"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Friday, December 19, 2014

Gold Outlook for 2015; Winter 2014 Edition Mining Quarterly

The Winter 2014 Edition is out!!

Please checkout Mariana's Eureka, Nevada on Facebook

My latest Kitco News commentary:

Is Gold Still on a Slippery Slope? (Nov. 24, 2014)

*** Local Mining News ***

Timberline Resources Commences Drilling at Eureka (Press release, 12/17/2014)

MIDWAY RECEIVES FIRST BANK FUNDS FOR PAN GOLD PROJECT (Press release, 12/1/2014)

*** AM Prices ***

The early morning prices used for today's analysis:

Goldman Sachs Commodity index (Enhanced)

S&PGSCIES 250.01 (246.84 52-wk low)

Nymex/Comex

Nymex oil (WTI) $55.89 per barrel
Comex copper $2.8765 per pound
Comex gold $1,197.5 per ounce
Comex silver $15.930 per ounce

Latest Nevada gasoline prices



Morning miners!

The online edition of the Winter 2014 Mining Quarterly is up and ready to rock n' roll. Elko Daily Free Press Editor Marianne Kobak McKown and her team have done an outstanding job on this publication. There are feature articles on Cortez Hills, Barrick's Turquoise Ridge and Newmont's Twin Creeks together with updates on Comstock, Pershing Gold, Veris Gold and Western Lithium. It's a dandy!

The ole Colonel wrote a gold price outlook for 2015, Gold at the Crossroads, which you can find on pages 72-77 of the online edition and 75-79 of the printed version. My input to the Kitco Gold Survey today (see below) updates the charts and numbers provided in this column - the underlying assumptions for 2015 remain unchanged.

Two big drivers of gold price this week were the collapse of the Russian ruble and the latest output of the Federal Reserve Open Market Committee (FOMC). The ruble has been under tremendous pressure this year; first with sanctions imposed during the Ukraine crisis and more recently with the dramatic decline of oil price. Oil sage T. Bonne Pickens joked a few days ago that all Russia exports is oil and vodka and they drink most of the latter. Presumably, a lot more potato liquor was consumed after the ruble touched 68.025 (USD/RUB) Wednesday following the Tuesday Nymex oil dip to $53.94/bbl (Western Texas Intermediate crude).

To give this some perspective, the ruble started the year at a healthy 32.5 before misadventures in the Ukraine caught the world's attention. Drastic action by Russia's central bank has since stabilized the ailing currency around 60 rubles per U.S. dollar. The ruble trades at 59.28 this morning as Nymex oil prices rebound to $55.89/bbl.

Russia has several options beyond raising interest rates to prop up the ruble - selling foreign currency reserves, selling some of their massive 1,100 metric ton gold reserve, or a combination of both. Putting a large amount of gold on the world market would have a very negative impact on gold price. Something to watch, pardner.

On the positive side, the FOMC  reaffirmed that patience is a virtue and will be slow to raise interest rates anytime soon. A dovish FOMC posture is supportive of gold prices. All in all, Comex gold is down about $25 from last Friday's close, trading at $1,197.5 per ounce.

Predictably, mining stocks are still in the doldrums although mostly recovering from the lows of the week. Big gold miners Newmont (NEM) and Barrick Gold (ABX) are trading at $19.69 and $10.98 (chart below, click for larger view) . Midway (MDW) is $0.6761 down 0.57% in morning trade. Benchmark Moly Miner Thompson Creek (TC) is up 4.14% at $1.76 recovering from a long fall down the shaft earlier this week. GMO is now below 30 cents per share at $0.2876. Timberline Resources (TLR) is down 3.45% at $0.6295 per share. Checkout the press release on TLR at the top of this post, they have Eureka in their sites (again).

Finally, benchmark miner and copper giant Freeport-McMoRan (FCX)is up 1.17% at $22.708. Freeport has recently taken on oil interests to diversify so feels double-pain when red metal and oil prices are down. Comex copper is trading presently at $2.8765 per pound.



Mining Stocks, Yahoo Finance

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

1. Could [economist] Nouriel Roubini’s call for $1,000 gold in 2015 be right? Yes.

2. Why?

I recently wrote a column for the Mining Quarterly (Winter 2014 Edition) that gave an outlook for gold price next year. Some of the highlights updated through this morning's trading:

  1. Year-to-date gold has fared far better in 2014 when compared to other key commodities; one ounce still buys more ounces of silver, pounds of copper and barrels of oil than it did in late-December. Outpacing a 0.4% loss in U.S. dollar price, glitter is up 21% over the white metal, 17% over the red and 75% over oil (chart #1, below). 
  2. Gold's relation to commodities works like the force of gravity. Without the propulsion of safe haven or monetary hedge, the yellow metal falls back in line with commodity prices and historical norms. 
  3. This relation has formed a declining value wedge since 2011 (chart #2, dashed red lines) which has proved quite accurate in predicting future price ranges. Extending the dashed lines suggests a commodity value range of $850 to $1,170 per ounce for next year’s first quarter (1Q2015). 
  4. Gold presently carries a premium to the aggregate of key commodities in chart #2; this has been mostly true since August 2011. Using the gravity analogy, gold needs to achieve escape velocity from the value wedge by increasing premium even more. If that premium disappears gold will follow commodities lower early next year. 

