The Eureka Miner: March 2016

Thursday, March 24, 2016

Easter Bunny Finds Few Golden Eggs in His Basket...

Harris House & Hydrant

Eureka Miner, Easter 2011

Please checkout my latest Kitco News commentary:

Gold & Oil: A Historical Ratio Turns Bad

Mining Quarterly

The Spring 2016 Spring Edition of the Mining Quarterly is here!

Editor Marianne Kobak McKown has down another excellent job with the Spring Edition. Important updates on Newmont, Jerritt Canyon, Pershing Gold at Relief Canyon and much, much more!

Please read my update on gold prices in the latest Mining Quarterly - gold is showing glitter, pardner.

The online version:

Spring 2016 Mining Quarterly

"Click to read" and the online version looks much like the printed magazine. My column on gold prices for 2016 starts on page 52 (page 50 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 March 3:

Commentary: A Bullish Turn for Gold

***

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for analysis (early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 324.15, 04/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $38.58 per barrel

Brent crude $ 39.36 per barrel

Comex copper $2.2215 per pound

Comex gold $1,221.2 per ounce

Comex silver $15.300 per ounce

Canary in the gold mine: Fate of high yield corporate bonds

iShares iBoxx $ High Yield Corporate Bond (HYG) $81.21 ($75.09 52-week low)

Trouble ahead: HYG < $82...recovery from bottom continues but the ole Colonel remains skeptical....

Latest Nevada gasoline prices

Oldies but Goodies

Here's an oldie from the Thursday before Easter 2011:

Þūnresdæg

It is 5:39 AM. Have a welcome cup of Thor's Day Thunder. Our favorite Norseman and Old Miner Woden are painting Easter eggs. Thor forgot to boil the first batch so we may be having scrambled eggs with shells for breakfast.

Gold $1510; Silver $46.3

You know the drill by now, pardner: start the day with new records for gold and silver. For a change, COMEX silver got to the party first - 7:00 AM bright and early with the paparazzi snapping photos at $46.27/oz. COMEX gold dropped by 20 minutes later doing high fives at $1509.6/oz but the crowds barely noticed. Silver stole the show again.

Remember $50 per ounce silver - ha!

The Owl Club

Eureka Miner, Easter 2011

Easter Bunny Finds Few Golden Eggs in His Basket...

Macro drivers: Continued concerns about China, commodity-exporting economies; U.S. Federal Reserve interest rate trajectory

Wild cards: Terror events, Brexit, "lower for longer" commodity prices, fate of high yield bonds

Gold bet for next week: $1,210 per ounce

Morning Miners!

After terror in Europe, more loops and hoops in presidential primaries and a resurgent U.S. dollar, the ole Colonel is more than ready for an Easter break - have a relaxing weekend, pardner..

My morning input to the Weekly Kitco Gold Survey:

The Easter bunny will not find too many golden eggs in his basket this holiday.

Not even a tragic terror event in Europe could reverse the recent downtrend in the yellow metal as it joins falling commodities and loses ground to the U.S. dollar, euro and yen. Gold is again seeking equilibrium between diverging monetary policies - BoJ & ECB ventures into negative interest rate territory establish a price floor; recent hawkish U.S. Fed hints about an April rate hikes create a price cap. At least in the near term, gold prices are likely range bound between $1,110 and $1,280 per ounce.

Gold has failed to take out its March highs in euro and yen terms. For the near term, I'm keeping on my old moth-eaten bear suit until there is an upward reversal in gold ratios and/or currency trends.

Key levels to watch:

March highs (per ounce): EUR 1,157, JPY 144,680
January 2015 highs (per ounce): EUR 1,160, JPY 153,270
This morning: EUR 1,095, JPY 137,290

All-in-all the Lone Wolf is bearish near term.

My vote is down. Next week’s target $1,210 per ounce.

Copper conundrum

The red metal rally has stalled. However for the year, copper has risen from its February 11 low of $1.998 per pound to this morning's trade at $2.222, a 11% rise.

One curious aspect of the copper market is the build in inventory at the Shanghai Futures Exchange (SHFE) warehouses compared to London Metal Exchange (LME) and COMEX stocks. As of March 24th:

SHFE 394,777 tonnes
LME 151,375 tonnes
COMEX 71,541 tonnes

This week the SHFE inventory expanded by an additional 44,639 tonnes; the LME by only 700!

In more normal times the inventories are lower at the SHFE than in Western futures markets. This confuses real and speculative demand for the red metal. China comprises 45% of global copper demand. Something to watch in 2016.

