The Eureka Miner

Thursday, March 24, 2016

Easter Bunny Finds Few Golden Eggs in His Basket...

Harris House & Hydrant

Eureka Miner, Easter 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:

Spring 2016 Mining Quarterly

"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:

Commentary: A Bullish Turn for Gold

***

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for analysis (early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 324.15, 04/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $38.58 per barrel

Brent crude $ 39.36 per barrel

Comex copper $2.2215 per pound

Comex gold $1,221.2 per ounce

Comex silver $15.300 per ounce

Canary in the gold mine: Fate of high yield corporate bonds

iShares iBoxx $ High Yield Corporate Bond (HYG) $81.21 ($75.09 52-week low)

Trouble ahead: HYG < $82...recovery from bottom continues but the ole Colonel remains skeptical....

Latest Nevada gasoline prices

Oldies but Goodies

Here's an oldie from the Thursday before Easter 2011:

Þūnresdæg

It is 5:39 AM. Have a welcome cup of Thor's Day Thunder. Our favorite Norseman and Old Miner Woden are painting Easter eggs. Thor forgot to boil the first batch so we may be having scrambled eggs with shells for breakfast.

Gold $1510; Silver $46.3

You know the drill by now, pardner: start the day with new records for gold and silver. For a change, COMEX silver got to the party first - 7:00 AM bright and early with the paparazzi snapping photos at $46.27/oz. COMEX gold dropped by 20 minutes later doing high fives at $1509.6/oz but the crowds barely noticed. Silver stole the show again.

Remember $50 per ounce silver - ha!

The Owl Club

Eureka Miner, Easter 2011

Easter Bunny Finds Few Golden Eggs in His Basket...

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 prices, fate of high yield bonds

Gold bet for next week: $1,210 per ounce

Morning Miners!

After terror in Europe, more loops and hoops in presidential primaries and a resurgent U.S. dollar, the ole Colonel is more than ready for an Easter break - have a relaxing weekend, pardner..

My morning input to the Weekly Kitco Gold Survey:

The Easter bunny will not find too many golden eggs in his basket this holiday.

Not even a tragic terror event in Europe could reverse the recent downtrend in the yellow metal as it joins falling commodities and loses ground to the U.S. dollar, euro and yen. Gold is again seeking equilibrium between diverging monetary policies - BoJ & ECB ventures into negative interest rate territory establish a price floor; recent hawkish U.S. Fed hints about an April rate hikes create a price cap. At least in the near term, gold prices are likely range bound between $1,110 and $1,280 per ounce.

Gold has failed to take out 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 an upward reversal in gold ratios and/or 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 1,095, JPY 137,290

All-in-all the Lone Wolf is bearish near term.

My vote is down. Next week’s target $1,210 per ounce.

Copper conundrum

The red metal rally has stalled. However for the year, copper has risen from its February 11 low of $1.998 per pound to this morning's trade at $2.222, a 11% rise.

One curious aspect of the copper market is the build in inventory at the Shanghai Futures Exchange (SHFE) warehouses compared to London Metal Exchange (LME) and COMEX stocks. As of March 24th:

SHFE 394,777 tonnes
LME 151,375 tonnes
COMEX 71,541 tonnes

This week the SHFE inventory expanded by an additional 44,639 tonnes; the LME by only 700!

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. China comprises 45% of global copper demand. Something to watch in 2016.

Freeport reverses down

Copper mammoth and benchmark miner Freeport McMoRan (FCX) follows copper down this morning at $9.18 per share. This is still considerably up from its January low of $3.52 - a 161% improvement. As a point of disclosure, the ole Colonel reduced his position in FCX after the Draghi announcement this month.

Barrick & Newmont pause

Nevada's two big mining giants are still recovering from the depths of 2015 and both are off from last Friday AM prices. However, from September's low of $5.91 per share, Barrick Gold (ABX) is up 125% to trade at $13.31 this morning. Newmont (NEM) is up 80%; from a September $15.43 to $27.79 per share.

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.

2013 lows:

879.64 euros per ounce on 12/20/2013
122,443 yen per ounce on 6/28/2013

Friday AM (03/24/2016):

1,095 euros per ounce (+24.4% margin)
137,290 yen per ounce (+12.1% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 2,028 (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. Tenuously bullish...but be careful.

