"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, December 18, 2015

Gold Rebound $1,064 - Where's Santa?


Eureka Opera House
Eureka, Nevada

Latest News

What do copper & gold signal for 2016? (by Richard Baker, Elko Daily Free Press, 12/03/2015)



Mining Quarterly


The latest online version:


"Click to read" and the online version looks much like the printed magazine. My column on copper and gold prices for 2016 starts on page 85 (page 82 printed version). Press "Esc" to return to the Elko Daily Free Press. There is a handy scroll bar for page selection at the bottom of the screen. The same article appeared in the Elko Daily Free Press December 3:




***
Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for analysis (morning, 12/18/15):

Goldman Sachs Commodity Index

S&P GSCI 307.85, 01/16 contract (intraday low 304.35, on 12/18/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $36.39 per barrel (intraday low $35.72 on 12/18/2015)
Brent crude $ 37.07 per barrel (intraday low $36.41 on 12/18/2015)
Comex copper $2.1055 per pound (intraday low $2.0020 on 11/23/2015)
Comex gold $1,063.5 per ounce (intaday low $1,045.4 on 12/03/2015)
Comex silver $14.045 per ounce (intraday low $13.620 on 12/14/2015)

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

iShares iBoxx $ High Yield Corporate Bond (HYG) $79.38 ($78.21 52-week low)

Trouble ahead: HYG < $82...yikes, we're there!



Jackson House
Eureka, Nevada

Gold Rebound $1,064 - Where's Santa?

Trouble indicators blinking

Macro drivers: continued concerns about China; U.S. Federal Reserve interest rate trajectory for 2016 & 2017

Wild cards: Fate of high yield bonds, Further oil price decline

Gold bet for next week: pause in $1,060 territory

Merry Christmas Miners!

The markets were so bad last Friday that I decided to delay a report until things got better - they have, a little. December usually enjoys a "Santa Rally" to close the year. Looks like we're still several reindeer short of full team on a pretty rickety sleigh.

One big hurdle is behind us - the Fed's long awaited raise of the benchmark interest rate. Now the question is how many more in the next two years and how big. Expect more volatility as our central bank tightens and others loosen to stimulate moribund economies abroad. This monetary policy divergence supports the U.S. dollar but is not a happy world for our favorite metal. As the U.S. dollar strengthens, it becomes more expensive for foreigners to buy gold in their home currency. From an investment standpoint, The Lustrous One finds itself with few friends for the holidays as money seeks greater reward elsewhere.

What about that lousy Friday?

Every market morning, I record and analyze 22 market parameters including key commodity and stock prices, major currencies and indices. There are many, many more but that's about all the ole Colonel can track without seeing double.

For each parameter, I set a threshold value to signal trouble ahead or blue skies above. Here's  a list of 9 lights that flashed red at last Friday's close:

WTI (close) = $35.62 < $40/bbl: Nymex oil at new 7-year low
BRENT (close) = $37.93 < $ 40/bbl: Global benchmark Brent crude at new low
NG = $1.990 < $2/mmBTU: Natural gas futures tumble below $2 and it's almost winter!!
GSCI (close) = 313.95 : Goldman Sachs commodity Index at new low, similar Bloomberg Commodity Index at a 16-year low
HYG = 79.53 < 82: High yield bond market in trouble (see "What's Got the Cat Worried" below)
S&P 500 (close) 2,012.37 < 2,032: U.S equity markets plunge into dangerous waters (the S&P 500 has bearishly fallen back into the "fib" box, see "Market Stats" below)
VIX = 25.35 > 20: S&P 500 Volatility Index jumps26%, often referred to as the "fear index"
USD/RUB = 70.60 > 70: Russian ruble in trouble again
USD/YEN = 120.97 < 122: Japanese yen strengthens to early-November levels (see "Chart to Watch" below)

Ouch!

