"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, December 30, 2016

Gold Finishes Strong for 2016; McEwen Mining & Gold Bar Thumbs Up for 2017!


Things are looking up for 2017
Eureka, Nevada

*** Breaking News ***

After the markets closed today, General Moly (GMO) made this announcement:


Friday, December 30, 2016 AM  (Last Market Day)

Comex gold $1,158.3 per troy ounce
Comex silver $16.135 per troy ounce
Comex copper $2.5155 per pound

Happy New Year Miners,

After a tough post-election swoon, our favorite metal is finishing strong for the year. In the early hours, gold is just shy of $1,160 per ounce  - up over 2% in U.S. dollars for the week and heading for a 9 % gain for the year. That's not bad, pardner, and very close to the vaunted U.S. stock market gains for 2016.

Yes, we have fallen quite a bit from the $1,375 mid-summer highs but gaining an annual 9% in a strong U.S. dollar environment is nothing to get discouraged about. Gold is set to score weekly gains against the S&P 500, key commodities copper and oil, and major currencies euro and yen - not a bad sprint to the finish.

A strong U.S. dollar and rising interest rates have been significant headwinds for gold since post-election. However, if inflation expectations rise with nominal rates in 2017 the impact to gold price is lessened and possibly reversed if real rates turn negative.

As we discussed last week, the question becomes whether 2017 will be a repeat of 2013 with gold losing value across a broad set of assets, which included stocks, commodities and currencies, or stabilize in a range above $1,100. There are continued signs that the latter case will prevail. I remain optimistic that gold will regain its mojo in the coming year falling in a range of $1,125 to $1,320 per ounce*. Average gold price for 2017 should register above $1,200 per ounce.

An important gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of last year and reversed to a bullish trend, peaking February 11. It bottomed again December 20 but has been trending higher since. Confirming a double-bottom in the coming months would be a significant positive for the lustrous metal.

Gold is gaining ground on the embattled euro and yen. Post-election, gold in euro and yen terms are converging and safely above 2013 lows [chart below]. Additionally, gold ratios relative to copper and oil are stabilizing near historically less extreme levels which is a healthy sign [Chart to Watch, below]. Geo-political events and/or a bump in inflation expectations could restore glitter to gold in 2017.

For January there may be more pain ahead. However, gold near my low-range of $1,125 per ounce-level is a tempting "buy."

*My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper



Gold in euro & yen terms converging post-election

McEwen Mining & Gold Bar Thumbs Up for 2017!

An exciting development for Eureka will be the re-opening of the Gold Bar Mine north of town. Some us old timers have fond memories of Gold Bar when it was operated by Atlas in the late-1980s and early-1990s (Johnny Horton and Atlas Mine Memories, Eureka Miner, Nov. 11, 2009).

McEwen Mining expects to have permitting done and an ROD by the third quarter of 2017. Mine construction will follow with first production expected by the end-of-2018. Their mine feasibility study assumes a reasonable $1,150 per ounce which nets a greater than 20% internal rate-of-return and payback in 3 years.

Here is a recent Kitco video with McEwen Mining CEO Rob McEwen discussing Gold Bar, other projects and his gold outlook for 2017:

McEwen Gives His Gold Outlook In This No-holds-barred Interview With Daniela Cambone (Kitco News, 12/28/2016)

Rob McEwen has been inducted in the the Mining Hall of Fame receiving the honors January 12. Congratulations and the best of luck to you and your team in 2017!

Winter 2016 Edition Mining Quarterly



Elko Daily Free Press Editor Marianne Kobak McKown has put together another dandy. The Winter Edition of the Mining Quarterly has great columns on Newmont Mining Corp.'s Twin Creeks Mine, Cripple Creek and Victor Mine (Colorado), Barrick Gold Corp.'s Cortez Hills, EP Minerals' unique product and the Kinross expansion of Bald Mountain.

Chart to Watch

Here's an importanat chart to watch. Click on the image for a larger size:


Gold’s record rise against key commodities
in the strong dollar era 

Excerpt from the just released Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper:

This chart [updated through this morning, December 23] is a record of oil and copper gold ratios for the last six years. October, 2010 was a relatively peaceful period when ratios were stable and close to historical norms following the market turbulence of the 2008-2009 financial crisis.

The chart indicates the percentage value change from that moment of calm. The China slowdown began to impact commodity prices in 2011. However, prices were protected to a degree by U.S. monetary policy that suppressed the value of the U.S. dollar. 

