"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, August 28, 2015

Yellow Metal Fades from Monday's $1,170; Gold is the Euro; Freeport on an Angel's Wing


Old Diggings in the Pit Wall
Windfall PitEureka Mining District, Nevada

*** Friday 9/4/2015 Update ***

Another volatile market week but not much has changed from last Friday's report and analysis (below, 8/28/2015). The world awaits the outcome of the Federal Reserve meeting Thursday, 9/17/2015.

This morning's input to the Kitco Weekly Gold Survey (Comex gold, $1,127.9 down $5.7, December contract):

My vote is down. Target price $1,100 per ounce.

Discussion: "just another currency?"

Gold price remains loosely tied to the euro. Yesterday when Mario Draghi made dovish comments about European monetary policy, gold and the euro notched down 1%. The reaction to the release of the monthly US jobs report was more mixed. The 5.1% unemployment rate suggests to many that the Fed will raise interest rates in September; for others, the lower-than-expected jobs gain hints further delay. After initially bouncing, gold is now lower in morning trading along with the euro.


  1. Higher US interest rates and stronger US dollar are bedfellows - both gold and the euro retreat from that union. 
  2. On a 1-month basis: Gold in USD is 1.7-times more volatile than gold in euros The rolling correlation of gold and euro remains strong (> +0.8)
  3. Gold continues to hover about the €1000-level* 


Have a relaxing weekend, mine will be loosely tied to the BBQ! Cheers...

* mean since 8/3 = €1005, standard deviation €9.72

***  
Memorable quotes (lately):

"Gold has no sponsor" - Jeff Currie, Goldman Sachs Commodity Guru on CNBC Business News, 8/26/2015, Currie reiterates $1,050 per ounce gold target

In the jargon of economists...

“There will have to be a re-pricing and that might be destructive,” IMF economists warning (Janet Mirasola Pre-market brief, 8/26/2015)


Freeport on China...

“We don’t see China having a hard-landing type situation as some are predicting,” Richard Adkerson, CEO of Freeport-McMoRan Inc., the largest publicly traded copper miner, said in July. “We see requirements for copper growing in absolute terms and China continuing to be a significant consumer.” (Bloomberg News, 08/25/2015)

On the misgivings of lower oil... 

 “The problem is when people think of consumers saving a few pennies at the pump, they’re not going to take that money and buy a new house or a new car or send their child to college. They’re probably going to buy extra socks and potatoes...” (Walter Zimmermann Jr, vice president and chief technical analyst at United-ICAP, see Guardian article below)

Debbie Carlson of the Guardian explains the recent plunge in oil prices: US crude oil prices hit lowest since 2009, eliminating thousands of jobs (8/21/2015, The Guardian)
  

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for this morning's early analysis:

Goldman Sachs Commodity Index

S&P GSCI 348.71, 9/15 contract (intaday low 333.80 on 8/24/2015)

Nymex/Comex

Nymex oil (WTI) $42.57 per barrel (intraday low $37.75 on 8/24/2015)
Brent crude $47.55 per barrel
Comex copper $2.3325 per pound (intraday low $2.209 on 8/24/2015)
Comex gold $1,133.7 per ounce (Intaday high $1,169.8 on 8/24/2015)
Comex silver $14.545 per ounce

Latest Nevada gasoline prices


Windfall Memories
Rustler Pit, Eureka Mining District, Nevada
(Photo courtesy of Eric Pastorino)

Gold is the Euro

The yellow metal will continue to behave as a currency that closely tracks the euro in price movement... 

If you want to guess gold price just multiply the euro/dollar currency rate by 1,000... 

Market drivers: concerns over China & the timing of a U.S. Federal Reserve interest rate rise

Morning Miners!

A historic week in the markets*. When the DOW drops nearly 1,100 points on a Monday morning, you know you're in for a looper-dooper. In response Comex gold popped to $1,169.8 per ounce and the S&P 500 Volatility Index (often called the "fear gauge") surged to levels not seen since the post-US debt downgrade in 2011. Blood in the streets...gold gets a safe haven bid...Freeport falls below 2008 price levels...the good ole bad days are here again!!

Whoa not so quick, pardner. The 2008-2009 financial crisis and the US debt crisis were self-inflicted wounds, this week was all about collateral damage from other shores. As this report pointed out last week, the Chinese devaluation of the yuan set off a chain reaction of currency panic in emerging markets that cascaded into havoc for our domestic markets this week. News flash - China is slowing!

The S&P 500 and the DOW have not regained all the wealth lost earlier this week and fear levels are still elevated...BUT...the sky is not falling. Both markets have needed a correction for months, they got one*. Next Friday we'll take a peak at the monthly jobs report and see if the US economy is on tract - for now, take a deep breath. China has been slowing for a long, long time, commodities are in the tank and mining is in the deep doldrums - these are not new news items (a ray of light in a moment).

