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 America: Mariana 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 Sesquicentennial. Hats 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

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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