For example, even during periods a high volatility, copper prices rarely dipped below $3 per pound. This is a level above even the most optimistic forecasts these days. Two Federal Reserve quantitative easing programs (or QE, the printing of dollars to buy bonds) helped moderate gold ratios through October 2014 amid record gold peaks, crashing copper prices and $100-plus oil. This period is shown by the gray box in the chart. The Oct. 3, 2011 +50% extreme occurred as the gold-to-copper ratio peaked following the already noted U.S. debt crisis. The bottom of the box marks a -30% low for the gold-to-oil ratio. Wild days for sure but the Federal Reserve kept commodity storms inside the hotel. 

Trouble spilled onto the streets when the U.S. stopped printing money concurrent with a global crash in oil prices in late-2014. At the same time, other central banks tried to goose their stagnant economies with increasingly looser and experimental policies as the U.S contemplated raising interest rates. This divergence in monetary policy ushered in the current strong dollar era – a real headwind for dollarized commodities.

The value of gold relative to oil and copper headed north in a hurry. This year, the gold-to-oil ratio reached a record and unsustainable high Feb. 11 (up 180%); and for copper, Sep. 7 (up 80%). To give this some historical perspective, the average gold-to-oil ratio for the QE2 through QE3 period is 15.7 barrels per ounce. From 1986 through QE3, the average is 16.0. The February peak touched a jaw-dropping 47 barrels. Copper soared from 350 pounds per ounce six years ago to top out above 640.

Gold price in U.S. dollars rallied strongly as copper and oil fell at the beginning of 2016 scoring a nearly 30% gain by early-July. The yellow metal had left the commodity hotel and dominated major currencies as I explained in the Fall Edition of the Mining Quarterly. Very unusual times indeed. 

As 2016 comes to a close there are increasing signs that major central banks will methodically pull back from aggressive policies and those nations will look to fiscal stimulation to keep their economies energized. Oil and copper prices are on the rise given an extra boost by rising inflation expectations. Gold ratios in turn are falling from their lofty peaks...It is important to note that the higher-low trendlines (dashed lines) have now been broken with declining gold ratios. So far go good - confident resource CEOs pass the gold test. Supply will slowly come into balance with demand and the yellow metal is checking back in the commodity hotel.

Happy New Year!

Cheers,

Colonel Possum & Mariana



Photos by Mariana Titus if not otherwise noted

Friday, December 23, 2016

Merry Christmas Miners! Gold Outlook for 2017


December 2011, Eureka, Nevada

Friday, December 23, 2016 AM 

Comex gold $1,135.8 per troy ounce
Comex silver $15.825 per troy ounce
Comex copper $2.4835 per pound

Merry Christmas Miners,

The good, the bad and the ugly for gold prices - hey, it ain't all that bad for 2017! My input to this morning's Weekly Kitco Gold Survey:

A strong U.S. dollar and rising interest rates have been significant headwinds for gold since post-election. However, if inflation expectations rise with nominal rates in 2017 the impact to gold price is lessened and possibly reversed if real rates turn negative. One hopeful sign for the yellow metal has been the concurrent rally in the 10-year break-even rate (i.e. spread between 10-year Treasurys and TIPS). Unfortunately the uptrend was broken Monday suggesting the inflation trade is overdone - at least for now - a bearish development for gold.

On the bullish side of the ledger, there are indications that the Russian central back believes there is value to increasing their already substantial gold position. In the last two months, Russia has purchased 2.5% of the total world production - a significant increase, some 82 tonnes. It will be instructive to see if China follows this trend. Central banks may be seeing something ahead markets are missing.

The question becomes whether 2017 will be a repeat of 2013 with gold losing value across a broad set of assets, which included stocks, commodities and currencies, or stabilize in a range above $1,100. There are some encouraging signs that the latter case will prevail. I remain optimistic that gold will regain its mojo in the coming year falling in a range of $1,125 to $1,320 per ounce*.

An important gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of last year and reversed to a bullish trend, peaking February 11. This morning remains near a new low made Tuesday, a fall of 27% from that high.

However, gold is still holding ground with the embattled euro and yen. Post-election, gold in euro and yen terms are converging and safely above 2013 lows [chart below]. Additionally, gold ratios relative to copper and oil are stabilizing near historically less extreme levels which is a healthy sign [Chart to Watch, below]. Geo-political events and/or a bump in inflation expectations could restore some glitter to gold in 2017. 

For December there may be more pain ahead. However, gold at the $1,115 per ounce-level is a tempting "buy." 

My vote is down. Gold target for next week is $1,120 per ounce; Silver, $15.9 per ounce

Holiday Cheers!