Gold quickly faded from its Monday peak to plumb $1,117 on Tuesday and has a little mojo today trading presently at $1,133.7 per ounce. The Eureka Miner price target was $1,130, missed by a couple of bucks - ho-hum. No one is running from a burning theater, but nobody is buying tickets for the Gold Show either. Goldman Sach's commodity guru Jeff Currie said it best Wednesday on CNBC News, "Gold has no sponsor."

Besides blood in the streets, gold responds well to inflation expectations. Japan and Germany just turned in zeroes for their core inflation numbers. Lower commodity prices present deflating pressures in the US while the Federal Reserve has been trying like crazy to meet a 2% target. In the meantime, US interest rates are expected to rise (sometime) which can be kryptonite for gold against a backdrop of low inflation. A better than expected US GDP which came in at 3.7% put the possibility of a September rate hike back on the table.

But don't despair, there are some positives here. First, gold price in euro terms is pretty stable; stability trumps decline (no candidate pun intended). There's logic here - higher US interest rates and stronger US dollar are bedfellows - both the euro and gold retreat from that union. As I discuss in my gold note to the Weekly Kitco Gold Survey, Gold price in US dollars is over 2-times more volatile than gold in euros.

If you want to guess gold price just multiply the euro/dollar currency rate by 1,000 - it's worked pretty well for the entire month of August. For example this morning's rate was 1.1235 dollars per euro, multiply that by 1,000 and you have $1,123 per ounce versus $1,133. I'll take the difference and buy the house a round (see plot near the end of the report). Gold is the euro.

If this relation changes and gold falls in value relative to the euro and yen then you have cause for concern. So far so good. The positives:
  1. Gold is still up in euros & yen from its 2013 lows (+14.7% & +12.0% respectively) 
  2. An ounce of gold buys considerably more barrels of oil & pounds copper than last November and many more compared to 2013 
  3. It may finally be bottoming in value relative to US equities
That's not all bad!

Freeport on an Angel's Wing

Activist billionaire investor Carl Ichan is hardly an angel, perhaps a dark angel for some management teams. In his own words, "A CEO should probably cancel the afternoon golf game when they get a call from me."

Ichan is an activist investor known for taking CEOs and board members to the woodshed when he senses company value is being mismanaged. Mining benchmark Freeport-McMoRan (FCX) fell below its 2008 lows earlier this week to plumb $7.76 per share on Wednesday. It has moved since to trade at $10.50 this morning. Two things happened to explain a 35% leap from its deepest shaft: FCX made a commitment to stop wasting cash and news got out that Carl was planning to visit. Carl Icahn disclosed a near 8.5% stake in the company (about $1.2 billion) and unveiled plans for aggressive activism, to further cost savings and higher profits.

Investors hoping Icahn can bring sale of energy assets (Seeking Alpha, 8/28/2015)

Carl Icahn’s Latest Bold Bet on Commodities and Energy (By MAUREEN FARRELL, Wall Street Journal, 8/28/2015)

Here's the ray of light for Friday. When "smart money" starts piling into beaten down sectors the bottom is probably near. A similar phenomena is occurring in the oil sector. Caution - their time horizons can be a lot longer than yours.

Stay tuned.

*Market Stats

Market corrections are generally defined as a 10% or greater move to the downside from the top of a key index. I like to use the S&P 500 (.SPX) because it includes a broader swath of America' best companies than the Dow Jones Industrial (.DJIA) - five hundred compared to thirty. Here is the score sheet of ups and downs on an intraday basis:

S&P 500 high: 2,134.72, 5/20/2015
S&P 500 low: 1,867.01, on Monday 8/24/2015 down 12.5%
S&P 500 bear market begins below 20% at 1,707.78

Key "next level" to watch going down is 1,820.66 (low on 10/15/2014, down 14.7%)

For Fibonacci folks the "fib box" is:

50.0% retracement from 8/24 low = 2,000.87
61.8% retracement from 8/24 low = 2,032.45

In the coming weeks, getting inside the "fib box" is generally considered a "bullish" move to the upside; failing the "fib box" is a bearish indication.

Kitco News Gold Survey

My input to the Kitco News Weekly Gold Survey:

My vote is down. Target price $1,110 per ounce.

Discussion: What a week! The S&P 500 Volatility Index peaked 50 on Monday, frightening levels not seen since post-US debt downgrade in 2011. Heightened volatility remains the theme through this morning's trading, still above 25. This is in stark contrast with gold price volatility, especially in terms of the euro which shows less than 1% (0.97%) variation on a 1-month basis*.

