Gold Retreats to $1,345 on BTE Jobs; McEwen Mining (MUX) Reports - Gold Bar on Track

Eureka, Nevada

Friday, August 5, 2016 AM 

Comex gold $1,345.3 per troy ounce
Comex silver $19.820 per troy ounce
Comex copper $2.1630 per pound

Gold pulls back on a much better-than-expected jobs report. My input to this morning's Weekly Kitco Gold Survey:

Divergence of central-banker policies from the future direction of the U.S. Federal Reserve is highlighted by this morning's much-better-than expected NFP [U.S. Labor Department Nonfarm Payroll] report. The latter increases the chances for a U.S. interest rate hike later this year, perhaps even September. The Bank of Japan moved in the opposite direction last Friday with more (albiet less-than-hoped-for) monetary accommodation followed this week by the Bank of England's "Brexit Bazooka" - a cut in interest rates and resumption of quantitative easing. 

These developments will prolong an era of strong U.S. dollar and likely cap gold prices this year below $1,400 per ounce. On the other hand, negative interest rates in Japan, Europe and elsewhere put in a substantial floor for gold around $1,300 per ounce.

Against this backdrop, the yellow metal's relation to equities remains the key gold ratio to watch. If further rallies in domestic equities continue a ratio below 0.6 is a bearish flag relative to the S&P 500. This morning's stock rally and gold retreat find the ratio at 0.62. 

On the bullish side are continued macro-uncertainties which now include the U.S. presidential election process. Unexpected catalysts like an expanding zika virus in the U.S. have a much lower likelihood but nonetheless remain in the darker corners of concern. 

 My vote is down. Target price for gold is $1,340; target for silver, $19.7 

(more commentary below...)

Summer Edition 2016 - Mining Quarterly

The Summer Edition 2016 of Mining Quarterly is a good'un!

Marianne Kobak McKown has done another outstanding job of getting the Mining Quarterly in step with this year's Mining Expo! There are excellent columns on Silver Strand's Marigold Mine, Newmont's conservation efforts at IL ranch, Jerritt canyon safety improvements, Barrick' Goldstrike and much, much more.

My column on silver's good year was also carried in the Elko Daily Free Press:

Hi Ho Silver away! Silver steps out from gold's shadow (June 12, 2106)

(Click on this link for the online Mining Quarterly)

Happy reading!

Numbers used for analysis (August 5 early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 339.00, 08/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $41.54 per barrel 

Brent crude $ 44.00 per barrel 

Comex copper $2.1630 per pound

Comex gold $1,345.3 per troy ounce 

Comex silver $19.820 per troy ounce

Latest Nevada gasoline prices

South Ranch

Eureka, Nevada

Gold Retreats to $1,345 on BTE Jobs Report

Morning Miners!

As I mentioned in my Kitco News brief (above) it appears a much-better-than expected jobs report put a dent in gold prices this morning. Let's dig a little deeper.

The Employment Situation Summary is released the first Friday of every month at 5:30 AM Eureka time. The report is jam-packed with statistics on the nonfarm payrolls of the previous month. The analyst's expectation was for 180,000 jobs added in July - the report number was a surprising 255,000 with headline unemployment remaining at 4.9%. There were also upward revisions to previous months.

Steve Liesman, the CNBC Business News economist and Fed watcher exclaimed, "It's something, huh?" Another commentator added, "It's good across the board!"

Well almost, employment in mining continued to trend down over the month dropping 6,000 additional jobs. Since reaching a peak in September 2014, employment for folks digging wealth from the earth (including our oil patch cousins) has fallen by 220,000, or 26 percent.

Most other sectors of the economy are much rosier with decent gains in professional and business services, health care, financial activities, leisure and hospitality.

Most encouraging was a 0.3% rise in average hourly employment raising that measure to 2.6% for the year. Stagnant wage growth has been a real downer for this recovery so an uptick is welcome.

Even though the participation rate is little changed at 62.8%, a rising 3-month average of 190,000 new jobs per month pretty much dampens recession fears. It also increase the chances that the Federal Reserve will raise interest rates this year, perhaps even this fall - a headwind for gold price.

The stock market reacted with glee with the S&P 500 setting new intraday highs as gold retreated more than $20 per ounce to $1,345.3.

For the reasons stated in my survey input (above), gold miners may actually be in a sweet spot for prices for the remainder of the year. If the yellow metal trades between $1,300 and $1,400, most miners can show a decent profit.

McEwen Mining (MUX) Reports - Gold bar on track

McEwen Mining reported yesterday including progress on their Gold Bar Advanced-Stage Project. For us old timers, this is the reactivation of the Atlas Gold Bar mine which kept Eureka jumping in the late-1980s & early-1990s:

McEwen Mining Q2 2016 Operating & Financial Results (Press release, 8/4/2016)

"As outlined in our Feasibility Study dated September 19, 2015, the Gold Bar asset, the upside case for Gold Bar at $1,300/oz gold provides improved economics over the original base case...The Company estimates that we will receive a permitting decision from the Bureau of Land Management during the first quarter of 2017. This final permit, once received, will allow us to begin construction of the mine, which we have estimated to take 12 months. Production is estimated to begin the following year in 2018. For 2016, we have budgeted approximately $4.7 million to be spent towards advancing the project closer to the production stage, of which $1.3 million has been spent during the six month period ended June 30, 2016. Mine permitting and engineering activities continue to advance at Gold Bar."

This could be very welcome news for Eureka in 2017 and beyond. The best of luck to the McEwen 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.

Fortunately. 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 the policies of 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 ):

(Click on plot for larger size)

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 it has mostly been up and away ever since - a very bullish turn for gold in 2016.

Although gold price in euros has surpassed its 2015 high, price in yen terms has returned to a downward trend. No alarm bells yet but the divergence of these two plots with a strengthening yen is troubling. Stay tuned.

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):

1,216.15 euros per ounce (+38.3% margin)
137,115.67 yen per ounce (+12.0% margin)

Have a fun weekend!

Cheers  - Colonel

Photos by Mariana Titus if not otherwise noted