*** UPDATE 07/31/2015 ***
Eureka Miner input to the Kitco Weekly Gold Survey
My vote is down. Target $1,085 per ounce.
In morning trading, it appears gold is breaking the Friday curse of the last few weeks. Moving slightly higher on a weakening U.S. dollar and gap down in the 10-year Treasury yield, the yellow metal moves closer to the key-$1,100 level (at $1,097.1 per ounce for this analysis, Comex December contract).
However, lacking some new catalyst, the bounce may be fleeting. In July, gold has become increasingly more correlated with copper and oil which continue their downward trend. The 1- and 3-month correlations are highly positive (>+0.8) for both key commodities. Gold is also growing more negatively correlated with the US dollar (5-day~-0.8 compared to 1-month~-0.4). If the dollar regains its strength and/or commodities drift lower, gold will likely fall to lower prices.
The positive takeaway is that with these levels of correlations, gold ratios will remain very stable preserving gold's considerable premium over both copper & oil. These premia maintain gold price above its commodity value which is presently $800 per ounce*.
This week gold has stabilized relative to devalued currencies euro and yen (dashed lines) staying above its 2013 lows for each. This is bullish for gold going forward. If the yellow metal returns to losing value to the euro and yen and falls below the 2013 lows, it is likely to see triple digits in U.S. dollar terms (click on plot for larger image).
* based on Nymex WTI, Comex copper & Comex silver prices together with historical norms.
Today's tracking stocks (07/31/2015) AM, click for larger image:
**** BREAKING NEWS (7/24/2015) ****
Comex futures briefly dipped to $1,072.3 per ounce at 22:00 Thursday ET; presently trading at $1,080.4
Comex futures touched $2.3505 per pound at 02:45 Friday ET; presently trading at $2.3750
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The Colonel's latest Kitco News commentary:
Oil, Copper & Gold: Together Again? (Kitco News, 07/13/2015)
The Colonel's column in the Summer 2015 Edition of Mining Quarterly:
"Gold: Are the lows in the rear view mirror?" Online edition pages 49 to 51
*** Friday AM Prices (05/08/2015) ***
Numbers used for this morning's early analysis:
Goldman Sachs Commodity Index
S&P GSCI 388.9, 8/15 contract (ominously less than 392.20 low on 03/18/2015, 5/15 contract)
Nymex oil (WTI) $48.15 per barrel
Brent crude $54.63 per barrel
Comex copper $2.3705 per pound
Comex gold $1,080.4 per ounce
Comex silver $14.40 per ounce
Latest Nevada gasoline prices
St. Paddy Day memories?
No, I'm not talking about the St. Paddy's low this year that gold stumbled below last week. Let's remember better times, the glitter at the end of the rainbow on March 17, 2008. Brimming with Irish luck and green beer, Comex gold briefly hailed $1,082.9 per ounce - a benchmark record at the time. As I did my morning analysis gold was trading at $1,080.4. Late last night Comex plumbed $1,072.3 - something to think about.
My good friend John Brown called me early this morning, "What the heck is going on with gold?"
Not a bad question, not an easy answer. Always the optimist, I replied, "It's doing a lot better than copper or oil!"
Silence at the other end.
Comex copper dropped briefly to a 6-year low in the wee hours at $2.35 and Nymex (WTI) oil is now nearly $2 below 50 bucks trading at $48.15 per barrel.
"Even though gold is falling off a cliff, an ounce still buys about as many pounds of copper and barrels of oil as it did last week and a whole lot more than last November!"
"Hmm..." John wants to hear some straight talk.
"OK, what's got me worried? Since Monday, gold has lost considerable value to both the euro and the yen. If it can't keep its head above 2013 lows in reserve currencies that are being devalued by their central banks, the yellow metal is in deep trouble - we could enter triple digit territory."
"We're not there yet but margins are pinched. Beware of gold falling relative to devalued currencies, pardner."