Interestingly, Comex gold in US dollar terms is more than 2 times more volatile (2.1X) when compared to denomination in euros. This suggests that gold remains metastable about the €1000-level (attached chart), a condition that has been true since the price downdraft from the €1050-level July 20 with a 1-month rolling correlation of gold and euro at a very high +0.88.

Goldman Sach's commodity guru Jeff Currie said Wednesday on CNBC News that "gold has no sponsor." As such, I believe the yellow metal will continue to behave as a currency that closely tracks the euro in price movement. An interesting twist this week was suspected Chinese selling of US debt causing a bump in Treasury yields and the US dollar. The euro fell accordingly and drug its new companion gold along with it.


(click on chart for a larger image)
Whether it is the Fed or supply & demand dynamics in US Treasurys, gold and the euro will continue to see downward pressure going forward. As such gold will likely drift towards support at $1,109 per ounce and maintain the €1000-level.

 *day-to-day price standard deviation normalized by the mean over one month.

TGIF!

Cheers - Colonel

Photos by Mariana Titus

Friday, August 21, 2015

Gold Touches $1,168 - Rumble in the Currency Jungle


Eureka-Windfall Mill Site
Near Windfall PitEureka, Nevada


Memorable quotes (lately):

"Gold has no sponsor" - Jeff Currie, Goldman Sachs Commodity Guru on CNBC Business News, 8/26/2015, Currie reiterates $1,050 per ounce gold target

In the jargon of economists...

“There will have to be a re-pricing and that might be destructive,” IMF economists warning (Janet Mirasola Pre-market brief, 8/26/2015)


In the glass-is-half-full jargon of mining CEOs...

“We don’t see China having a hard-landing type situation as some are predicting,” Richard Adkerson, CEO of Freeport-McMoRan Inc., the largest publicly traded copper miner, said in July. “We see requirements for copper growing in absolute terms and China continuing to be a significant consumer.” (Bloomberg News, 08/25/2015)

On the misgivings of lower oil... 

 “The problem is when people think of consumers saving a few pennies at the pump, they’re not going to take that money and buy a new house or a new car or send their child to college. They’re probably going to buy extra socks and potatoes...” (Walter Zimmermann Jr, vice president and chief technical analyst at United-ICAP, see Guardian article below)
 
** Breaking News (1:08 AM Eureka Time, August 21, 2015) **

U.S. equities fall down the mine shaft:

DOW Industrial Average (.DJI) 16,459.55 down 531.14 -3.13%

S&P 500 1,970.89 down 64.84 -3.19%

Gold closes up but not impressively given market turmoil:

Comex gold (Dec. contract) $1,159.6 per ounce up $5.4 +5.5%

** Breaking News (11:32 AM Eureka Time, August 21, 2015) **

Nymex WTI crude oil briefly fell below $40 per barrel; intraday low is $39.86/bbl, presently trading at $40.37/bbl [Update: closing price $40.45/bbl]

Bullishly, Dennis Gartman of the respected Gartman Letter called a bottom with this quick venture into 3-handle territory....could this be it? [Update Sunday night 9:20 PM PT, sorry Dennis WTI futures just plumbed $39.00/bbl; Update Monday, 8/24 low $37.75/bbl)]

Debbie Carlson of the Guardian explains the recent plunge in oil prices: US crude oil prices hit lowest since 2009, eliminating thousands of jobs (8/21/2015, The Guardian)

*****

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for this morning's early analysis:

Goldman Sachs Commodity Index

S&P GSCI 305.5, 9/15 contract - a new low this AM

Nymex/Comex

Nymex oil (WTI) $41.31 per barrel (new low $39.86 intraday)
Brent crude $54.63 per barrel
Comex copper $2.2945per pound (new low $2.2605 on 8/19)
Comex gold $1,156.1 per ounce
Comex silver $15.330 per ounce

Latest Nevada gasoline prices


Rumble in the Currency Jungle

Uncertainty about US monetary tightening in a world of collapsing growth prospects puts a cap on gold rallies...

Morning Miners!

I wish I wrote this note yesterday - the Colonel was running with the gold bulls. Today, not so sure.

There are many things going in the yellow metal's favor - tumbling global equities and a fast-spreading currency devaluation contagion. A witches' brew a brewin' - for flavor, add in geo-political boogie bears of  North Korea nuclear-tipped saber rattling, Bangkok bombings and escalating dysfunction in the Middle East. Oh, I forgot Russia. The ruble is fast approaching 70 per US dollar on falling oil; in early-2014 a buck fetched only 30 or so. Watch for Putin to do something crazy in the Ukraine or elsewhere. Nothing like a little mischief to keep Ivan and Svetlana from worrying about a teetering Russian economy. Then there is political instability and corruption in Brazil....

Hey, this is the stuff gold loves. Four years ago we'd be testing $2,000 per ounce on these headlines!