Cheers - Colonel

Photos by Mariana Titus

Friday, March 11, 2016

Markets "Trendless and Volatile" - Gold Will Go Higher; General Moly Rocks

Old Glory

Eureka Miner, March 2011

Update Friday, 3/18/16

Comex April gold $1,254.2 per ounce down $10.8 (11:35 AM EDT)
Comex May copper $2.2885 per pound down $0.0020 (11:33 AM EDT)

Comex gold did peak higher this week touching $1,271.9 on St. Paddy's (March high was $1,287.8 on 3/11) but...

This week's FOMC meeting suggested that future interest rate increase will occur at a slower pace with no bump up this month. Expectations that there could be as many as four rate hikes in 2016 has fallen back to perhaps just two given uncertainty about the global economy. Overall, this has weakened the U.S. dollar while giving a boost to oil and copper prices. While a slower rate trajectory favors gold, an improved investor risk appetite has blunted the yellow metal's 2-1/2 month rally.

The Colonel's input to the Weekly Kitco News Gold Survey:

Yesterday the S&P 500 VIX broke the "higher lows since August" curse as a weakening U.S. dollar and "risk-on" sentiment spread across the commodity and equity markets. The VIX or "fear index" currently has a 14 handle, well below the lower trend line established since the market downturn last August (chart below). Key gold ratios are falling back toward their 3-month averages as "safe haven gold" falls in the shadows of rising oil and copper prices.

Gold has also failed to take out its March highs in euro and yen terms following this week's dovish FOMC meeting. For the near term, I'm putting on my old moth-eaten bear suit until there is an upward reversal in gold ratios and/or 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 1,111, JPY 139,850

All-in-all the Lone Wolf turns bearish short term but remains bullish longer term in a world of negative interest rates.

My vote is down. Next week’s target $1,240 per ounce

The "Fear Index" notches lower (click for larger view)

***
Update Thursday, 3/17/16

Please checkout how my Irish Chihuahua Loquita picks gold prices for St. Paddy's:

Gold Breaking St. Paddy’s Day Pattern? (Sarah Benali, Kitco News 3/17/2016)

***
Please checkout my latest Kitco News commentary:

Gold & Oil: A Historical Ratio Turns Bad

Mining Quarterly

The online version:

Spring 2016 Mining Quarterly

Commentary: A Bullish Turn for Gold

***

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for analysis (early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 326.59, 03/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $38.88 per barrel

Brent crude $ 40.93 per barrel

Comex copper $2.2430 per pound

Comex gold $1,268.8 per ounce

Comex silver $15.655 per ounce

Canary in the gold mine: Fate of high yield corporate bonds

iShares iBoxx $ High Yield Corporate Bond (HYG) $81.85 ($75.09 52-week low)

Trouble ahead: HYG < $82...recovery from bottom continues but the ole Colonel remains skeptical....

Gasoline Prices

Eureka Miner, March 2011

Who'd a thunk?....$1.67 per gallon, a station this morning in Las Vegas...

Latest Nevada gasoline prices

Checkout this Bloomberg graphic...rig counts are at a 75-year low

Watch Five Years of Oil Drilling Collapse in Seconds

Markets "Trendless and Volatile" - Gold Will Go Higher, Pardner

Macro drivers: Continued concerns about China, commodity-exporting economies; U.S. Federal Reserve interest rate trajectory; European Central Bank

Wild cards: Brexit, "lower for longer" commodity prices, fate of high yield bonds

Gold bet for next week: $1,280 per ounce

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.

Morning Miners!

By far the biggest market event this week was Thursday's meeting of the European Central Bank (ECB) and Mario Draghi's comments following the get-together. Last January's announcement of monetary policy triggered a one year decline in gold prices - this time may be different.

On the surface, it appears the ECB is offered more of the same: printing more euros to buy bonds and lowering interest rates into negative territory - its rate on deposits at the bank will now be -0.40%. However, market enthusiasm faded after Super Mario signaled that interest rates probably won’t fall any lower.

For example, the euro initially weakened (as one might expect when central banks print money), dropping to 1.0822. It then spiked up to 1.1218 after the caveat about no more lower rates. That's a big swing in currency markets. Rebecca Patterson of Bessemer Trust (for whom the Colonel has the greatest respect) commented after the announcement that this may signal U.S. dollar stabilization. That's good for us and the world...we'll see. The euro this morning is 1.1143 on a falling dollar. Ms. Patterson said it was unlikely the euro would fall below 1.08 in 2016 earlier this year. So far so good.

