Gold Resilient above $1,200 - Reasons to be Bullish (Mining too?)

Exploring the Ruby Hill Fault, Eureka, Nevada

Morning miners!

An abbreviated report this morning as I continue to prepare a column for the upcoming Winter Edition 2014 of the Mining Quarterly.

Do you want to feel better about mining's future? It has been a real bruiser lately, the Eureka Miner's Index (EMI) hit single digits October 15 - levels not seen since the 2008-2009 financial crisis. By comparison, the EMI scored 817 on January 4, 2011...ouch! (EMI tracking is in the column to your right near the bottom of the blog page).

Feeling better starts with knowing the worst is in the rear view mirror. The following video with JP Morgan analyst Ann Duignan gave me confidence that better times may indeed be ahead. Ms. Duignan is one of the biggest mining bears around so it is important to hear a her (slight) change of sentiment. Here is Ms. Duignan's CNBC Business news video interview following Caterpillar's blowout quarterly report (please excuse the ad at the beginning):

CAT analyst remains neutral (CNBC Business News, 10/23/2014)

When bears stop growling it's time for the bulls to make their long trek back to green pasture.

The bottom in gold may also be in, pardner - the full story will be in the upcoming Mining Quarterly!

Stay tuned.

Here is my input to the Kitco News Weekly Gold Survey :

My vote on next week's gold price:

Up. Target $1,239 per ounce

Discussion:

Although Thursday reversed the 3-week-uptrend in U.S. dollar price, there are good reasons to remain bullish about gold. Physical demand is up in both India and China and should continue through the Lunar New Year. There is also a fairly resilient risk premium given unresolved geopolitical conflicts, Sino-Euro growth prospects and the health of Europe's banking sector.

Given a backdrop of stronger U.S. dollar, this morning's Comex trading at $1,233.3 per ounce puts the yellow metal at less than 3% above last year's closing price. However, gold has fared much better against key commodities. Relative to Comex silver and copper it is up over 14% and nearly 25% compared to Nymex oil.

Even though gold has backed away from its value peaks (above chart, click for larger image), it still carries an imposing $140 per ounce premium against an aggregate of all three commodities (chart below, click for larger image). If gold can maintain this premium it should remain above last year's $1,180 closing low even though its commodity value is now below $1,100.

If gold can escape the declining value wedge (red dashed lines, above chart), there could be upward movement to $1,300 by early 2015. On the darker side, if its current safe-haven premium vanishes, gold USD price could go to $1,070 per ounce by years-end ( lower dashed line extended through December; gold approaches its commodity value).

Have a great weekend!

Cheers - Colonel

Headline photo by Mariana Titus

Gold Tests $1,190 on "Very Good" Jobs Report; King Dollar Surges

Ruby Hill Memories, Eureka, Nevada

*** BREAKING NEWS***

Since the analysis below, Comex gold has slipped further to an intraday low of $1,190.3 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 (see note below): 

COMEX Gold price = $1,192.2/oz (December contract most active)
COMEX Silver = $16.830/oz (Dec)
COMEX Copper = $3.0010/lb (Dec)




NYMEX WTI crude = $89.55/bbl (Nov)
ICE Brent crude = $91.67/bbl (Nov)


Eureka Miner’s Gold Value Index© (GVI) = 90.33 (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) = $1,102.8/oz
COMEX - VAGP = +89.4/oz; gold is trading at a premium to key commodities

As of 9:26 AM PDT:

Barrick Gold (ABX) = $14.19 down 3.47%
Newmont Mining (NEM) = $22.67 down 2.62%
Midway Gold (MDW) = $1.08 down 1.82%
General Moly (GMO) = $0.7394 down 0.08% 
Timberline Resources (TLR) = $0.07 up 2.78%

S&P 500 = 1,967.08 up 1.12% 

Morning Miners!

CNBC Business News commentator Larry Kudlow exclaimed, "Very good!" shortly after the release of this morning's jobs report. That's quite a remark from someone who has been skeptical of the U.S. economic recovery. Whether a Europe slipping into a triple-dip recession and a slowing China with Hong Kong demonstrators in the streets will change the momentum is yet to be seen - for now the U.S. is rolling with a full head of steam.

The Labor Department announced at 5:30 AM (PDT) that 238,000 nonfarm payroll jobs were added in September against economist's expectations of 215,000; previous months were revised upwardly too. Even more surprising, the headline unemployment rate fell to 5.9% - a number we haven't seen since July 2008! The increases were broad based across many sectors, even construction which added 18,000. The most inclusive and least reported measure of unemployment, called U6, dropped to 12.2% - not bad when we remember this was close to 20% during darker days (U6 includes the lazy bum son on the couch who's been living with mom and dad since college and has a $100,00 college loan to repay).

Good employment numbers pump more fuel to the racing U.S. dollar. Of course, dollarized commodities take it on the chin. Comex copper closed at $2.9985 per pound yesterday and is barely keeping its redhead above $3 in morning trading, presently $3.0010. Nymex light crude fell below $90 and is now trading at $89.68 per barrel - look for gas prices to fall further:

Latest Nevada Gas Prices (click this link)

And gold? The poor fallen hero hit the $1,200 per ounce level when I did my first analysis for Kitco News this morning. By the time that was done the yellow metal was at $1,192 - I threw all the analysis away and wrote my editor in Chicago (see full report below) with a wag at next week's gold price sans analysis - $1,185 per ounce? $1,180 is the key support level from last December's lows - will it hold?

There is a fairly simple way to view the ascendancy of the U.S. dollar and decline of gold price.

Presently, our central bank is moving in an opposite direction to those in Europe and Japan. Chairman Yellen is putting the brakes on monetary accommodation (albeit very gently) - the third phase of quantitative easing (printing money to buy bonds) ends this month and there are hints that the Fed funds rate will rise sooner than later (perhaps mid-2015). More "very good" employment reports are likely to accelerate this process.

By contrast, Europe is just beginning their peculiar approach to easing and Japan has been expanding their balance sheet at a tsunami pace for some time. In the currency world, the euro is falling dramatically (1.2514 low this morning) and the yen continues to weaken (punching through 110 this week, sitting just below that level now at 109.645). These distressed global reserve currencies propel the U.S. dollar higher.

Market anticipation of low inflation, rising interest rate environment (i.e. the Federal Reserve tightening) and soaring U.S. dollar are kryptonite to the super-metal price strength gold enjoyed in late-2011 when the Lustrous One flew over $1,900 tall buildings.

Today we find our metallic hero is back in the phone booth without a cape...

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 $89. 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 blue 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 $1,102.8 per ounce, right at the bottom of the red dashed line.

It is instructive to note that today's gold price and associated commodity value are below the levels of December 02, 2009. On that day, the Lustrous one stepped out of the booth ready to fly setting a new all-time Comex record of $1,235.1 per ounce with a commodity value of $1,152.6.

Pardner we've now come full circle. If you see our metallic hero, buy him a cup of joe at the Owl Club - he needs the caffeine. A dash of brandy might help too, be ready for some war stories.

Keep the faith!

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:

10/03/2014 (10:19 AM CDT)

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

A. Down. My target price is $1,185 per ounce.

Q. Why?

In lieu of lengthy analysis this morning this is what I emailed to Kitco Global Editor Debbie Carlson:

Morning Debbie,

I give up - did a load of analysis after the good jobs report when comex gold was $1,200.3 now its $1,192.2...threw it all away.

Big question is whether the $1,180 will hold. I'll say yes but we may bust that level before years-end.

So right now (could change in a few minutes but this is it!):

Down. Target $1,185.

No attachment - ha!

Cheers - Colonel

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