"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, August 26, 2016

September Gold Surprise? Bob Dinwiddie - A Good Man Passes


Don Hull with Bob Dinwiddie
(Mariana Titus - Eureka Album of the Good Ole Days)
Eureka, Nevada

Tribute to Bob Dinwiddie at the end of this report...

Update: Friday, September 2, 2016 AM 

Comex gold $1,327.6 per troy ounce ($1,333.9 high)
Comex silver $19.345 per troy ounce
Comex copper $2.0905 per pound

Gold bounces after a worse-than-expected Nonfarm Payroll Report (NFP) for August: 151,000 jobs added (180,00 expected), unemployment unchanged at 4.9% . A sobering statistic remains that, "Employment in mining continued to trend down in August (-4,000). Since reaching a peak in September 2014, employment in mining has declined by 223,000, with losses concentrated in support activities for mining." In this context, mining includes all folks that extract wealth from the earth including those in the oil patch. It will be a good day for mining when this trend reverses.

Here's a positive, "In August, average hourly earnings for all employees on private nonfarm payrolls rose by 3 cents to $25.73. Over the year, average hourly earnings have risen by 2.4 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $21.64 in August."

My input to this morning's Weekly Kitco Gold Survey:

This week included the end of a very docile August and the NFP drama of a new month - important for what didn't happen as for what did, at least for gold. Remarkably, the S&P 500 scored less volatility in August than key commodities and major currencies. Gold volatility was in the middle of the pack swinging perilously close to the key $1,300 per ounce-level on Wednesday and Thursday than bouncing up to a more bullish $1,340 this morning on a worse-than-expected U.S. jobs report. Importantly, not breaking $1,300 with commodities in a downtrend since mid-August validates my belief that central banks have established a solid price floor whether or not the Fed raises rates in September or December.* 

Bigger gold price surprises could come from the Bank of Japan reacting to a very strong currency when they meet later this month. Gold has recovered nicely this week in yen terms. After initially losing ground to the Japanese currency and falling within less than 9% above its 2013 low, gold has again broken a downtrend that began January 2015. This is important because the yen and gold compete for investor safe haven. Although Japan's monetary policy options are quite limited, a move to say "helicopter money" could give gold a real boost. In the meantime, gold will likely fall back to $1,320 next week. My vote is down.

$1,300 remains very substantial floor for gold; and $1,400, a high hurdle for 2016 prices.

Target price for gold is $1,320; target for silver, $19.1

* Continued thesis: Gold finds itself pulled in two directions; a stronger dollar is a headwind but monetary policy divergence between the U.S. and other central banks establishes a solid price floor around $1,300 per ounce. Negative interest rates around the world should maintain strong demand for U.S. Treasurys keeping the long end of the yield curve down even when the Fed raises short-term rates. This flattening should buffer gold somewhat from the curse of rising interest rates in a low inflation environment and keeping $1,400 still in sight for 2016.


Friday, August 26, 2016 AM 

Comex gold $1,332.7 per troy ounce
Comex silver $18.805 per troy ounce
Comex copper $2.0815 per pound

Gold awaits Janet Yellen's speech at Jackson Hole. My input to this morning's Weekly Kitco Gold Survey:

With [Federal Reserve Chairwoman] Janet Yellen's prepared remarks on the wire, I don't think there will be much more to expect from her speech later today: "...an increase in the federal funds rate has strengthened in recent months..." and affirmation that gradual increases in the federal funds rate are the most likely trajectory. Not particularly earth shaking news.

Gold finds itself pulled in two directions; a stronger dollar is a headwind but monetary policy divergence between the U.S. and other central banks establishes a solid price floor around $1,300 per ounce. Negative interest rates around the world should maintain strong demand for U.S. Treasurys keeping the long end of the yield curve down even when the Fed raises short-term rates. This flattening should buffer gold somewhat from the curse of rising interest rates [in a low inflation environment] keeping $1,400 still in sight for 2016. 

I think bigger gold price September surprises could come from the Bank of Japan reacting to a very strong currency and/or the continued slide of copper prices. Even though the yellow metal has outpaced the five major currencies this year (USD, yen, euro, pound sterling and by 10/1, the Chinese yuan), it has lost ground recently to the yen. Presently gold in yen terms is less than 10% above its 2013 low falling back to a downtrend that began January 2015. Although Japan's monetary policy options are quite limited, a move to say "helicopter money" could give gold a real boost.

The copper story reminds us of the "commodital force of gravity" which can pull gold down with other declining commodity prices - especially metals like copper. The gold-to-copper ratio this morning with copper at $2.08 is very near all-time record highs - one ounce buys an incredible 640 pounds of the red metal. I don't believe higher ratios or even this level are sustainable. Therefore, if copper drops lower, gold will probably follow...it's just physics. In any case, $1,300 will remain a very substantial floor; and $1,400, a high hurdle for 2016 prices. My vote is down. 

Target price for gold is $1,320; target for silver, $18.4

(more commentary below...)

Summer Edition 2016 - Mining Quarterly

The Summer Edition 2016 of Mining Quarterly is a good'un. Fall Edition coming soon!




