"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, April 15, 2016

$16-plus: Silver Steps Out from Gold's Shadow


Ackerman Ranch
Eureka Miner, April 2011


Month-end Update (April 29, 2016): Gold, Silver Soar

I'm preparing to go on the road so this will be a short one, pardner. Had to stop packing to watch gold and silver soar; even copper is above $5,000 per tonne this morning on a falling U.S. dollar.

8:59 AM Eureka time:

Comex gold [6/16] $1,298.4 per ounce (today's high $1,295.5)
Comex silver [7/16] $17.935 per ounce (today's high $18.005)
Comex copper [7/16] $2.2760 per pound (today's high $2.2825 or $5,032 per tonne)

This is how I described market conditions in my input to the Weekly Kitco News Gold Survey:

Never has so much come from nothing. The U.S. Federal Reserve and Bank of Japan announced no change in policy this week sending shock waves through global markets.

The Japanese yen continues to be the currency to watch; from dollar strength earlier this month to an even stronger dip below JPY 107 today. Here's the good news: even with the yen surge, the USD gold rally is gaining strength on the yen. Gold in yen terms is up 1.8% from yesterday, rather impressive.

My big picture remains that gold prices will continue in a trading range, trapped between a floor of negative interest rates (Europe, Japan) and a cap determined by the U.S. interest rate trajectory. This week's monetary inaction has moved the cap higher, perhaps $1,310 per ounce.

The 3-month correlations with oil and copper remain noticeably positive (>+0.5) with shorter term correlations in the green too. This week gold gained a bit on copper but lost ground to rising oil and soaring silver. Importantly, last week the gold-to-silver ratio broke a multi-year trend of higher-lows [chart below]

Silver is having a bullish run for 2016 indeed. I believe it likely that gold will pause to catch its breath next week finding some comfort on the $1,280 per ounce veranda.

My vote is down. Target for next week $1,280 per ounce.

Kitco News Editor Neils Christensen responded, "Wow you are a Debbie downer but no lone wolf."

I replied, "Ha! New bull horns and nose ring but I still have my bear pants on!"



Christensen got the last laugh, "Ha ha ha. Sort of like a messed up Minotaur."

Here's the gold-silver chart that got things rolling (click for larger image):



Hi Ho Silver Away!

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 330.70, 04/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $40.11 per barrel 
Brent crude $ 42.82 per barrel 
Comex copper $2.1405 per pound
Comex gold $1,228.4 per ounce 
Comex silver $16.145 per ounce

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

iShares iBoxx $ High Yield Corporate Bond (HYG) $82.45 ($75.09 52-week low)

Trouble ahead: HYG < $82...promising reversal to the upside

Latest Nevada gasoline prices

Oldies but Goodies

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. 

Here's an oldie from April 11, 2011:


It was another record breaker over the weekend and in the early morning hours of Monday but a small U.S. dollar bounce has paused the advance. NYMEX oil and COMEX gold running together like twins joined at the hips set new highs on Sunday at 18:00 ET posting $113.46/bbl and $1478.0/oz respectively. Brent oil made its new crisis high at Friday's close at $126.47/bbl. COMEX silver waited for the crowd to leave the room then made a bold run at $42/oz with its new 31-year record of $41.98/oz.

There is a growing consensus that global growth and our own domestic recovery will run into serious headwinds if we spend too much time in the $110-$120/bbl pasture...

Those were the days!



Eureka Miner, April 2011


Silver Steps Out from Gold's Shadow

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

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

Gold bet for next week: $1,235 per ounce

Morning Miners!

A good friend of mine collects silver coins. I wrote him on the 29th of December, "I think silver is starting to look a bit interesting. I added to a position yesterday when prices fell near 5-1/2 year lows."

It turned out to be a good call. 