I put some analysis with this argument in my input to the weekly Kitco Gold Survey (see below). Tough times for gold; a strong U.S. dollar and the promise of rising interest rates by the Federal Reserve are proving significant headwinds. It is also now being pulled down by falling metal prices (something it has resisted for some months) and outside markets such as oil. The latter are influenced by the mess in China which is looking increasingly grim.
It's a bad morning for benchmark miner and copper giant Freeport McMoRan (FCX) now trading at levels not that far above its December 2008 low of $8.51 per share. Presently at $12.64, a retest of the 2008 low is not out of play if you remember last Friday closed at $15.88 and the high for 2015 was $23.66 - ouch! FCX reported these second quarter (Q2) numbers earlier this week:
Q2 average realized prices are $2.71/lb. for copper, $1,174/oz. for gold and $67.61/bbl for oil.
Present prices are all below these levels. For every 10 cents down in copper price, FCX is down $400M in revenue. They are presently free cash flow negative (i.e. burning cash) and that may very well continue the rest of the year. They have already cut their dividend 84% to a nickel a quarter per share to save cash. Not pretty for a benchmark miner.
Mining in a world of hurt...
For the most part, mining stocks are plunging with metal prices. Here are this report's tracking stocks (click on chart for a larger image):
Big gold miners Newmont (NEM) and Barrick Gold (ABX) are trading at $17.57 and $6.91 per share. Last week Barrick was trading at 24-year lows and we're now nearly $2 below that dismal landmark. Midway Gold has been delisted since filing for Chapter 11 protection but still trades over the counter (OTC) as MDWCQ, presently at 1 cent per share (last week 1.5 cents). Timberline Resources (TLR) is unchanged for week at $0.49 per share. Benchmark Moly Miner Thompson Creek (TC ) is now below "continuing listing standards" but still hanging on at $0.5501 per share. General Moly (GMO) is also hanging tough at at $0.5291. As of yesterday, moly oxide price was a lowly $5.83 per pound.
Finally, benchmark miner and copper giant Freeport-McMoRan (FCX) is down 8.13% at $12.53.
Kitco News Gold Survey
My input to the Kitco News Weekly Gold Survey:
My vote is down. Target for next week is $1,050 per ounce.
Gold conundrum: If my pockets were full of gold, I'd be wealthy in the commodity world but growing much poorer in a U.S. dollar economy.
Even though gold dropped to $1,072.3 this morning, its substantial gold premium relative to falling oil and copper is nearly unchanged from last Friday* (5.9 bbl vs. 6.2 bbl 7/17 for WTI; 47.1 lb vs. 48.4 lb 7/17 for Cu). The yellow metal has joined its commodity brethren again but with very stable gold ratios (due to high positive correlation). Gold will no doubt follow commodities lower for the time being but continue to maintain its value premium over WTI & copper
The gold conundrum persists but...
More worrying is gold's relation to the euro and yen. For example, as shown in the chart below (click for larger view), this morning's gold in euros is €986.64 after a break with stable €1,050 territory that commenced Monday (July 20). The margins are contracting much quicker for the euro and yen than for oil or copper relative to gold's 2013 value lows. If gold can't keep its head above 2013 lows in reserve currencies that are being intentionally devalued by their central banks, it could quickly fall into triple digit territory.
Presently, gold is only 12% above its 2013 euro low; 9.2% above the yen low. In late-April the margins were a much healthier 20% and 15.6% respectively. Something to watch!
* as compared to average gold ratios since the Lehman Brothers' bankruptcy
The Summer 2015 Edition of the Mining Quarterly is now accessible online. Marianne Kobak McKown has done another outstanding job of compiling Nevada's premier mining publication! It has terrific articles on Newmont's 50th Anniversary, profiles of long time Newmont employees and associates together along with updates on Barrick's Arturo and Nevada Copper's Pumpkin Hollow.
This issue also features my column about gold's fortunes:
"Gold: Are the lows in the rear view mirror?" Online edition pages 49 to 51
Cheers - Colonel
Photos by Mariana Titus