Freeport reverses down

Copper mammoth and benchmark miner Freeport McMoRan (FCX) follows copper down this morning at $9.18 per share. This is still considerably up from its January low of $3.52 - a 161% improvement. As a point of disclosure, the ole Colonel reduced his position in FCX after the Draghi announcement this month.

Barrick & Newmont pause

Nevada's two big mining giants are still recovering from the depths of 2015 and both are off from last Friday AM prices. However, from September's low of $5.91 per share, Barrick Gold (ABX) is up 125% to trade at $13.31 this morning. Newmont (NEM) is up 80%; from a September $15.43 to $27.79 per share.

Chart to Watch

Gold price margins from 2013 lows (euro, yen)

A disturbing aspect of gold's 2015 decline in USD was the concurrent collapse in euro and yen terms.

The yellow metal has stayed above its 2013 lows in terms of both currencies. The percent margin above those bottoms peaked in late January 2015 and then 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, an earlier version of this chart appears in Spring 2016 Mining Quarterly ):

Declining value of gold relative to a devalued currency is a red flag. January witnessed a key reversal in this downtrend for both euro and yen and then it was up and away - a bullish turn for gold. We are now witnessing a bearish reversal in this recovery.

2013 lows:

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

Friday AM (03/24/2016):

1,095 euros per ounce (+24.4% margin)
137,290 yen per ounce (+12.1% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 2,028 (Friday AM):

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 since May:

August downdraft:

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%

Then from the late December high, the February downdraft:

S&P 500 high: 2,081.56, 12/29/2015
S&P 500 low: 1,810.10, on 2/11/2016 down 13.0% & 15.2% from 5/20/2015 high

S&P 500 bear market begins below 20% at 1,707.78

For Fibonacci folks the December-February "fib box" is:

50.0% retracement from 2/11 low = 1,946

61.8% retracement from 2/11 low = 1,978

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

We're now above the Dec-Feb fib box and the 2,000- level. Tenuously bullish...but be careful.

Cheers - Colonel

Photos by Mariana Titus

Friday, March 11, 2016

Markets "Trendless and Volatile" - Gold Will Go Higher; General Moly Rocks

Old Glory

Eureka Miner, March 2011

Update Friday, 3/18/16

Comex April gold $1,254.2 per ounce down $10.8 (11:35 AM EDT)
Comex May copper $2.2885 per pound down $0.0020 (11:33 AM EDT)

Comex gold did peak higher this week touching $1,271.9 on St. Paddy's (March high was $1,287.8 on 3/11) but...

This week's FOMC meeting suggested that future interest rate increase will occur at a slower pace with no bump up this month. Expectations that there could be as many as four rate hikes in 2016 has fallen back to perhaps just two given uncertainty about the global economy. Overall, this has weakened the U.S. dollar while giving a boost to oil and copper prices. While a slower rate trajectory favors gold, an improved investor risk appetite has blunted the yellow metal's 2-1/2 month rally.

The Colonel's input to the Weekly Kitco News Gold Survey:

Yesterday the S&P 500 VIX broke the "higher lows since August" curse as a weakening U.S. dollar and "risk-on" sentiment spread across the commodity and equity markets. The VIX or "fear index" currently has a 14 handle, well below the lower trend line established since the market downturn last August (chart below). Key gold ratios are falling back toward their 3-month averages as "safe haven gold" falls in the shadows of rising oil and copper prices.

Gold has also failed to take out its March highs in euro and yen terms following this week's dovish FOMC meeting. For the near term, I'm putting on my old moth-eaten bear suit until there is an upward reversal in gold ratios and/or currency trends.

Key levels to watch:
March highs (per ounce): EUR 1,157, JPY 144,680
January 2015 highs (per ounce): EUR 1,160, JPY 153,270

This morning: EUR 1,111, JPY 139,850

All-in-all the Lone Wolf turns bearish short term but remains bullish longer term in a world of negative interest rates.

My vote is down. Next week’s target $1,240 per ounce

The "Fear Index" notches lower (click for larger view)

***
Update Thursday, 3/17/16

Please checkout how my Irish Chihuahua Loquita picks gold prices for St. Paddy's:

Gold Breaking St. Paddy’s Day Pattern? (Sarah Benali, Kitco News 3/17/2016)

***
Please checkout my latest Kitco News commentary:

Gold & Oil: A Historical Ratio Turns Bad

Mining Quarterly

The online version:

Spring 2016 Mining Quarterly

Commentary: A Bullish Turn for Gold

***

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for analysis (early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 326.59, 03/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $38.88 per barrel

Brent crude $ 40.93 per barrel

Comex copper $2.2430 per pound

Comex gold $1,268.8 per ounce

Comex silver $15.655 per ounce

Canary in the gold mine: Fate of high yield corporate bonds

iShares iBoxx $ High Yield Corporate Bond (HYG) $81.85 ($75.09 52-week low)

Trouble ahead: HYG < $82...recovery from bottom continues but the ole Colonel remains skeptical....