Gold has certainly had a run this year, but so has silver. As of yesterday's closing prices, both metals are up 18% while equity markets struggle to make single digits for 2016. Back in the day (which wasn't that long ago, see today's "Oldies but Goodies"), silver typically raced ahead of gold when both rallied. Daily gains of 1.5 to 2.0 times gold's advance were not uncommon for the white metal. Traders call this "beta" where a beta exceeding 1.0 implies greater percentage moves compared to its reference - in this case gold price. For quite some time, silver performance has lagged gold scoring a lowly 3-month beta of only 0.75. 

All that may be changing  in silver's favor, pardner. Here are my most recent thoughts on both gold and silver for today's Weekly Kitco Gold Survey:

Comex gold charged like a lion Tuesday breaking into $1,260 territory but appears to be exiting the week as a lamb trading this morning at $1,228.4 per ounce. The yellow metal is also weaker against key commodities oil and copper as well as major currencies euro and yen. The FX markets appear to be stabilizing with the yen falling back from recent notable strength (4/12, JPY 107.64) and the euro recovering from its March weakness (3/16, EUR 1.0869). The dollar index (.DXY), down 5% from its late January high, will probably trend somewhat higher. With these cross-currents, gold will likely find some middle ground from its recent high and late-March low. My target for next week is $1,235 per ounce.

Yesterday, Comex silver made its 2016 high at an impressive $16.27 per ounce as gold-to-silver ratio (GSR) transitions from dull to exciting. A trend of higher ratio lows began in late-November 2012 and is key to watch in the coming weeks. Today, the GSR is a strong 76.1 oz/oz; if it breaks below 75, the 3-1/2 year trend of gold gaining value over silver will be broken. Something to watch for silver bulls.

My vote is up. Target gold price $1,235 per ounce.

Let's see if the GSR breaks 75 and the 3-month beta moves back above 1.0 in the coming weeks. Please do your own research, silver can be a widow maker as well as hero my friend!

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 that continues from mid-March.

2013 lows:

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

Friday AM (04/15/2016):

1,087 euros per ounce (+23.6% margin)
133,639 yen per ounce (+9.4%% margin < 10%, worrisome)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 2,079 (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 December high (2,081.56) was breached several times this week.  A sustained rally above this level would be bullish.

Cheers - Colonel

Photos by Mariana Titus

Friday, April 1, 2016

The Lustrous One Loses Some Shine to U.S. Jobs


Curly Horses, Ackerman Ranch
Eureka Miner, April 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:


"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 315.90, 04/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $36.95 per barrel 
Brent crude $ 38.68 per barrel 
Comex copper $2.1660 per pound
Comex gold $1,216.7 per ounce 
Comex silver $14.945 per ounce

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

iShares iBoxx $ High Yield Corporate Bond (HYG) $81.00 ($75.09 52-week low)

Trouble ahead: HYG < $82...tricky area, stay tuned.

Latest Nevada gasoline prices

Oldies but Goodies

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. 

Here's an oldie from April 18, 2011 - note the price levels and two new records for gold and silver that day:

Let's wrap up with an update of our record book for the big three metals together with NYMEX and ICE Brent crude:

COMEX Gold $1,498.0/oz 09:10 ET 04/18/2011, June contract most active (new)
COMEX Silver $43.380/oz 23:30 ET 04/17/2011, May contract most active (new)
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $113.46/bbl 18:00 ET, 04/10/2011, May contract most active
ICE Brent crude $126.47/bbl 016:45 ET 04/08/2011, June contract most active 

Those were the days!



Eureka Miner, April 2011


The Lustrous One Loses Some Shine to U.S. Jobs

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 pricesfate of high yield bonds

Gold bet for next week: $1,200 per ounce

Morning Miners!

