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