"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 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)

*****

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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

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