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:


(Click on this link for the online Mining Quarterly)

Happy reading!

Numbers used for analysis (August 26 early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 361.58, 09/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $47.48 per barrel 
Brent crude $ 49.75 per barrel 
Comex copper $2.0815 per pound
Comex gold $1,332.7 per troy ounce 
Comex silver $18.805 per troy ounce



Remembering Atlas Gold Bar Mine
Eureka, Nevada

September Gold Surprise?

The Colonel remains bullish on gold

Morning Miners!

As I mention in my Kitco News brief (above), one or two surprises may await gold in September whether or not the Federal Reserve decides to raise rates.

The first is the potential for a desperate action by the Bank of Japan to combat a stubbornly strong yen. The Japanese currency is presently at 100 USD/JPY and has been there for nearly a month. The venerable market seer Mark Mobius predicts that if it strengthens to 90, the BoJ will make an unprecedented move:

Mobius Says Helicopter Money Will Be Japan’s Next Big Experiment (8/24/2016, Bloomberg News)

Helicopter money is coming, says Mark Mobius, even as soon as next month. The 80-year-old investment veteran is outlining how he expects central banks to respond to sluggish economic growth. For Mobius, executive chairman of Templeton Emerging Markets Group, traditional easing measures have just made people save instead of spend or borrow. Combined with a stronger yen, he says that’s going to force the Bank of Japan governor to contemplate a policy he’s repeatedly ruled out. “They’re really beginning to think what ammunition they have,” he said in an interview on a visit to a typhoon-struck Tokyo this week. “The first reaction is to say, OK, let’s go for helicopter money, let’s get money directly into the hands of consumers,” he said. “I think that would probably be the next step.”

I talk about "helicopter money" in the upcoming issue of the Mining Quarterly. This is the most outlandish money printing scheme yet envisioned, literally money falling from Central Bank heavens. BoJ Governor Haruhiko Kuroda’s recent remark that there was no need for “helicopter money” have led some to believe it’s just around the corner for Japan – they’ve tried everything else.

The Lustrous One loves talk of money printing especially in a currency that competes with it for safe haven

On a more bearish side is the steady decline of copper prices. This morning's $2.08 per pound is not that far from June's low-point of $2.05 or January's $1.94. Goldman Sachs predicted earlier this month that the red metal could fall to $4,000 per tonne ($1.81 per pound) in the next 12 months - ouch!

Goldman Warns ‘Supply Storm’ to Engulf Global Copper Market (8/4/2016, Bloomberg Market News)

Presently gold has a positive 1- and 3-month correlation with copper (+0.75, +0.54) so it may very well travel down the shaft with its metallic friend. However, there is solid support for gold at the $1,300 per ounce level of the mine thanks to global money printers. Between central bankers and miners, September could be an exciting high-wire act (with thankfully a safety net in place).

Stay tuned, pardner.


Bob Dinwiddie at Eureka'tiques
(courtesy Barbara Dale)
Eureka, Nevada


Bob Dinwiddie - A Good Man Passes

Sadly, my good friend and neighbor Bob Dinwiddie passed away last Saturday in Elko of heart complications. Mr. Dinwiddie had just turned 85 in July and was a real miner's miner. He worked for years at Kennecott's massive copper mine outside Ely before coming to Eureka in the 1980s. He became the Mill Superintendent of the Atlas Gold Bar Mine north of Eureka and delighted in telling stories of the good ole days when mining was a lot about wit n' grit and getting the job done with the supplies and crew available (which often included getting that crew to work on time!). This 2009 report described some of those "Wild West" times:

Johnny Horton and Atlas Mine Memories (November 2, 2009, Eureka Miner's Market Report)

The Atlas mining years spanned 1986 to 1990 although stockpiled refractory ore continued to be processed in the mill for some time after mining ceased.

Bob could make just about anything from metal including a beautiful western-style iron works entrance to his driveway proudly displaying his namesake. He was an accomplished machinist and after retiring from the mines, operated Dinwiddie's Machine Shop at the same address.

Barbara Dale, proprietor of "Eureka'tiques," posted a heartfelt tribute on her facebook page that says it all:

Rest in Peace Mr Bob Dinwiddie..Extraordinary Gentleman, Machinist, BBQ Master, Husband and Father..very dear friend and favorite "old fart"...Bob in the photo after installing the open sign hardware [above picture]..we will all miss you dearly..xo

I will never forget Bob's terrific sense of humor. During local mining's darkest time in recent years, Bob reflected on Eureka's new top-o-the-line fire station and high school gymnasium, "We're going to soon become Nevada's most modern ghost town!"

Always a positive spirit, I'm sure Bob found great comfort in this year's gold price recovery and an upturn in local mining prospects. McEwen Mining is currently in the process of re-opening the Gold Bar Mine with mine construction planned to begin next year.

Bob Dinwiddie will be remembered with great honor in this town. A service will be held Saturday, September 10 at the Eureka Opera House. His wife, Bobbie Dinwiddie,  plans to move to Texas to be with the kids and grandkids.

The best to Bobbie and family!  - Colonel

Photos by Mariana Titus if not otherwise noted

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