This morning the "fear index" is lower but just barely under threshold at 19.27. A rally in stocks earlier in the week stalled and we are about 10 points above last Friday (2,025.42 vs 2,012.37). Nymex, Brent and natural gas have punched in lower lows and so have the broader commodity indices. Currencies have stabilized some but the U.S. dollar is trading up from last week. Finally, the fate of the high yield bond market is still keeping market participants on edge.

So what got better in a week? We heard from the Fed on Wednesday - a big uncertainty is now in the rear view mirror. I wouldn't be surprised to see markets on an uptick next week with the S&P 500 closing at 2,100 for the year. What about gold? Here's what I told Kitco News this morning (full input to the Weekly Kitco Gold Survey below):

After Wednesday's U.S. Federal Reserve rate hike, gold is fast approaching its 2013 lows in both euro & yen terms. Gold finds itself just another embattled currency caught in the divergent dynamic of U.S. monetary policy compared to that of the the ECB and Bank of Japan.

My continued fear is that gold losing value to these major devalued currencies signals more near-term downside in US dollar terms, perhaps less than $1,000 per ounce.

On the positive side, gold has now defended two recent excursions below $1,050 per ounce so the trend lower may find some relief next week. My target price is, however, slightly below this morning's price (10:55 AM EST $1,063.9 per ounce).

My vote is down. Target price $1,060 per ounce.

Nuts. Stay tuned.

What's Got the Cat Worried?

This report continues to carry this link to remind us of some potential bumps in the road ahead. Activist billionaire investor Carl Icahn explains why high yields are a scary indicator in this chilling video:


We have now crossed the worry threshold (HYG < 82). 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.

Chart to Watch

Gold price margins from 2013 lows (euro, yen)

A disturbing aspect of gold's recent decline in USD is the concurrent collapse in euro and yen terms.

One of the few accomplishments the yellow metal can boast is staying above its 2013 lows in terms of both currencies. The percent margin above those bottoms peaked in late January and has since trended down with the divergence of US monetary policy from Europe and Japan, and the associated rise of the US dollar. (click on chart for larger image).



Since late-October, the margin's rapid decline relative to yen has been particularly troubling. I maintain that declining value of gold relative to a devalued currency is a red flag. Yesterday, gold price in yen terms was falling fast, closing only 5.2% above its 2013 low. If this margin descends to zero, an equivalent USD gold price suggests sub-$1,000 per ounce given current exchange rates.

Fortunately, this morning puts a pause in this decline.

2013 lows:

879.64 euros per ounce on 12/20/2013
122,443 yen per ounce on 6/28/2013

Friday AM (12/18):

979.82 euros per ounce (+11.4% margin)
129,129 yen per ounce (+5.5% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is presently trading at 2,025.42 [UPDATE: Friday close 2,005.55]

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

Getting inside the "fib box" is generally considered a "bullish" move to the upside; failing the "fib box" is a bearish indication.

The S&P 500 did finally escape the fib box - now we're back in. [UPDATE: Friday close 2,005.55]. Something to monitor, my bet is a rally to 2,100 by year's end.

Kitco News Gold Survey

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

My vote is down. Target price $1,060 per ounce.

Discussion:

Another difficult morning for commodities with Nymex oil plunging to another 7-year low ($35.72/bbl) and commodity indices falling below last week's lows. The yellow metal remains stronger relative to key commodities oil, copper and silver but is losing more value to the euro and yen when compared to August averages (relevant because of significant August market corrections on 8/24 & 8/25).

The latter is concerning because a loss of traction with devalued currencies remains a red flag - yesterday, gold denominated in yen was now only 5.2% above its 2013 low (see graph above). Even with today's corrective rebound in USD price, gold is still below the key 1,000-euro level at 979.8 euros per ounce. Gold has been trending lower with respect to both currencies since ECB Draghi's robust stimulus announcement in late-January.

