"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, October 2, 2015

Jobs Shocker - Gold Pops, Dollar Drops, Miners Rally


Eureka'Tiques
Eureka, Nevada

Latest News

Updates on embattled benchmark miner Freeport McMoRan (FCX) are important to track:

Freeport-McMoRan Gains On Positive Developments In Peru, Chile, And China (Seeking Alpha, 10/01/2015)

Freeport McMoRan finds more oil in deepwater Gulf of Mexico (Seeking Alpha, 9/28/2015)

Blasts from the Past

The online version is up and running!

Fall 2015 Mining Quarterly

"Click to read" and the online version looks much like the printed magazine. My column on the Windfall Mine starts on page 62 (page 61 printed version). Press "Esc" to return to the Elko Daily Free Press. There is a handy scroll bar to the pages at the bottom of the screen. The same article appeared in the Elko Daily Free Press September 10:

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

***
Memorable quotes (lately):

With respect to a pending interest rate hike “[The Federal Reserve needs to] get in front of this and to prevent speculative forces in financial markets that could lead to inappropriate risk-taking that might undermine financial stability”
 - Fed Chair Janet Yellen (09/24/2015)


“Heightened concerns about growth in China and recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term” - Fed Chair Janet Yellen in her comments following a decision to delay rate hikes (09/17/2015) 

"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

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 354.65, 10/15 contract (intaday low 339.40 on 8/24/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $44.30 per barrel (intraday low $37.75 on 8/24/2015)
Brent crude $47.24 per barrel
Comex copper $2.2825 per pound (intraday low $2.209 on 8/24/2015)
Comex gold $1,134.3 per ounce (intaday high $1,169.8 on 8/24/2015)
Comex silver $14.985 per ounce

Canary in the gold mine: Fate of high yield corporate bonds (see explanation below)

iShares iBoxx $ High Yield Corporate Bond (HYG) $81.76 ($81.66 52-week low)

Trouble ahead: HYG < $82

Latest Nevada gasoline prices


What's got the cat worried?

Jobs Shocker - Gold Pops, Dollar Drops

Gold regains US dollar value;  gains on metals, euro; competes with yen for safe haven

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

Wild Cards: Russians in Syria, debt ceiling confrontation in December

Bullish bet for next week: up, $1,160 per ounce (unchanged from last week)

Morning Miners!

This morning's monthly job report was a shocker - ouch!

The Labor department announced that the U.S. added just 142,000 jobs in September with expectations exceeding 200,000. Even more sobering, the August's 173,000 gain was revised lower to 136,000; July went from 245,000 to 223,000. Just to add to the misery, the weak numbers came with another big drop in the labor force participation rate, and declines in the average workweek and average hourly earnings. Headline unemployment clung to 5.1% (Labor folks call this U-3). Rough and tough on miners still:

Employment in mining continued to decline in September (-10,000), with losses concentrated in support activities for mining (-7,000). Mining employment has declined by 102,000 since reaching a peak in December 2014.

Slightly positive was the U-6 unemployment steady at 10% - this is everybody with a heart beat including that lazy bum kid on the couch who has never held a job (this kid is referred to as "marginally attached to the labor force").


Gold gets a break!

This is how I explained to the Kitco News Weekly Gold Survey the reactive bounce in gold with notable drops in the U.S. dollar (nearly 1%) and 10-year yield (below 2%):

You'll be happy I'm back with the gold bulls.

I think today's NFP [Non-farm payroll] flop with downward revisions for July and August gives the yellow metal a Federal Reserve "get out of (interest rate) jail free card." Throw in a little Russian mischief in Syria to offset their failing domestic economy and falling ruble (>60) and safe haven winds may be filling the sails of of our becalmed store-of-wealth - metaphors abound with rising market volatility.

[Pimco's] Mohamed El-Erian, arguably the master of market metaphors, had a good one this week. He compared the current situation to the 2008-2009 financial crisis. For the latter, he observed that the BRICs were the locomotive and rich developed nations, the caboose. Now as we import the woes of the world, the U.S. is the locomotive burdened by a very cumbersome BRIC caboose (with the possible exception of India). No longer the environment for imminent rate hikes in 2015. Gold is starting October mostly positive relative to August averages for key commodities and currencies...(full report given below)

My vote is up. Target $1,160 per ounce.

