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 America: Mariana 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

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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