The Roubini $1,000 per ounce forecast is roughly near the midpoint of the above 1Q2015 forecast.

Chart #1 (updated from the Winter 2014 Edition of the Mining Quarterly, click for larger view):



Chart #2: 



Have a Merry Christmas and Happy New Year!!!

Cheers - Colonel

Headline photo by Mariana Titus

Friday, December 5, 2014

"Really Good" Jobs Report Clobbers Oil, Foreign Currencies; Gold Down, Still Resilient



Pancake Quarry, White Pine, Nevada (click for larger view)

My latest Kitco News commentary:

Is Gold Still on a Slippery Slope? (Nov. 24, 2014)

*** Local Mining News ***

MIDWAY RECEIVES FIRST BANK FUNDS FOR PAN GOLD PROJECT (Press release, 12/1/2014)

*** AM Prices ***

The early morning prices used for today's analysis:

Goldman Sachs Commodity index (Enhanced)

S&PGSCIES 271.57 (267.52 52-wk low)

Nymex/Comex

Nymex oil (WTI) $65.78 per barrel
Comex copper $2.9110 per pound
Comex gold $1,195.3 per ounce
Comex silver $16.335 per ounce

Gas prices are expected to move lower:

Latest Nevada gasoline prices



Morning miners!

On the release of the monthly jobs numbers a CNBC contributing economist exclaimed, "A really good jobs number!" and "...the revisions are fantastic!" One might expect such praise from the White House with 312,000 jobs added in November against 230,000 expected and notable upward revisions for the previous two months. But no, these were the comments from American Enterprise Institute Senior Fellow Kevin Hassett, former economic adviser for Mitt Romney and Senator John McCain presidential campaigns and President George W. Bush in 2004.

It was a good jobs report from any perspective (full report below).

Despite what politicians may argue, the private sector is the force behind job creation posting a healthy 314,000 new positions last month. Unemployment remains at 5.8% but hourly wages are up and the 12-month average gain of nonfarm payrolls is a very respectable 224,000.  Although, some of today's gains account for early Christmas temporary jobs, it is still a strong showing with upward revisions for September of 271,000 up from 256,000; and August, 243,000 up from 214,000.

Oil is presently looking for any excuse to drop lower and it did on the positive news returning to $65 per barrel territory. The U.S dollar surged against the euro and yen, both posting new weakness with the euro dipping to 1.2271 and the yen cresting the key 120-level at 121.68. The DOW flirted with the mercurial 18,000 and the S&P 500 made a new intraday high at 2,079.47.

On a strong dollar and expectations that the Federal Reserve may now raise interest rates "sooner than later," gold fell below $1,200 for an intraday low of $1,186.4 per ounce . However, the lustrous one demonstrated much greater resilience than other key commodities (discussion below).

Poor mining stocks got another wallop. Big gold miners Newmont (NEM) and Barrick Gold (ABX) fell to $19.05 and $11.61 (chart below) . Midway (MDW) is $0.72 down 3.08% in morning trade. Benchmark Moly miner Thompson Creek (TC) and General Moly (GMO) are both feeling pain falling 3.97% and 7.27% respectively. GMO is now below 40 cents per share at $0.38. Timberline Resources (TLR) was the only miner in the green of those tracked by this report; up 4.98% at $0.63 per share.

Finally, benchmark miner and copper giant Freeport-McMoRan (FCX) dropped 1.17%. Freeport has recently taken on oil interests to diversify so is feeling double-pain when red metal and oil prices are down.



Mining Stocks, Yahoo Finance



Overall, an American economy gaining momentum with a strong currency behind it is good news and a lot better situation than our friends across the pond. European GDP growth has just been notched down to 1% from 2% for 2015 - keep the faith, pardner.

Look for my column on gold outlook for 2015 in the upcoming Winter Edition of the Mining Quarterly.



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

My vote: Sideways. Next week's target price, $1,190 per ounce.

Discussion: 

On the release of the monthly jobs numbers, a CNBC contributing economist exclaimed "A really good jobs number!" and "...the revisions are fantastic!" One might expect such praise from the White House with 312,000 jobs added in November against 230,000 expected and notable upward revisions for the previous two months. But no, these were the comments from American Enterprise Institute Senior Fellow Kevin Hassett, former economic adviser for Mitt Romney and Senator John McCain presidential campaigns and President George W. Bush in 2004. It was a good jobs report from any perspective.

On the news, U.S. bond yields rose and the U.S. dollar flexed even greater muscle against both euro and yen. Expectedly, gold dropped but with much less drama than Nymex oil which slumped to $65.17 per barrel. Importantly, on ounce of Comex gold at $1,195 now buys nearly 50% more barrels than at the end of 2013. Although fractionally down for the year in U.S. dollar terms, the value of gold in morning trading is up 16% versus copper and 18% relative to silver.



The yellow metal resilience relative to commodities should keep gold closer to the upper boundary of the "value wedge" as illustrated in the second chart: my target is $1,190 per ounce for next week. If lower oil prices lead to geopolitical instability (e.g., collapsing Russian economy), gold could rally significantly. Without additional catalyst, gold could fall with commodities to a range between $950 to $1,170 per ounce in the first quarter of next year.



Have a great weekend!

Cheers - Colonel

Headline photo by Mariana Titus