"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, July 24, 2015

Gold Plumbs $1,072; Red Metal Blue at $2.35...TGIF! (Update 07/31/15)


Did anyone remember to put the spare Gardner Denver injection pump in the truck? 
Near Windfall PitEureka, Nevada


*** 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

**************************

Please checkout Mariana's Eureka, Nevada on Facebook

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/Comex

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's Day Memories

Morning Miners!

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."

"Hmm...OK."

"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):


Mining stocks, Yahoo Finance


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



Summer 2015 Mining Quarterly

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

The answer to that question - not yet, pardner!

TGIF. Have a great weekend!

Cheers - Colonel

Photos by Mariana Titus

Friday, July 17, 2015

Gold Drops Below $1,130; Miners Run for Cover


Windfall Pit, Eureka Mining District, Eureka, Nevada

**** BREAKING NEWS ****

Update (7/19 9:46 p.m. Eureka time): Comex futures briefly dipped to $1,080 per ounce at 21:25 Sunday ET; presently trading at $1,107.3

Barrick Gold (ABX -4.9%) sinks to 24-year lows in Toronto trading, leading a rout among bullion miners as the yellow metal extends its selloff to five-year lows 

**************************


Please checkout Mariana's Eureka, Nevada on Facebook

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 404.1, 8/15 contract (392.20 low on 03/18/2015, 5/15 contract)

Nymex/Comex

Nymex oil (WTI) $50.44 per barrel
Brent crude $56.70 per barrel
Comex copper $2.4990 per pound
Comex gold $1,134.7 per ounce
Comex silver $14.825 per ounce

Latest Nevada gasoline prices


The Gold Conundrum

Morning Miners!

It's a bad morning for gold and copper - more on that in a moment. Here's a shocker: benchmark miner and copper giant Freeport McMoRan (FCX) is currently trading at levels below its closing price on the worst day for U.S. stock markets during the 2008-2009 financial crisis (see mining stock summary below) - now that is something to ponder.

Last week Comex gold fell below its "higher-lows-since-November" trend line, then it took out its St. Paddy's low Wednesday ($1,143.8, 9/15 contract) and then fell below its November low this morning ($1,135.3, 9/15 contract). When I did my morning analysis, gold was $1,134.7 per ounce, since then it made a low below $1,130 at $1,129.6, 7:35 AM Eureka time. Let's pray that's it for Friday. Nuts!

Comex copper is feeling pain too, falling below the key $2.50 per pound ($5,511 per tonne) level to trade at $2.499. A stock analyst recently said that Freeport needs copper prices to stay above $2.50 for its share price to survive $16 - FCX is now at $15.78. Buy that man a beer.

Let us not forget that copper briefly plumbed $2.38 ($5,250) only last Wednesday (7/8/2015). Ominously, Wells Fargo metal analyst Janet Mirasola warned today:

...seasonal strength is not kicking in for our favorite red metal. We are beginning to question if the supply problems that stretch from Chile to Indonesia will be enough to support price weakness below the recent lows of $5240/50 this quarter (Metals & Macro Highlights, 7/17/2015)

There is a small light in this shaft if you consider that gold is doing a lot better than either copper or oil benchmark WTI. That leads to what I call the "gold conundrum" - if your pockets are full of gold you are wealthy in the commodity world and growing much poorer in a U.S. dollar economy.

Gold has low price volatility (wiggle in day-to-day prices) and a large value premium over both oil & copper. An ounce of gold buys a lot of each; roughly 6 barrels of oil & 50 pounds of copper per ounce more than their averages since the Lehman Brothers Bankruptcy in 2009*. I wrote about this subject  Monday in my latest Kitco commentary: Oil, Copper & Gold: Together Again? (Kitco News, 07/13/2015).

I know the Eureka Chevron doesn't take gold bars - so who cares about a gold premium over oil?

OK, let's throw in some world currencies to cheer you up. I used a value comparison in the Summer Edition of the Mining Quarterly (see below) with the euro, yen, silver, copper and oil. Here's an updated chart from that column:



Although gold is making new U.S. dollar lows today, it has left its 2013 lows relative to these currencies and commodities in the dust. In 2013 gold was losing value to everything; today it is not. How about a vacation in Europe or Japan for your gold bars?

One major factor influencing gold's predicament are the U.S. stock markets which even a Greek Tragedy and crashing stocks in China have not been able to blunt. Yesterday, the S&P 500 came within just a few points of topping May's all time high (2,124.29 versus 2,130.82). Here's an update of another chart in my last MQ column:



In that column, I mentioned the downward trend relative to stocks must be arrested before any meaningful gold rally can be sustained. The little red circle (click on graph for larger view) shows that we've fallen below my red dashed line - not at a bottom yet.

I thought this HSBC note sums up gold's challenges well:

Although the climate for gold remains negative, analysts at HSBC say the metal’s weakness may be limited, even if they expect short-term losses. In a research note Thursday, they noted that imminent interest rate hikes, low inflation, the stronger dollar and equities markets as well as subdued geopolitical risks are weighing on gold. “These factors make further gold losses likely, in our view, at least in the near term,” they say. “But gold, while weak, is paring losses intraday and EM buying from China and India has just very recently perked up. So while we see near-term losses as likely, the downside appears limited and we expect bargain hunting to consistently pare losses. (Kitco News,by Sarah Benali of Kitco News, sbenali@kitco.com, 8:20 AM, July 17, 2015)

The Kitco gold survey, which this report participates in, has some nuggets of wisdom too:

Kitco Gold Survey: 68% Of Main Street And Wall Street Negative On Gold (Neils Christensen, Kitco News, 7/13/2015)

The bottoming process can be long and frustrating...stay tuned, pardner.

* Average gold ratios since Lehman Brothers bankruptcy are 16.3 barrels per ounce for WTI oil and 406 pounds per ounce for copper.

Mining Stocks Down, Down

For the most part, mining stocks are falling with metal prices. Here are this report's tracking stocks (click on chart for a larger image):



Mining stocks, Yahoo Finance


Big gold miners Newmont (NEM) and Barrick Gold (ABX) are trading at $20.77 and $8.78 [Barrick Gold sinks to 24-year lows in Toronto trading, leading a rout among bullion miners as the yellow metal extends its selloff to five-year lows] . Midway Gold has been delisted since filing for Chapter 11 protection but still trades over the counter (OTC) as MDWCQ, presently at  1.5 cents per share. Benchmark Moly Miner Thompson Creek (TC ) is now below "continuing listing standards" but still hanging on at $0.6320 per share, down 0.3%. General Moly (GMO) is nearly unchanged at $0.5646. Timberline Resources (TLR) is the only green arrow, pleasantly trading up 11.36% at $0.49.

Finally, benchmark miner and copper giant Freeport-McMoRan (FCX) is down 3.20% at $15.78. Freeport has been diving down the mine shaft with lower copper and oil prices. This morning, FCX trades below the closing price of March 9, 2009 ($16.16 per share) when the S&P 500 made its horrific closing low of 676.53.



Summer 2015 Mining Quarterly

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

Updates to the charts and analysis presented are given above.

Have a great weekend!

Cheers - Colonel

Photos by Mariana Titus