"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, September 11, 2015

Eureka's Windfall; Gold Falls Below $1,100 - What's Up (or Down)?

Windfall Shaft Locations (click for larger image)
Windfall MineEureka Mining District, Nevada
(embedded images courtesy of Sentinel Museum & Gary Edmondo)

Blasts from the Past

My latest article on the early mines of Eureka, Nevada appeared in the Elko Daily Free Press this week (9/10):

Eureka’s Windfall – Birth of a modern gold district with community spirit

It also appears in the printed edition of the Fall 2015 Mining Quarterly which came out Wednesday; the online ISSUU will be posted soon. Have a good read!


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 359.5, 9/15 contract (intaday low 333.80 on 8/24/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $44.37 per barrel (intraday low $37.75 on 8/24/2015)
Brent crude $48.36 per barrel
Comex copper $2.4325 per pound (intraday low $2.209 on 8/24/2015)
Comex gold $1098.7 per ounce (Intaday high $1,169.8 on 8/24/2015)
Comex silver $14.305 per ounce

Latest Nevada gasoline prices

Windfall Shaft Locations (click for larger image)
Windfall MineEureka Mining District, Nevada
(embedded images courtesy of Mariana Titus)

Gold Loses Friends

Gold loses value to key commodities and currencies

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

Morning Miners!

It is a rare day indeed when I submit an early input to the Friday Kitco Weekly Gold Survey. There was a change in the ether for gold Wednesday (9/9) as explained in my survey input below.

For all of August, gold price in US dollars was loosely tied to the euro exchange rate - the euro went up, gold went up; the euro stumbled, gold stumbled. The good thing about this currency-like behavior was stability. The Eureka Miner has warned in the past that if the yellow metal trends lower relative to devalued currencies euro and yen, triple-digit US dollar price may be in the offing. It's too early to declare such a trend but on Wednesday, gold lost almost all of its friends. With the exception of silver, it fell in value relative to the euro and yen together with key commodities copper and oil (see table near the end of this report).

For currencies, gold is now down more that 3% from its August average for both euro and yen.

My target for next week is $1,090 per ounce unless the Federal Reserve delays a rate hike. This morning Comex gold plumbed $1,097.7 in early morning trading. Since August 24, gold has been trending down and copper has revived to the upside (presently $2.4325 per pound). The ratio of these two numbers is 452, that is an ounce of gold buys 452 pounds of copper. While this suggests a pretty healthy premium to the red metal historically, it is down from an August average of 481 (- 6%). Perhaps more ominously for gold, this ratio fell below a key level on the Shanghai futures exchange Wednesday. The Chinese hold gold less dear relative to copper but nonetheless, their ratio has stayed above 400 pounds per ounce for sometime - Wednesday it fell below.

Anything should be able to beat oil these days in a value match-up. Unfortunately, gold slipped in the goo even though Nymex WTI has returned to $44 per barrel this morning. It scores a 5.5% loss compared to August (last month an ounce purchased a respectable 26-plus barrels; this AM, less than 25).

My Kitco summary, "We could of course get a bounce if the Fed delays a rate hike next week but I think a future of rising rates and low inflation with continued losses to key commodities and major currencies would be about as rough as it gets for our shiny friend...(worst case)."

Ouch! Let's hope we see some trend reversals for our lustrous friend in the coming weeks.

To end on a positive note:
  1. Gold is still up in euros & yen from its 2013 lows (+10.7% & +8,3% respectively) although these margin have narrowed this week
  2. An ounce of gold buys considerably more barrels of oil & pounds copper than last November and many more compared to 2013 
  3. It is still struggling to find a bottom in value relative to US equities (wait, that's not very positive unless stocks correct more and gold gets a bounce!)
Hang in there, pardner!

Market Stats

Here's the scorecard on the stock market, S&P 500 presently 1,944.36

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 $1,090 per ounce.

Discussion [submitted Wednesday 9/9, table updated with this morning's numbers]:

Something has changed in the ether for gold today. We could of course get a bounce if the Fed delays a rate hike next week but I think a future of rising rates and low inflation with continued losses to key commodities and major currencies would be about as rough as it gets for our shiny friend...(worst case).

With the exception of silver, gold is quickly losing value to copper, oil, euro & yen. In August, gold held considerable premium over copper & oil and was loosely tied to the euro (high positive correlation). It appears things are breaking down quickly across the board (click on table for larger view).

Interestingly, the gold/copper ratio on the Shanghai futures exchange dropped below 400 lb per ounce today (units chosen for comparison to the above chart). The Chinese hold gold less dear relative to copper. Nonetheless, the ratio has stayed above 400 for some time. This a bearish development for gold.

Cheers - Colonel

Photos by Mariana Titus

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