"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, 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

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