Strong Jobs Report; Gold Tests $1,160 (Update); Soaring Dollar Jolts Euro, Yen, Miners

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My Latest Kitco News Commentary: As Copper Goes, So Goes Gold (03/16/2015)

*** Local Mining News ***

Construction At Pan Gold Project Nears CompletionMidway Expects First Gold Production In March (Press release, 03/03/2015)
 
MIDWAY COMPLETES DRAFT ENVIRONMENTAL IMPACT STATEMENT FOR GOLD ROCK PROJECT, NEVADA (Press release, 2/13/2015)
  

*** AM Prices ***

The early morning prices used for today's analysis (6:48 AM PT, most active contracts):

Goldman Sachs Commodity Index

S&P GSCI 411.90 (381.3 52-wk low) 3/15 contract

Nymex/Comex

Nymex oil (WTI) $50.11 per barrel
Brent crude $60.33 per barrel
Comex copper $2.6200 per pound
Comex gold $1,175.9 per ounce
Comex silver $15.840 per ounce

Latest Nevada gasoline prices

Strong Jobs Report

*** UPDATE (3/7/2015) *** Next levels of support for Comex gold price (April) are the December & November lows of last year: $1,143.4 (12/15/2014) & $1,132.2 (11/17/2015). Gold miners  got hit particularly hard Friday: Newmont (NEM) & Barrick (ABX) closing at $23.30 down 7.91% & $11.34 down 6.97% respectively...Midway (MDW) $0.56 down 11.81%

*** BREAKING NEWS *** New Comex gold low for 2015: $1,162.9 per ounce, April contract, 13:35 ET 

[updates] in brackets below...

Morning Miners!

A strong monthly jobs report jolted markets this morning - gold price is a good example. The Department of Labor releases their monthly report on the first Friday of the month at 5:30 AM Eureka time. At 5:25 AM, the yellow metal already appeared nervous trading below the key $1,200-level at $1,197.0 per ounce. Five minutes after it was announced that 295,000 jobs had been added to the labor force and unemployment fell to 5.5%, gold dipped to $1,182.0 then headed for its morning low of $1,172.5 - ouch! [the intraday low was $1,162.9]

Nonfarm payrolls exceeded an expectation of 240,000 reaffirming the economy is on track and growing stronger with gains in the private sector (288,000) and decent upticks in manufacturing, retail and finance - what's not to like? The data overcame job losses in the mining sector [Mining & Logging down 8,000] and oil patch, the West coast dock bottleneck and miserable weather in the East. A robust report coupled with knowledge that the European Central Bank will begin quantitative easing this Monday (printing euros to buy European bonds) propelled the U.S dollar crushing the euro to 11-year lows (1.0852) [1.0843] and shoving the yen above 121 (121.2820).

Given the strength of these numbers, many market participants now fear a rate hike from the Fed in June instead of September. The 10-year yield responded in kind briefly touching 2.25% [2.26%] in morning trade. With inflation in check (so far), higher rates are kryptonite for gold in combination with an ever stronger dollar. Commodities suffered across the board blunting copper's recent rally and knocking the S&P Goldman Sachs Commodity Index (GSCI) down from its mid-February highs. Comex copper is currently trading at $2.62 per pound [$2.6090, close]; the GSCI, at 411.9 (down 3.6% from February) [410.45, close].

Kitco news carried an interesting note on physical demand just prior to today's labor report announcement:

Chinese investors have been the lone buyers of gold as the price has dipped below $1,200 an ounce, but even that interest appears to be waning as the market looks heavy, says Alex Thorndike, senior precious metals dealer at MKS SA. “The metal continues to oscillate within a $1195-1210 range where we have been trapped for some time. Asia continually bids the market higher while [New York] continually pushes it lower usually at the close of the session,” he says. (Market Nuggets, Neils Christensen of Kitco News, 03/06/2014)

This report will carefully monitor whether the break lower from the MKS range is a transient overreaction to Friday's news or a sustained challenge to the $1,200-level. [Note support levels above]

The Eureka Miner's Gold Value Index (GVI), which measures gold value against oil, copper and silver independent of currency, fortunately continues to bullishly trend higher (dashed orange line, click for larger view):

The January 28, 2015 GVI (point C) is at high levels not seen since the dark days of early-2009 (point A). Reassuringly gold has been trending higher relative to these key commodities (i.e. real stuff, not paper money) since mid-2006.