Gasoline Prices

Eureka Miner, March 2011

Who'd a thunk?....$1.67 per gallon, a station this morning in Las Vegas...

Latest Nevada gasoline prices

Checkout this Bloomberg graphic...rig counts are at a 75-year low

Watch Five Years of Oil Drilling Collapse in Seconds

Markets "Trendless and Volatile" - Gold Will Go Higher, Pardner

Macro drivers: Continued concerns about China, commodity-exporting economies; U.S. Federal Reserve interest rate trajectory; European Central Bank

Wild cards: Brexit, "lower for longer" commodity prices, fate of high yield bonds

Gold bet for next week: $1,280 per ounce

This month the Eureka Miner celebrates its 7th year of bringing market news to Eureka County. For old times sake, the ole Colonel will feature photos and excerpts from the past in this report and ones to follow.

Morning Miners!

By far the biggest market event this week was Thursday's meeting of the European Central Bank (ECB) and Mario Draghi's comments following the get-together. Last January's announcement of monetary policy triggered a one year decline in gold prices - this time may be different.

On the surface, it appears the ECB is offered more of the same: printing more euros to buy bonds and lowering interest rates into negative territory - its rate on deposits at the bank will now be -0.40%. However, market enthusiasm faded after Super Mario signaled that interest rates probably won’t fall any lower.

For example, the euro initially weakened (as one might expect when central banks print money), dropping to 1.0822. It then spiked up to 1.1218 after the caveat about no more lower rates. That's a big swing in currency markets. Rebecca Patterson of Bessemer Trust (for whom the Colonel has the greatest respect) commented after the announcement that this may signal U.S. dollar stabilization. That's good for us and the world...we'll see. The euro this morning is 1.1143 on a falling dollar. Ms. Patterson said it was unlikely the euro would fall below 1.08 in 2016 earlier this year. So far so good.

The "efficacy of further central bank policy" is being called into question by more than one analyst. My morning input to the Weekly Kitco Gold Survey:

A natural optimist, I find myself strangely wary of the markets - especially given the curious global volatility after the ECB announcement yesterday. Goldman Sachs' comment this morning regarding oil, "...prices in a trendless and volatile range," could well be extended to the broader markets. This uncertainty should favor gold even though prices in terms of USD, euro and yen are all off their March highs this morning.

My new top chart to watch is the S&P 500 volatility index (VIX). Although the S&P 500 is above 2,000 this morning and the VIX is below the key-20 fear level, the VIX lows have been trending higher since the August market panic. Fear is hiding out in dark corners, not leaving the scene. Currently just below 17, the VIX is near its lower trend line; moving below 15 in the coming days may indeed signal the worst is over. I am doubtful this will be the case, a VIX move up is likely positive for our lustrous friend.

With irony, gold in euro terms Monday (EUR 1,158 per ounce) came within just a few euros of last year's peak when Mario Draghi introduced the ECB's "shock and awe" monetary easing program. That announcement began a one-year decline in gold priced in U.S. dollars, euros and Japanese yen. I think the opposite reaction may be true this year.

All-in-all the Lone Wolf remains bullish. My vote is up.

Next week’s target $1,290 per ounce

The red metal continues its advance. Copper has risen from its February 11 low of $1.998 per pound to this morning's trade at $2.2430, a 12% rise.

Freeport still up-up

Copper mammoth and benchmark miner Freeport McMoRan (FCX) continues to show signs of life trading at $9.71 per share up from its January low of $3.52 - a 176% improvement. As a point of disclosure, the ole Colonel reduced his position in FCX after the Draghi announcement - a little nervous that the latest rally in copper is sustainable.

Barrick & Newmont pause

Nevada's two big mining giants are still recovering from the depths of 2015 although both are off from last Friday AM prices. From September's low of $5.91 per share, Barrick Gold (ABX) is up 138% to trade at $14.04 this morning. Newmont (NEM) is up 76%; from a September $15.43 to $27.09 per share.

General Moly (GMO) Rocks

General Moly (GMO) share price has been in a sharp uptrend since Monday, presently trading at $0.31. The bump up Monday was on high volume, 815,000 shares, compared to their 90-day average of 159,000 and 10-day at 323,000. Somebody out there is saying giddy-up go.

January's low was 15 cents...today is a more than a 100% rise from that bottom.

