a statistically bounded range* of $18.7-$19.1 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $18.898 per ounce. Copper price is in a statistical range* of $2.94-$3.21 per ounce. Copper is expected to have a neutral bias with respect to a range mean of $3.0778 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 is presently only 0.8% below last Friday’s close. Gold continues to be much less resilient giving up 1.8% in value compared to the S&P. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP (click on the graph for larger image):



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, the recent trend down in gold price has bearishly created a third leg of descent (dashed red lines in the bottom-right corner) below the lower boundary of a second sideways channel. This morning’s gold price represents a loss of 51.2% of value relative to the November peak (AUSP=1.2710).

For the week, the yellow metal lost significant value to oil and some to copper; oil gained 1.75% 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 399.3 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 88.15, below the key-100 level and below the 1-month moving average of 88.90. The 2012 high was 103.73 on Nov. 13. The commodity price of gold is $1,170.7 per ounce or $64.29 discount to actual gold price (i.e. gold is still trading at a premium to a basket of key commodities).

Cheers,

Colonel Possum

Photos by Mariana Titus

Please checkout bayoutales.com for books and book orders

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

Friday, September 5, 2014

Tesla Charges Up Nevada; Weak Jobs, Strong Manufacturing Test Metals


Views from McCoy Ridge, Eureka, Nevada

*** Local Mining News ***

Sources: Tesla chooses Nevada for battery factory (Las Vegas Sun, By Kyle Roerink, Cy Ryan Wednesday, Sept. 3, 2014, 12:39 p.m.)

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 = $94.28/oz (December contract most active)
COMEX Silver = $101.52/oz (Sept)
COMEX Copper = $3.1525/lb (
Sept)



NYMEX WTI crude = $94.28/bbl (Oct)
ICE Brent crude = $101.52/bbl (Oct)



Eureka Miner’s Gold Value Index© (GVI) = 88.50 (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) = $1,196.8/oz
COMEX - VAGP = +70.87/oz; gold is trading at a premium to key commodities


As of 9:34 AM PDT:


Barrick Gold (ABX) = $17.02 (unchanged)
Newmont Mining (NEM) = $25.80 up 0.80%
Midway Gold (MDW) = $0.87 (unchanged)
General Moly (GMO) = $0.9496 down 0.59% 
Timberline Resources (TLR) = $0.0861 up 3.73%
S&P 500 = 2,001.98 up 0.17% 





Morning Miners!

A short week packed with news - phew!

The biggest news for Nevada may very well be Tesla Motors choosing the Silver State for a $5 billion lithium battery factory. The Legislature will hold a special session next week to discuss the state's incentive package:

Sources: Tesla chooses Nevada for battery factory (Las Vegas Sun, By Kyle Roerink, Cy Ryan Wednesday, Sept. 3, 2014, 12:39 p.m.) 

This is an intriguing way to put a lot of pieces together for Northern Nevada. Besides its location in an industrial center outside of Reno, the factory will provide jobs and a boost to lithium mining and mining initiatives in the state. Stay tuned.

This morning a diappointing Labor Department report announced that only 142,000 nonfarm payrolls were added in August against economists expectations of 220-230,000. The overall employment rate fell slightly to 6.1%. This runs contarary to recent economic data that suggests a strenghening economy. August numbers are notorius for later revisions so it may take another month to sort out the true employment picture. 

According to the latest Manufacturing ISM Report On Business, the U.S. is doing far better than most other major economies. The Purchasing Managers Index, or PMI, is an important gauge of economic health - a number of 50-or-better implies economic expansion. Economic activity in the manufacturing sector expanded in August for the 15th consecutive month, and the overall economy grew for the 63rd consecutive month. Check out these PMI numbers for August:

U.S. 59.0 (57.1 July) up

China 51.1 (51.7 July) down

U.K. 52.5 (55.1 July) down
Spain 52.8 (53.9 July) down
Italy 49.8 (July 51.9) contraction
France 46.9 (46.5 July) contraction
Germany 51.4 (52.0 July) down

Now do you feel a little better?

