"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, January 13, 2017

Gold Breaks $1,200; Red Metal $2.69 ($5,930/t)...But Will It Last?

Built to Last (December, 2011)
Eureka, Nevada

Update, Monday, January 24, 8:49 AM

General Moly (GMO) continues to move higher at $0.4296 per share up a healthy 15.9% from yesterday's close (see updates below). The ole Colonel put a call into GMO Investor Relations to understand the move higher; awaiting their reply. McEwen Mining (MUX) moves above $4.00 trading presently at $4.03 per share. McEwen is awaiting ROD on the Gold Bar project north of Eureka. Stay tuned, pardner...

Update, Monday, January 23, 7:37 AM

Post-Inauguration Update: Gold $1,214, Copper $2.6360 ($5,811/t). McEwen Mining (MUX) on a roll trading at $3.99 per share. General Moly (GMO) continues to trend higher presently at $0.40 per share (see updates below). So far so good, pardner...

Update, Friday, January 20, 2017 (Market Close)

Gold closed in a bullish mood post-Inauguration trading at $1,204.9 per ounce. Please checkout the table below for a comparison of closing prices compared to last Friday in the new "Weekly Summary."

Although arguably gold has returned to the commodity hotel (see "Chart to Watch"), it has followed currencies post-election more faithfully than the price moves of copper, oil and most commodities.

My early morning input to the Weekly Kitco News Gold Survey:

My vote is up. Target gold price $1,205 per ounce . Target Silver price $17.0 per ounce. 

Gold has behaved as a currency and not a commodity since the U.S. election. In the 50 market days to today's Inauguration, the yellow metal has had a surprisingly strong positive correlation with both euro and Japanese yen (>+0.85).* Over the same period, gold correlations with copper, oil and the broader Bloomberg commodity index have all been negative.

In this environment, gold will face headwinds if the U.S. dollar strengthens further (i.e. the euro & yen comprise 71% of the US dollar Index or .DXY) with promised fiscal stimulation or tailwinds if the new administration actively tries to weaken the greenback. Other factors like "hard Brexit" or geopolitical turmoil caused by new foreign policies could spike gold considerably higher. Until the specifics of these new policies are clearer, gold price will be volatile. 

*CORREL(Au, euro) = +0.86, CORREL(Au, yen) = +0.91

Breaking News, Thursday, January 19, 2017 AM

[Update January 20, market close: General Moly (GMO) closed at $0.3874 a solid 29% increase from last Friday with 2-day trading volume at of 1.2 million shares.]

Interesting pop in General Moly (GMO) today (12.6%, 10:33 ET, 1/19) on relatively high early morning volume. Checkout Form 8-K filed today (restricted stock unit grants for Hansen, Pennington and Roswell, total 900,000 shares). No move in moly oxide (for months) $6.92/lb. 

Presently trading @$0.346/share. 

Today's morning volume: 308,450 shares (11:31 a.m. ET)
10-day volume average 92,700 shares
90-day volume average 124,322 shares

(please do your own research, markets can turn on you faster than a feral cat!)

Breaking News, Monday, January 16, 2017 AM

Although most domestic markets are closed for Martin Luther King Day, Comex gold touched $1,208.7 per ounce in the wee hours on news that the U.K. may indeed be opting for a "hard" Brexit. The British pound sterling fell below 1.2000 (GBP/USD), a level not seen since the "flash crash" of last October or going further back to 1985

Presently (7:20 a.m. Eureka time) gold is trading at $1,202.9 per ounce; copper at $2.6735 per pound

Weekly Summary (something new!)

(click on table for larger size)

Friday, January 13, 2017 AM 

Comex gold $1,189.1 per troy ounce
Comex silver $16.660 per troy ounce
Comex copper $2.6635 per pound

Morning Miners!

Gold and copper peaked Thursday to new post-election highs. My input to the Weekly Kitco Gold Survey:

Gold continued its bull run for 2017, peaking to a six-week high on Thursday at $1,207.7 per ounce. Although $1,200 is a key level, the yellow metal failed to close above this benchmark ($1,199.8) and prices are in retreat for Friday the 13th. Gold is presently trading at $1,189.1 per ounce.

A mixed week for gold indicates a near term top may be in. For currencies, gold scores solid gains from last Friday against the U.S.dollar and euro but lags the Japanese yen [see Chart to Watch]. Gold eked out a gain relative to basket of commodities (Au:BCOM) but has lost more than 3% in value to copper while advancing 3.5% compared to oil [chart below]

On a positive note, gold continues to trend higher relative to the S&P 500. Major stock indexes have lost post-election momentum given uncertainty about the specifics President-elect Trump's tax and economic plans. It is important to note that gold posted its new high after the Trump press conference as domestic equities faded.

Treasury yields are slightly up for the week [10-YR 2.396%] after a downtrend that began mid-December. Since post-election, a strong U.S dollar and rising interest rates have proved significant headwinds for the yellow metal. 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 [see link directly below discussion*].

Year of the Rooster Approaches (January 28)

The fate of the Chinese yuan remains a key tell for gold. Aggressive liquidity tightening by the People's Bank of China (PBOC) has eased, stabilizing the yuan below 7 USD/CNY. However, defending their currency has brought China foreign reserves to a 6-year low. We may have to wait until after lunar New Year to see if this vigorous defense is sustainable. After Chinese traders return from holiday, it is possible that gold will get a boost; and copper, a correction given worsening conditions for the yuan.

In the meantime, there will probably be some consolidation given gold's solid advance this week. 

Have a good weekend!

My vote is down. Target gold price next week is $1,180 per ounce; silver, $16.5 per ounce.

*Note on real rates going forward:

Real Rates’ Show Real Concerns Over Trump Economic Rebound (Min Zeng, WSJ, 01/15/2017)

Red Metal Rally

(Bloomberg, 01-12-2017) -- Indonesia will allow mining companies to export concentrates after Jan. 11, in a move that will help Freeport-McMoRan Inc. continue its operations at the world’s second-largest copper mine.

That welcome news initially caused an early Thursday dip in copper's recent advances as reported by Janet Mirasola, Managing Director Sucden Futures Inc., New York (click on graph for larger image).

(Pre-Market Brief, Sucden Futures Inc.)

Mirasola had earlier identified $5,800 per metric ton as a key level for copper going forward. However, the red metal retreat quickly reversed to rally later in the day touching $2.6935 per pound ($5,938/t) Friday morning. The red metal may indeed be in rally mode but Chinese trading after the lunar New Year may pose a real challenge.

At 11:13 AM Eureka time:

Comex copper (3/17) = $2.6885/lb ($5,927/t > $5,800/t); [close: $2.6900/lb, after hours Friday, $2.716/lb]
Freeport McMoRan (FCX) = $15.19/share (up 15.2% YTD, $13.19/share 12/30/16); [close $15.19/share]

Gold Price Outlook 2017

The question becomes whether 2017 will be a repeat of 2013 with gold losing value across a broad set of assets, which includes stocks, commodities and currencies, or stabilize in a range above $1,100. There are increasing signs that the latter case will prevail. I believe gold is starting the year nicely and should remain 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.

Gold near my low-range of $1,125 per ounce-level is a tempting "buy."

(please do your own research, markets can turn on you faster than a feral cat!)

*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

Click on the image for a larger size:

Gold in euro & yen terms regaining value 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 (updated 1/13/17) 

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, January 13] 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.


Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted

No comments:

Post a Comment