Please do your own research, markets can turn on you faster than a feral cat. There is still a long, long road to moly price recovery. Moly oxide is hanging just below $6 per pound at $5.53;

Here is this morning's press release:

Latest News (Press release, 3/11/2016)

Bruce D. Hansen, Chief Executive Officer, said,

"The amended Investment Agreement with AMER and the closure of Tranche 1 provide the Company with an improved corporate liquidity profile as we seek opportunities to obtain project financing for the Mt. Hope Project. This arrangement with AMER creates a long-term strategic partnership, demonstrating AMER's vision of value creation at General Moly. As the molybdenum market recovers, we will work together on the full financing and development of the Mt. Hope Project. In the near term, we expect to evaluate value-accretive, acquisition opportunities to jointly pursue with AMER for our mutual benefit."

Mr. Hansen concluded, "As we look forward, we have taken decisive actions that better position our Company to advance development when market conditions improve. Through our recently implemented management restructuring and cost reduction programs, we expect to achieve additional reductions in our Corporate and Liberty Project care and maintenance costs by one-third from an average of approximately $2.5 million per quarter in the past two years to approximately $1.7 million per quarter in 2016."

Best of luck to the General Moly team!

Chart to Watch

Declining value of gold relative to a devalued currency is a red flag. Fortunately, January witnessed a key reversal in this downtrend for both euro and yen and it has been up and away ever since - a very bullish turn for gold. This week, we've witnessed a pause in the recovery, I believe it temporary.

2013 lows:

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

Friday AM (03/04/2016):

1,137.43 euros per ounce (+29.3% margin)
143,898 yen per ounce (+17.5% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 2,015 (Friday AM):

August downdraft:

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%

For Fibonacci folks the December-January "fib box" is:

50.0% retracement from 2/11 low = 1,946

61.8% retracement from 2/11 low = 1,978

Cheers - Colonel

Photos by Mariana Titus

Friday, March 4, 2016

Gold Soars on Mixed Jobs Report; Have Commodities Bottomed?

Ackerman Ranch

Eureka Miner, March 2011

Update Tuesday Morning (3/08/2016)

Oh-oh copper...Freeport McMoRan (FCX) down 11% early trading...

DOW JONES & COMPANY, INC. 7:13 AM ET 3/8/2016 Copper futures fell Tuesday, after declines in Chinese trade data triggered concerns that the top metal consumer is continuing to slow economically despite government interventions. Copper for May delivery was recently down 2.2% at $2.2340 a pound on the Comex division of the New York Mercantile Exchange.

Exports from China dropped 25.4% in February compared with a year earlier, according to data from the General Administration of Customs released Tuesday. The figure constituted the eighth monthly drop in a row and was "significantly poorer than anticipated," said Commerzbank AG in a note. China accounts for roughly 45% of global copper demand, so metal prices follow the country's economic fortunes closely. Plans by the Chinese government to reduce housing inventory are likely to weigh on copper prices, according to Goldman Sachs Group Inc.

Before you get too depressed, there are seasonal issues here. Remember that during the one week Lunar New Year holiday not too many fortune cookies leave for distant shores....Colonel

Please checkout my latest Kitco News commentary 2/29/2016:

Gold & Oil: A Historical Ratio Turns Bad

Mining Quarterly

The online version:

Spring 2016 Mining Quarterly

Commentary: A Bullish Turn for Gold

***

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for analysis (early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 304.52, 03/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $34.57 per barrel

Brent crude $ 37.50 per barrel

Comex copper $2.2365 per pound

Comex gold $1,276.4 per ounce

Comex silver $15.640 per ounce

Canary in the gold mine: Fate of high yield corporate bonds

iShares iBoxx $ High Yield Corporate Bond (HYG) $80.58 ($75.09 52-week low)

Trouble ahead: HYG < $82...lower but up lately....

Latest Nevada gasoline prices

Ackerman Ranch

Eureka Miner, March 2011

Gold Soars on Mixed Jobs Report

Macro drivers: Continued concerns about China, commodity-exporting economies; U.S. Federal Reserve interest rate trajectory

Wild cards: Brexit, "lower for longer" commodity prices, fate of high yield bonds

Gold bet for next week: $1,300 per ounce

This month the Eureka Miner celebrates its 7th year of bringing market news to Eureka County. For old times sake, the ole Colonel will feature photos and excerpts from the past in this report and ones to follow.

Morning Miners!

5:30 AM (Eureka time), the Labor Department released its February nonfarm payroll report. The NFP is an all important indicator of U.S. economic health, closely watched not only here but in markets worldwide. This results are mixed. On the positive, employment increased in February to a better-than-expected 242,000 jobs with an employment rate holding steady at 4.9%.