This morning's monthly jobs report was received as "good" and "solid" by CNBC business pundits in the wee hours on the West Coast. March added 215,000 nonfarm payrolls and the unemployment rate bumped up slightly to 5.0% from 4.9% last month. The rate rise is due to more people looking for work (good news) but not all finding jobs (not so good). All-in-all the numbers were considered "inline." Employment gains occurred in retail trade, construction, and health care, while job losses occurred in manufacturing and mining. From the statistical horse's mouth:

Mining employment continued to decline in March (-12,000) with losses concentrated in support activities for mining (-10,000). Since reaching a peak in September 2014, employment in mining has decreased by 185,000.

Nuts! It is important to note that this category includes everything extracted from the earth including oil and gas. For a more detailed breakdown please refer to Table B-1.

Earlier this week, remarks by Federal Reserve Chair Janet Yellen gave market participants the sense that low interest rates would be lower for longer with fewer 2016 rate hikes than anticipated last December (perhaps 1 or 2 compared to 4 total. Opinions on the expected number widely vary). Today's employment numbers probably won't materially change that sentiment.

Don't ask gold pardner. The dovish Yellen remarks bumped the yellow metal up yesterday only to see it fall down the shaft after the report. This is how I characterized the reaction for today's Weekly Kitco Gold Survey:

In a week filled with dovish remarks from Fed Chair Yellen and packed with economic data, gold has had quite a spread - from $1,208 lows Monday to $1,247 highs yesterday. After the U.S. nonfarm payroll report today, the Lustrous One is losing shine at $1,217 per ounce. Interestingly, the yellow metal is up for the week compared to falling commodities oil and copper as well as companion metal silver. However, gold has lost significant ground to both euro and yen. In this context, gold is behaving more as an unloved currency and less as a fellow traveler in the commodity space (although 3-month correlations with oil, copper and silver are all positive).

With respect to copper, a crossover in China PMI from contraction to expansion [official manufacturing PMI index rose to 50.2 in March vs a Reuters consensus number of 49.3; February was 49.0, PMI greater than 50 denotes expansion] was trumped by a recent credit downgrade causing the red metal to lose ground to gold and the U.S. dollar. Gold is falling further from 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 a further increase in gold ratios and reversal in 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 1,070, JPY 136,325

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

My vote is down. Next week’s target $1,200 per ounce.

Copper conundrum

The early year red metal rally is in retreat. However for the year, copper has risen from its February 11 low of $1.998 per pound to this morning's trade at $2.1660, a 8.4% rise. The bump up in China PMI to 50.2 in March from 49.0 in February is potentially bullish for copper.

One curious aspect of the copper market is the difference in inventory at the Shanghai Futures Exchange (SHFE) warehouses compared to London Metal Exchange (LME) and COMEX stocks. As of March 31st:

SHFE 368,725 tonnes (3/24, 394,777 tonnes)
LME 143,400 tonnes (3/24, 151,375 tonnes)
COMEX 71,991 tonnes (3/24 71,541 tonnes)

Last week the SHFE was still building inventory, this week it is shedding stock.

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 in China which comprises 45% of global copper demand. Something this report will continue to watch in 2016.

Freeport falling

Copper mammoth and benchmark miner Freeport McMoRan (FCX) follows copper down this morning at $9.86 per share. This is still considerably up from its January low of $3.52 - a 180% improvement. As a point of disclosure, the ole Colonel reduced his position in FCX after the Draghi announcement last month. Please do your own research - markets can turn on you faster than a feral cat.

Barrick & Newmont pause

Nevada's two big mining giants are still recovering from the depths of 2015 and are mixed from last Friday AM prices. From September's low of $5.91 per share, Barrick Gold (ABX) is up 126% to trade at $13.375 this morning. Newmont (NEM) is up 68%; from a September $15.43 to $25.955 per share. Barrick is down for the week; Newmont, up.


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 that continues following today's payroll report.

2013 lows:

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

Friday AM (04/01/2016):

1,069 euros per ounce (+21.5% margin)
136,325 yen per ounce (+11.3% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 2,062 (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. Bullish move higher after Fed Chair Yellen's dovish remarks on interest rate hikes.

Cheers - Colonel

Photos by Mariana Titus