To address low growth and looming deflation, The European Central Bank cut interest rates and announced a quantative easing program (printing euros to buy bonds) this week. The Federal Reserve tapers off their QE3 bond buying program next month. Two major central banks going in different directions may prove a wild ride for metals as a falling euro strengthens the U.S. dollar and adds pressure to the metals complex. Here is my summary for the Kitco News Weekly Gold Report (full analysis below): 

Oil, gold and copper had a down week even with ECB President Mario Draghi’s surprisingly accommodative monetary announcement; the red metal suffered the least, down fractionally, but oil and gold were off more than 1.5% in early morning trading compared to last Friday’s close (see chart below). This continues a theme of falling gold prices against a backdrop of broadly declining commodities. The Goldman Sachs Commodity Index, which covers everything from copper to cattle, is only slightly above its 52-week low.

The ECB lowering of three interest rates and new program for buying corporate and covered bonds plunged the euro to 14-month lows (1.2920). This and a weakening Japanese currency that briefly breached the 105 level earlier this week have contributed to U.S. dollar strength applying additional pressure to dollarized commodities. A weaker-than-expected U.S. jobs report helped lift the yellow metal some from an overnight Comex low of $1,258.0 per ounce to presently trade above $1,265. Without a geopolitical reason to bounce higher, gold will likely retest this low. My target for next week is $1,260 per ounce.

The slippery slope

On August 25, I wrote a column on the dilemma gold and key commodities face:

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

I measure the "commodity value" of gold against a basket that includes Nymex oil, Comex copper and Comex silver as explained in this commentary and a similar piece in  the Summer 2014 Mining Quarterly (p. 99-101 online edition). On August 14, gold carried a premium of $100 per ounce compared to this basket 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.


Kitco Gold Survey

Here is my input to the Weekly Kitco Gold Survey:

09/05/2014 (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 $1,260 per ounce.

Q. Why?

Oil, gold and copper had a down week even with ECB President Mario Draghi’s surprisingly accommodative monetary announcement; the red metal suffered the least, down fractionally, but oil and gold were off more than 1.5% in early morning trading compared to last Friday’s close (see chart below). This continues a theme of falling gold prices against a backdrop of broadly declining commodities. The Goldman Sachs Commodity Index, which covers everything from copper to cattle, is remains only slightly above its 52-week low.

The ECB lowering of three interest rates and new program for buying corporate and covered bonds plunged the euro to 14-month lows (1.2920). This and a weakening Japanese currency that briefly breached the 105 level earlier this week have contributed to U.S. dollar strength applying additional pressure to dollarized commodities.

A weaker-than-expected U.S. jobs report helped lift the yellow metal some from an overnight Comex low of $1,258.0 per ounce to presently trade above $1,265. Without a geopolitical reason to bounce higher, gold will likely retest this low. My target for next week is $1,260 per ounce.

For $1,260 gold we can expect to see silver in a statistically bounded range* of $18.9-$19.3 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $19.085 per ounce. Future copper price is in a statistical range* of $2.96-$3.20 per ounce. Copper is expected to have a positive bias with respect to a range mean of $3.0792 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 is on the way to having its fourth down day but is presently only 0.3% below last Friday’s close. Gold has been much less resilient giving up more than 1% in value compared 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 50.1% of value relative to the November peak (AUSP=1.2710). It is concerning that the AUSP is now just below the bottom of the second sideways channel.

For the week, the yellow metal gained some value on oil and lost to copper; oil gave up 1.5% 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 402.1 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 88.50, below the key-100 level and below the 1-month moving average of 89.03. The 2012 high was 103.73 on Nov. 13. The commodity price of gold is $1,196.8 per ounce or $70.87 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

Please checkout bayoutales.com for books and book orders

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