*My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper



Gold in euro & yen terms converging post-election

Winter 2016 Edition Mining Quarterly



Elko Daily Free Press Editor Marianne Kobak McKown has put together another dandy. The Winter Edition of the Mining Quarterly has great columns on Newmont Mining Corp.'s Twin Creeks Mine, Cripple Creek and Victor Mine (Colorado), Barrick Gold Corp.'s Cortez Hills, EP Minerals' unique product and the Kinross expansion of Bald Mountain.

Chart to Watch

Here's an importanat chart to watch. Click on the image for a larger size:


Gold’s record rise against key commodities
in the strong dollar era 

Excerpt from the just released Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper:

This chart [updated through this morning, December 23] is a record of oil and copper gold ratios for the last six years. October, 2010 was a relatively peaceful period when ratios were stable and close to historical norms following the market turbulence of the 2008-2009 financial crisis.

The chart indicates the percentage value change from that moment of calm. The China slowdown began to impact commodity prices in 2011. However, prices were protected to a degree by U.S. monetary policy that suppressed the value of the U.S. dollar. 

For example, even during periods a high volatility, copper prices rarely dipped below $3 per pound. This is a level above even the most optimistic forecasts these days. Two Federal Reserve quantitative easing programs (or QE, the printing of dollars to buy bonds) helped moderate gold ratios through October 2014 amid record gold peaks, crashing copper prices and $100-plus oil. This period is shown by the gray box in the chart. The Oct. 3, 2011 +50% extreme occurred as the gold-to-copper ratio peaked following the already noted U.S. debt crisis. The bottom of the box marks a -30% low for the gold-to-oil ratio. Wild days for sure but the Federal Reserve kept commodity storms inside the hotel. 

Trouble spilled onto the streets when the U.S. stopped printing money concurrent with a global crash in oil prices in late-2014. At the same time, other central banks tried to goose their stagnant economies with increasingly looser and experimental policies as the U.S contemplated raising interest rates. This divergence in monetary policy ushered in the current strong dollar era – a real headwind for dollarized commodities.

The value of gold relative to oil and copper headed north in a hurry. This year, the gold-to-oil ratio reached a record and unsustainable high Feb. 11 (up 180%); and for copper, Sep. 7 (up 80%). To give this some historical perspective, the average gold-to-oil ratio for the QE2 through QE3 period is 15.7 barrels per ounce. From 1986 through QE3, the average is 16.0. The February peak touched a jaw-dropping 47 barrels. Copper soared from 350 pounds per ounce six years ago to top out above 640.

Gold price in U.S. dollars rallied strongly as copper and oil fell at the beginning of 2016 scoring a nearly 30% gain by early-July. The yellow metal had left the commodity hotel and dominated major currencies as I explained in the Fall Edition of the Mining Quarterly. Very unusual times indeed. 

As 2016 comes to a close there are increasing signs that major central banks will methodically pull back from aggressive policies and those nations will look to fiscal stimulation to keep their economies energized. Oil and copper prices are on the rise given an extra boost by rising inflation expectations. Gold ratios in turn are falling from their lofty peaks...It is important to note that the higher-low trendlines (dashed lines) have now been broken with declining gold ratios. So far go good - confident resource CEOs pass the gold test. Supply will slowly come into balance with demand and the yellow metal is checking back in the commodity hotel.

Cheers,

Colonel Possum & Mariana



Photos by Mariana Titus if not otherwise noted

Friday, December 9, 2016

Gold's Challenge Next Week...


Late-November, Eureka, Nevada

Friday, December 9, 2016 AM 

Comex gold $1,167.5 per troy ounce
Comex silver $17.115 per troy ounce
Comex copper $2.6520 per pound

Bird's-eye view on gold price (update Monday, December 12, 2016 AM)


It is easy to become discouraged about the direction of gold price. The yellow metal has been trending down for five months and touched a new 10-month low this morning. Prices accelerated to the downside post-election with rapidly rising interest rates but this could stall and even reverse if inflation picks up in 2017. My view is there will be some scary moments ahead, even a sub-$1,100 plunge before year's end, if the U.S. Federal Reserve decides to raise the Fed fund rate this week. Some experts say the greatly anticipated hike is already priced in but there will likely still be a dramatic market reaction - we only have to think back to last December when gold dropped to the $1,050-level with the last increase.

The question becomes whether 2017 will be a repeat of 2013 with gold losing value across a broad set of assets which included stocks, commodities and currencies or stabilize in a range above $1,100. There are some encouraging signs that the latter case will prevail (as mentioned below). I remain optimistic that gold will regain its mojo in the coming year falling in a range of $1,125 to $1,320 per ounce.