This isn't to say the latest rally has not been impressive. On July 24, Comex gold plumbed $1,074 per ounce. Last night it nearly touched $1,168 - that's an almost 9% pop in a month. Over the same time period Apple stock (AAPL) has fallen 13%; Facebook (FB) is down 12%. Benchmark miner Freeport-McMoRan (FCX) is down another 21% courting levels during its worst week in Great Recession (December, 2008)...ouch! [Update: FCX closed Friday at $9.58 per share; its closing low during the Great Recession was $8.76 on December 4, 2008, split-adjusted basis]

Comex gold is trading up $2.9 at $1,156.1 per ounce this morning - so why am I not happy with the yellow metal?

Everything comes back to currencies and interest rates. I believe the Debbie Downer for gold is Fed Chair Janet Yellen. The Federal Reserve didn't really say anything different this week during the release of their minutes - more looking at the data. Market consensus believes rates will probably not be raised in September with all the current global oopsy-doopsy (i.e. bullish gold & bearish US dollar; less than a one-in-three chance of a 25 basis point rate hike in September). Next hike will likely be delayed until December because no one is crazy enough to raise interest rates in an election year (consensus opinion, not mine - good for gold?).

Truthfully, no one really knows and that's the problem - uncertainty about US monetary tightening in a world of collapsing growth prospects puts a cap on gold rallies.

The latest market turmoil began when China devalued the yuan on July 10th. In absolute terms it wasn't much, about 3% so far after a couple of adjustments since. Because the yuan is loosely tied to the US dollar, the People's Bank of China doesn't want to import US monetary tightening (think stronger dollar) when their faltering economy needs monetary accommodation (think weaker yuan). A weaker yuan is terrific for Chinese exporters but not so hot for everyone else who buys their stuff. Vietnam responded by devaluing their currency to buffer the Chinese shock. This was followed by a Kazakhstan devaluation of the tenge to offset both the yuan and falling oil prices, their key export.

Let the currency war begin.

Actually the currency war started some time ago.  Europe and Japan started aggressively devaluing their currencies with loose monetary policy modeled after the U.S. quantitative easing policies of the last few years. Remember last Halloween when Japan put the yen printing press in high gear - the U.S. dollar soared and gold crashed to new lows by early-November.

Today the U.S. dollar is falling against the euro and yen as gold moves higher. This may be short-lived as I explain in my Kitco Weekly Gold Survey input (see below, "Out of 35 market experts contacted, 18 responded, of which 11, or 61%, said they expect to see higher prices next week. At the same time, four professionals [which includes my input], or 22%, said they see lower prices, and three people, or 17%, are neutral on gold."). The key takeaway is that the gold euro rally stalled yesterday even though the gold US dollar rally continued into Friday. Yellow metal performance relative to a major devalued currency (like the euro) is important to monitor, pardner.

If all of this has given you a headache, take an aspirin. Currency wars are not resolved overnight. Let's enjoy this gold rally while it lasts and have a good weekend!

My target price for next week? $1,130 per ounce...nuts!

Mining hangs tough on a down day...

For the most part, mining stocks are hanging tough today. 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 $18.56 and $8.24 per share. Midway Gold has been delisted since filing for Chapter 11 protection but still trades over the counter (OTC) as MDWCQ, presently at  7 cent per share. Timberline Resources (TLR) is down 4.2% at $0.37 per share. Benchmark Moly Miner Thompson Creek (TC ) remains below "continuing listing standards" but hanging on at $0.4787 per share. General Moly (GMO) is also fairly solid at $0.48.  As of yesterday, moly oxide price was $6.03 per pound.

Finally, benchmark miner and copper giant Freeport-McMoRan (FCX) is $9.73 per share near its December 2008 split-adjusted low.

Kitco News Gold Survey

My input to the Kitco News Weekly Gold Survey:

My vote is down. Target price $1,130 per ounce

Discussion:

I turned decidedly bullish this week on gold amid tumbling global equities and currency devaluation contagion spreading from China to Vietnam to Kazakhstan. That is until gold's impressive rise in US dollars was blunted by a reversal in its euro rally this morning. Alas, I believe gold rallies will remain short-lived until there is further clarity from the Federal Reserve on the timing and pace on interest rates.

(click on chart for a larger image)

Reluctantly, I return to the idea that gold is "metastable" in euro terms around the €1000-level until sufficiently kicked to a higher (or lower) state by more specific Fed direction (see attached chart). The first test of this thesis is to see whether Comex gold closes above or below yesterday's close at $1,153.2 per ounce. The latter case suggests downside for the yellow metal next week after some of the Friday global jitters subside. If gold continues an inexorable rise to higher dollar levels, my metastable model goes in the bin.

On the positive, gold has shown a substantial rise in value this week relative to US equities and key commodities oil and copper.

TGIF!

Cheers - Colonel

Photos by Mariana Titus