Comex gold is currently trading up $20.6 per ounce at $1,134.3

Miners Rally

A drop in the U.S. dollar favored miners today. This report's tracking stocks (click on chart for larger image):

Source: Yahoo financial

Big gold miners Newmont (NEM) and Barrick Gold (ABX) are trading at $16.77 and $6.54 per share, both over 5% on the gold bounce plus weaker dollar.  Timberline Resources (TLR) is up 0.13% at $0.4606 per share. Benchmark Moly Miner Thompson Creek (TC ) is now below "continuing listing standards" but still hanging on at $0.4181 per share, up 4.52%. General Moly (GMO) is down 6.72% at $0.5291.  As of yesterday, moly oxide price is still at hamburger prices at $5.40 per pound. Midway Gold has been delisted since filing for Chapter 11 protection but trades over the counter (OTC) as MDWCQ, presently at  9 cents per share.

Finally, benchmark miner and copper giant Freeport-McMoRan (FCX) is up 2.55% at $10.07.

What's got the cat worried?

My cat Bimba doesn't worry about anything but the yellow pad she's resting on has some troubling notes (you can read them by clicking on the above photo).

Cryptically (from 9/29/2015):

GS 120 x 17.5 = 2,100    HYG 82

The first of this coded message is actually optimistic. Goldman Sachs (GS) released an estimate of S&P 500 earnings ($120) and valuation (P/E = 17.5) for next year. If you multiply these together you get an estimate of where the S&P should trade or 2,100...about where we were for much of this year before the August crunch.

When I did the morning analysis,the S&P 500 was trading in the nineteenth century around 1,896 - that's a a few decades from 2,100...but it is still 2015, not 2016.

What could keep us from climbing up the mountain again? Many market watchers have pointed to high yield corporate bonds as the canary in the gold mine. The iShares iBoxx $ High Yield Corporate Bond (HYG) is a good way to track this concern. When I  wrote down the cryptic note, consensus warned the HYG is a sick birdie below 82...this morning we're at $81.76 ($81.66 52-week low).

Activist billionaire investor Carl Icahn explains why high yields are a scary indicator in this chilling video:

Danger Ahead

Please be mindful that Icahn is talking his own book (he is short of high yield bonds). He has also recently invested significantly in Freeport-McMoRan (FCX) which this report views as a positive. Please do your own research, markets can turn on you faster than a feral cat.

Market Stats

Here's the scorecard on the stock market, S&P 500 is presently trading at 1,896.69 [10:52 AM PDT update 1,931.59 - a nice reversal to the upside continuing to the close at 1,951.36, up 1.43% from Thursday]:

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 10% correction 1,921.25
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.

Sept. 17, the S&P 500 bullishly entered the box after the Fed announcement touching 2,020.86 but then bearishly closed out of the box at 1,990.20 [Friday's close (10/03/2015 is lower still at 1,951.36].

Kitco News Gold Survey

My (full) input to the Kitco News Weekly Gold Survey:

You'll be happy I'm back with the gold bulls.

My vote is up. Target $1,160 per ounce.

Discussion:

I think today's NFP flop with downward revisions for July and August gives the yellow metal a Federal Reserve "get out of (interest rate) jail free card." Throw in a little Russian mischief in Syria to offset a their failing domestic economy and falling ruble (>60) and safe haven winds may be filling the sails of of our becalmed store-of-wealth - metaphors abound with rising market volatility.

Mohamed El-Erian, arguably the master of market metaphors, had a good one this week. He compared the current situation to the 2008-2009 financial crisis. For the latter, he observed that the BRICs were the locomotive and rich developed nations, the caboose. Now as we import the woes of the world, the U.S. is the locomotive burdened by a very cumbersome BRIC caboose (with the possible exception of India). No longer the environment for imminent rate hikes in 2015.


Gold is starting October mostly positive relative to August averages* for key commodities and currencies. This morning's comparison (click on table for larger image):


With exception of oil, gold is gaining value relative to silver & copper. The yellow metal has stabilized relative to the euro at the familiar 1,000-euro level but with slightly elevated volatility. It is concerning that gold is losing some ground to the yen, a competing safe haven. However, it is still a comfortable 10% above its 2013 low in that denomination.

Last Friday AM,



Bullish for gold, the gold/copper ratio on the Shanghai futures exchange remains above 400 lb per ounce scoring 410.36 before the exchanges shut down for "Golden Week" (units chosen for comparison to the above chart). The Chinese hold gold less dear relative to copper (e.g., today's 497.0 on the Comex compared to 410.36 on the SHFE). Nonetheless, the ratio was above 400 for some time until the dipping bearishly below 400 several weeks ago.

* an August comparison is relevant given the market collapse 8/24 & 8/25

Cheers - Colonel

Photos by Mariana Titus

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