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 America: Mariana 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 Sesquicentennial. Hats 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

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Mariana's fine art prints are featured in Fine Art America: Mariana Titus

Paintings by Mariana Titus, The Three Anas, are presently at Lafitte Guest House & Gallery, New Orleans