This week's scorecard. Gold is in value deficit compared to the euro and yen August averages (click on chart for larger image):


Compared to mid-October, Friday (10/16):


Cheers - Colonel

Photos by Mariana Titus

Friday, December 4, 2015

Gold Rally to $1,088; Waterton Blinks on Timberline; General Moly/AMER Update


December Sky
Antelope Valley, Eureka, Nevada

Latest News

What do copper & gold signal for 2016? (by Richard Baker, Elko Daily Free Press, 12/03/2015)






Blasts from the Past


The online version:


"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:


***
Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for this morning's early analysis:

Goldman Sachs Commodity Index

S&P GSCI 329.9, 12/15 contract (intraday low 329.9, on 12/04/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $39.97 per barrel (intraday low $37.75 on 8/24/2015)
Brent crude $ 43.10 per barrel
Comex copper $2.0785 per pound (intraday low $2.0020 on 11/23/2015)
Comex gold $1,077.9 per ounce ( high today $1,088.3, intaday low $1,051.6 on 11/27/2015)
Comex silver $14.455 per ounce (intraday low $13.89 on 11/23/2015)

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

iShares iBoxx $ High Yield Corporate Bond (HYG) $82.67 ($81.66 52-week low)

Trouble ahead: HYG < $82...so far so good



Ancient Devonian Seabeds
Devil's Gate, Eureka, Nevada

Gold Rally to $1,088

US dollar plunge, gold & euro soar

Macro drivers: continued concerns about China; timing of a U.S. Federal Reserve interest rate rise, European Central Bank stimulus outlook

Wild cards: continued terrorist events

Bearish bet for next week: return to $1,065 territory

Morning Miners!

Major currencies typically move in small steps not big leaps - not this week. On Thursday, European Central Bank's Mario Draghi disappointed global markets Thursday with a only modest move in stimulus followed by a robust U.S labor report this morning. The market reaction has been wild and crazy with a soaring euro, plunging U.S. dollar and gold rally nearly touching $1,090 per ounce in morning trading. Wells Fargo metals guru Janet Mirasola describes the response as "short term chaos" in a rare e-mail alert to her followers:

Global markets are reacting violently to headline news this week which began with Super Mario and the ECB disappointing traders who had been running very short of the euro hoping for a parity trade for Christmas. All the smart guys in the room said so!!

Oil reacted violently first to rumors of a possible agreement to cut production from this week’s OPEC meeting followed by the reality of a RAISE in the output ceiling to 31.5 million bpd from 30 million bpd. Gold has found friends as a safe haven from those other markets sending its value soaring. Other markets caught up in the short term headline trades of this week include anything priced in Greenbacks like our own base metals while equity traders continue to try to justify the moves with fundamentals factoids!! 

...understand that nothing really dramatically changed fundamentally across the globe but that investors have lost the nerve to hold positions of risk for more than a short period causing the momentum that feeds on itself clearing out the “crowded room” The best conclusion to draw is to keep short term risk at a minimum while working with fundamental analysis for longer term portfolios thereby avoiding the Chaos!

Now, tell us how you really feel Janet. Phew!

With respect to gold price, this is how I summarized the volatile market reaction in my input to today's Kitco News Weekly Gold Survey (full report below):

Between Mario Draghi's luke warm stimulus update yesterday and a better-than-expected U.S. jobs report today, global markets close the week in a state of flux. Although U.S. dollar strength has been blunted by an impressive pop in the euro Thursday, the likelihood of a first rate increase announcement from the FOMC should take some of the sizzle out of today's gold rally to nearly $1,090 per ounce.

Today's NFP scoring 211K jobs in November with an upward revision of 298K for October, will likely be enough to initiate tightening of U.S. monetary policy. Before Draghi's comments, gold found itself highly correlated with key commodities copper and oil while losing ground to both the euro and yen. The latter is concerning because a loss of traction with devalued currencies is a red flag - last Friday, gold denominated in yen was only 6% above its 2013 low. Even with today's rally, gold remains below the key 1,000-euro level at 995 euros per ounce.

After the dust settles, these booger bears will return - gold should find itself somewhere between today's highs and yesterday's low ($1,045.4), my target for next week is $1,065 per ounce.

Nuts. I hate to be the Debbie Downer on a gold rally...maybe I'm wrong. Stay tuned.


