"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, 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 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:

"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:

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 pricesfate 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

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. 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):

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-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 and the 2,000- level. A bullish indication...but be careful.

Cheers - Colonel

Photos by Mariana Titus

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