On the darker side, average hourly wage growth for February declined 3 cents to $25.35, following an increase of 12 cents in January. This suggests continued slack in the labor force which some believe is a more important data point than employment rate for the Federal Reserve timing of the next interest rate bump up.

Not unexpectedly, mining employment declined another 19,000 in February with most losses in support activities. Strong sectors were in health care, retail trade, education and construction. The participation rate remains unchanged from February 2015 at a lackluster 68.2%.

All-in-all, a few morning commentators believe the mixed report moves market participants from "a recession is coming" to a "still muddling along" sentiment. This is enough to keep the gold rally alive and well. My morning input to the Weekly Kitco Gold Survey:

After passing this morning's U.S. labor report test with flying colors, the next big challenge for gold is the upcoming ECB meeting on March 10. With great irony, today's rally brings gold (EUR 1,158 per ounce) within just a few euros of last year's peak when Mario Draghi introduced the ECB's "shock and awe" monetary easing program. That announcement began a one-year decline in gold priced in U.S. dollars, euros and Japanese yen. What will be the reaction this year?

This year has seen as many expectation flip-flops in the metals complex as in the U.S. electoral process. Last year's January reaction to the ECB announcement turned the gold market bearish; this year may be bullish lift given continued fears of Brexit in June. Other upbeat signs for gold are positive re-correlations with global commodities oil and copper - presently all three are trending higher.

Gold and Japanese yen continue to compete as safe haven trades with the yellow metal gaining on yen accelerating recent gains. Gold is a healthy 18% above its 2013 low in that currency and a very impressive 32% higher in euro. Yellow metal progress against major devalued currencies continues to be a bullish indication.

All-in-all the Lone Wolf is bullish and ups last week's target price.

My vote is up. Next week’s target $1,300 per ounce.

Some of my thoughts found there way into the Kitco Friday outlook:

Gold Could Rally Next Week On Currency Devaluation Fears - Analysts

The red metal continues its advance too. I thought copper may return to the sub-$2 basement after the Chinese traders returned from New Year holiday. Instead, copper got a bid rising from its February 11 low of $1.998 per pound to this morning's trade at $2.234, a nearly 12% rise.

Freeport still up-up

Copper mammoth and benchmark miner Freeport McMoRan (FCX) continues to show signs of life trading at $9.62 per share up from its January low of $3.52 - a 173% improvement!

Barrick & Newmont continue on a Roll

It is exciting to witness Nevada's two big mining giants recovering from the depths of 2015. From September's low of $5.91 per share, Barrick Gold (ABX) is up 149% to trade at $14.69 this morning. Newmont (NEM) is up a welcome 76%; from a September $15.43 to $27.12 per share.

Have Commodities Bottomed?

Wells Fargo Metals Director Janet Mirasola had this note in yesterday's pre-market brief:

Global markets are adding risk across the board as global recession fears faded supported by a strong suggestion from [Glencore CEO] Ivan Glasenberg that “Commodities have bottomed” taking a “whatever it takes” leaf from Draghi’s book. No matter that a major bank can lose 11% of value in a single morning or that China PMI can record its lowest result of 49.0 since November 2011. All these markets need obviously is a little confidence to see Portfolio Managers happy to add risk across most asset classes. Overnight the MSCI Asia Pacific Index rose 2.5% to its highest level since early January while the Nikkei surged by 4.11%. Shanghai Shares breathed a huge sigh of relief as they rallied hard closing up 4.26% by end of day.

Hmm...I note a hint of skepticism. The Goldman Sachs Commodity Index (GSCI, see below headline photo) is above 300 after plunging to 279 in January. Comex copper is handily above its January low and oil is back in the mid-$30 per barrel range. The ole Colonel is not quite ready to call a victory but the signs are indeed encouraging. Remember the old adage,"bottoming is a process, not a price."

Chart to Watch

Declining value of gold relative to a devalued currency is a red flag. Fortunately, January witnessed a key reversal in this downtrend for both euro and yen and it has been up and away ever since - a very bullish turn for gold.

2013 lows:

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

Friday AM (03/04/2016):

1,157.84 euros per ounce (+31.6% margin)
144,681 yen per ounce (+18.2% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 1,987.72 (Friday AM):

August downdraft:

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%

For Fibonacci folks the December-January "fib box" is:

50.0% retracement from 2/11 low = 1,946

61.8% retracement from 2/11 low = 1,978

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

We're now above the Dec-Feb fib box - definitely a bullish indication.

Cheers - Colonel

Photos by Mariana Titus