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


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) 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 17, 2015

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

Windfall Pit, Eureka Mining District, Eureka, Nevada


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 


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


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

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