This report closes with a gold forecast based on the GVI and recent price action of the yellow metal.

Local & Benchmark Mining Stocks

The morning news clobbered miners too. Big gold producers Newmont (NEM) and Barrick Gold (ABX) are trading at $23.85 and $11.53, shedding more than 5% of value on the day (chart below, click for larger view) . Midway (MDW) is $0.6172 per share and down 2.8%. Benchmark Moly Miner Thompson Creek (TC) is down 3.74% at $1.2610. Timberline Resources (TLR) is $0.58 per share down 3.38%. Please checkout the latest press release from Midway at the top of this report.

General Moly (GMO) is the outlier today; below 50 cents per share but up 2.33% at $0.44. Although at very depressed levels, moly oxide has had an uptick from $7-territory, trading at $8.15 per pound (Metals Week, 2/27/15,  Molybdenum, Daily Dealer Oxide).

Finally, benchmark miner and copper giant Freeport-McMoRan (FCX) is down 2.92 % at $19.60. Freeport has taken on oil interests to diversify so feels double-pain when red metal and oil prices are down. FCX plumbed $16 depths in January:

Mining Stocks, Yahoo Finance

Iron Ore Warning Flag

Friday, a faithful follower of the Eureka Miner sent me two excellent articles from mining.com (March 6, 2015):

Rick Rule: Gold price could easily see $1,000

Iron ore spot price drops to record low

"Bottoming process" is the key word for gold as well as other key commodities - My favorite three are Nymex oil (West Texas Intermediate, WTI), Chinese iron ore (SGX TSI) & Comex copper.

With respect to iron ore dragon style, I asked Janet Mirasola (Wells Fargo metals guru) this question on Feb. 12:

Eureka Miner: Should we be happy China iron ore has held above 60 for some time?

Mirasola: Hey there, don’t bank on it holding much longer….

She was right, iron ore dipped below $60/tonne this week. Copper is above $2.50/lb again but could see some more downside. Oil could go a lot lower in the U.S. if storage tops out (international benchmark Brent crude is currently more than $10/bbl more expensive).

Beside supply issues for domestic oil, all three suffer from the pressures of declining global demand. If China does restart infrastructure projects there may be some relief; the bottoming process could continue for weeks or months but likely not years. My view is that gold will have a hard time getting a footing in a declining commodity market when inflation expectations are low and interest rates threaten to be higher later this year.

For this quarter (end of this month), I will stick with my Mining Quarterly prediction (late October) that gold will fall in a range of $1,010 to $1,170 per ounce. I have, however, moved the lower number up to $1,080 since writing the Halloween piece....
 
Gold Forecast Update



Below are updates for the charts and numbers provided in my column for the  Winter 2014 Mining Quarterly - the underlying assumptions for 2015 remain unchanged (see pages 72-77 of the online edition or 75-79 of the printed version).

Some highlights updated through this morning's trading:

1. Gold still fares quite well compared to other key commodities; one ounce buys more ounces of silver, pounds of copper and barrels of oil than it did in late-December 2013. Countering a 2.2% loss in U.S. dollar price, glitter is up 20% over the white metal, 27% over the red and 92% over oil (chart #1, below). A 8-1/2 year uptrend in gold value relative to these commodities is intact. 
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 $1,080 to $1,170 per ounce for this quarter (1Q2015). There was some indication that gold price escaped the value wedge with transition from value compression to expansion - that trend is now challenged with a return of gold price to the upper boundary of the wedge.
4. Gold presently carries a premium to the aggregate of key commodities in chart #2; this has been mostly true since August 2011. This premium is declining from the peak in January.

Again, gold find itself at the crossroads - will it return to stabilization around $1,200 per ounce or closer to the $1,170 upper 1Q2015 target shown in Chart #2? Presently, I believe either case is more likely than a descent to triple-digit prices.

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

Chart #2: 

Cheers - Colonel

Photos by Mariana Titus