Waterton Blinks on Timberline

This report has been following the expanding footprint of Waterton Precious Metals Fund II Cayman, LP. Recently they have been picking up properties on both the east and west slopes of Prospect Mountain (see news press releases below headline photo). Yesterday, Waterton surprisingly withdrew a proposed transaction with Timberline Resources (TLR):

Timberline Provides Update on Proposed Acquisition by Waterton Precious Metals Fund II Cayman, LP (Press release, 12/03/2015)

Locally, Timberline controls the 23 square-mile Eureka project lying on the Battle Mountain-Eureka gold trend which includes a Lookout Mountain project and a drill program at the old Windfall mine.

General Moly/AMER Update

General Moly (GMO) has moved the ball a little further with their Chinese partner AMER on the Mount Hope molybdenum project. As announced Monday:

General Moly Announces Closure of $4 Million Tranche 1 Equity Investment with AMER International (Press release, 11/30/2015)

The price of moly oxide is still competing with hamburger at $4.60 per pound (Metals Weekly, 11/20/2015).
.
What's got the cat worried?

This report continues to carry this link to remind us of some potential bumps in the road ahead. Activist billionaire investor Carl Icahn explains why high yields are a scary indicator in this chilling video:


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.

Chart to Watch

Gold price margins from 2013 lows (euro, yen)

A disturbing aspect of gold's recent decline in USD is the concurrent collapse in euro and yen terms.

One of the few accomplishments the yellow metal can boast is staying above its 2013 lows in terms of both currencies. The percent margin above those bottoms peaked in late January and has since trended down with the divergence of US monetary policy from Europe and Japan, and the associated rise of the US dollar. (click on chart for larger image).



Since late-October, the margin's rapid decline relative to yen has been particularly troubling. I posit that declining value of gold relative to a devalued currency is a red flag. Last Friday, gold price in yen terms was falling fast closing only 6% above its 2013 low. If this margin falls to zero, an equivalent USD gold price suggests sub-$1,000 per ounce given current exchange rates.

The last two days have put a pause in this decline - let's see if there is a turnaround in gold's favor.

2013 lows:

879.64 euros per ounce on 12/20/2013
122,443 yen per ounce on 6/28/2013

Friday (11/27 close):

997.5 euros per ounce (+13.4% margin)
129,772 yen per ounce (+6.0% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is presently trading at 2,081.73 (12:49 PM ET). 

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

Getting inside the "fib box" is generally considered a "bullish" move to the upside; failing the "fib box" is a bearish indication.

The S&P 500 did finally escape the fib box - let's stay there! 

Kitco News Gold Survey

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

My vote is down. Target price $1,065 per ounce.

Discussion:

Between Mario Draghi's luke warm stimulus update yesterday and a better-than-expected U.S. jobs report today, global markets close the week in a state of flux. Although U.S. dollar strength has been blunted by an impressive pop in the euro Thursday, the likelihood of a first rate increase announcement from the FOMC should take some of the sizzle out of today's gold rally to nearly $1,090 per ounce.

Today's NFP scoring 211K jobs in November with an upward revision of 298K for October, will likely be enough to initiate tightening of U.S. monetary policy. Before Draghi's comments, gold found itself highly correlated with key commodities copper and oil while losing ground to both the euro and yen. The latter is concerning because a loss of traction with a devalued currencies is a red flag - last Friday, gold denominated in yen was only 6% above its 2013 low. Even with today's rally, gold remains below the key 1,000-euro level at 995 euros per ounce.

After the dust settles, these booger bears will return - gold should find itself somewhere between today's highs and yesterday's low ($1,045.4), my target for next week is $1,065 per ounce.

This week's scorecard. Gold is in value deficit compared to the euro and yen August averages (Note 1, click on chart for larger image):


Compared to mid-October, Friday (10/16):


Notes:

(1) an August comparison is relevant given the market collapse 8/24 & 8/25

Cheers - Colonel

Photos by Mariana Titus