[Note: My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper]

****

Morning Miners,

A rough week for gold as it neared 10-month lows. My input to this morning's Weekly Kitco Gold Survey:

Gold faces more challenges next week as consensus is high that the FOMC will bump interest rates against a backdrop of this week's trim-but-extend net dovish policy direction from the ECB. This likely sustains a divergence trend between the Federal Reserve and other major central banks producing tailwinds for the already strong USD and headwinds for gold price.

Gold continues a bearish descent as it faces rising interest rates that, so far, outpace inflation expectations. However, signs of increasing inflation and stronger physical demand for the yellow metal in China are encouraging. Key will be the interplay between interest rates in the U.S. and increasing inflation expectations from anticipated fiscal stimulation and improved economic growth.

A key gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of last year and reversed to a bullish trend, peaking February 11. This morning the ratio is at a new 2016 low, falling nearly 25% from that high with stocks making new highs and gold in bearish retreat.

Most importantly, a trend of higher-lows broke down in late September and now the AUSP is only 3% above last December's low. We could see gold lose all its 2016 US dollar gains before year's end.

However, gold is holding ground with the embattled euro and yen [chart below]. Post-election, gold in euro and yen terms are converging and still safely above 2013 lows. Additionally, gold ratios relative to copper and oil are falling to historically less extreme levels which is a healthy sign [see Chart to Watch, below]. Missteps in the early days of a Trump presidency and/or a bump in inflation expectations could restore some glitter to gold in 2017.

My vote is down. Gold target for next week is $1,160 per ounce; Silver, $17.00 per ounce

Have a fun weekend!


Gold in euro & yen terms converging post-election

Chart to Watch

Here's an importanat chart to watch. Click on the image for a larger size:


Gold’s record rise against key commodities
in the strong dollar era 

Excerpt from the just released Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper:

This chart [updated through this morning, December 9] is a record of oil and copper gold ratios for the last six years. October, 2010 was a relatively peaceful period when ratios were stable and close to historical norms following the market turbulence of the 2008-2009 financial crisis.

The chart indicates the percentage value change from that moment of calm. The China slowdown began to impact commodity prices in 2011. However, prices were protected to a degree by U.S. monetary policy that suppressed the value of the U.S. dollar. 

For example, even during periods a high volatility, copper prices rarely dipped below $3 per pound. This is a level above even the most optimistic forecasts these days. Two Federal Reserve quantitative easing programs (or QE, the printing of dollars to buy bonds) helped moderate gold ratios through October 2014 amid record gold peaks, crashing copper prices and $100-plus oil. This period is shown by the gray box in the chart. The Oct. 3, 2011 +50% extreme occurred as the gold-to-copper ratio peaked following the already noted U.S. debt crisis. The bottom of the box marks a -30% low for the gold-to-oil ratio. Wild days for sure but the Federal Reserve kept commodity storms inside the hotel. 

Trouble spilled onto the streets when the U.S. stopped printing money concurrent with a global crash in oil prices in late-2014. At the same time, other central banks tried to goose their stagnant economies with increasingly looser and experimental policies as the U.S contemplated raising interest rates. This divergence in monetary policy ushered in the current strong dollar era – a real headwind for dollarized commodities.

The value of gold relative to oil and copper headed north in a hurry. This year, the gold-to-oil ratio reached a record and unsustainable high Feb. 11 (up 180%); and for copper, Sep. 7 (up 80%). To give this some historical perspective, the average gold-to-oil ratio for the QE2 through QE3 period is 15.7 barrels per ounce. From 1986 through QE3, the average is 16.0. The February peak touched a jaw-dropping 47 barrels. Copper soared from 350 pounds per ounce six years ago to top out above 640.

Gold price in U.S. dollars rallied strongly as copper and oil fell at the beginning of 2016 scoring a nearly 30% gain by early-July. The yellow metal had left the commodity hotel and dominated major currencies as I explained in the Fall Edition of the Mining Quarterly. Very unusual times indeed. 

As 2016 comes to a close there are increasing signs that major central banks will methodically pull back from aggressive policies and those nations will look to fiscal stimulation to keep their economies energized. Oil and copper prices are on the rise given an extra boost by rising inflation expectations. Gold ratios in turn are falling from their lofty peaks...It is important to note that the higher-low trendlines (dashed lines) have now been broken with declining gold ratios. So far go good - confident resource CEOs pass the gold test. Supply will slowly come into balance with demand and the yellow metal is checking back in the commodity hotel.

Cheers,

Colonel Possum

Photos by Mariana Titus if not otherwise noted