The "efficacy of further central bank policy" is being called into question by more than one analyst. My morning input to the Weekly Kitco Gold Survey:

A natural optimist, I find myself strangely wary of the markets - especially given the curious global volatility after the ECB announcement yesterday. Goldman Sachs' comment this morning regarding oil, "...prices in a trendless and volatile range," could well be extended to the broader markets. This uncertainty should favor gold even though prices in terms of USD, euro and yen are all off their March highs this morning.

My new top chart to watch is the S&P 500 volatility index (VIX). Although the S&P 500 is above 2,000 this morning and the VIX is below the key-20 fear level, the VIX lows have been trending higher since the August market panic. Fear is hiding out in dark corners, not leaving the scene. Currently just below 17, the VIX is near its lower trend line; moving below 15 in the coming days may indeed signal the worst is over. I am doubtful this will be the case, a VIX move up is likely positive for our lustrous friend.

With irony, gold in euro terms Monday (EUR 1,158 per ounce) came within just a few euros of last year's peak when Mario Draghi introduced the ECB's "shock and awe" monetary easing program. That announcement began a one-year decline in gold priced in U.S. dollars, euros and Japanese yen. I think the opposite reaction may be true this year.

All-in-all the Lone Wolf remains bullish. My vote is up.

Next week’s target $1,290 per ounce

The red metal continues its advance. Copper has risen from its February 11 low of $1.998 per pound to this morning's trade at $2.2430, a 12% rise.

Freeport still up-up

Copper mammoth and benchmark miner Freeport McMoRan (FCX) continues to show signs of life trading at $9.71 per share up from its January low of $3.52 - a 176% improvement. As a point of disclosure, the ole Colonel reduced his position in FCX after the Draghi announcement - a little nervous that the latest rally in copper is sustainable.

Barrick & Newmont pause

Nevada's two big mining giants are still recovering from the depths of 2015 although both are off from last Friday AM prices. From September's low of $5.91 per share, Barrick Gold (ABX) is up 138% to trade at $14.04 this morning. Newmont (NEM) is up 76%; from a September $15.43 to $27.09 per share.

General Moly (GMO) Rocks

General Moly (GMO) share price has been in a sharp uptrend since Monday, presently trading at $0.31. The bump up Monday was on high volume, 815,000 shares, compared to their 90-day average of 159,000 and 10-day at 323,000. Somebody out there is saying giddy-up go.

January's low was 15 cents...today is a more than a 100% rise from that bottom.

Please do your own research, markets can turn on you faster than a feral cat. There is still a long, long road to moly price recovery. Moly oxide is hanging just below $6 per pound at $5.53;

Here is this morning's press release:

Latest News (Press release, 3/11/2016)

Bruce D. Hansen, Chief Executive Officer, said,

"The amended Investment Agreement with AMER and the closure of Tranche 1 provide the Company with an improved corporate liquidity profile as we seek opportunities to obtain project financing for the Mt. Hope Project. This arrangement with AMER creates a long-term strategic partnership, demonstrating AMER's vision of value creation at General Moly. As the molybdenum market recovers, we will work together on the full financing and development of the Mt. Hope Project. In the near term, we expect to evaluate value-accretive, acquisition opportunities to jointly pursue with AMER for our mutual benefit."

Mr. Hansen concluded, "As we look forward, we have taken decisive actions that better position our Company to advance development when market conditions improve. Through our recently implemented management restructuring and cost reduction programs, we expect to achieve additional reductions in our Corporate and Liberty Project care and maintenance costs by one-third from an average of approximately $2.5 million per quarter in the past two years to approximately $1.7 million per quarter in 2016."

Best of luck to the General Moly team!

Chart to Watch

Declining value of gold relative to a devalued currency is a red flag. Fortunately, January witnessed a key reversal in this downtrend for both euro and yen and it has been up and away ever since - a very bullish turn for gold. This week, we've witnessed a pause in the recovery, I believe it temporary.

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):

1,137.43 euros per ounce (+29.3% margin)
143,898 yen per ounce (+17.5% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 2,015 (Friday AM):

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%

For Fibonacci folks the December-January "fib box" is:

50.0% retracement from 2/11 low = 1,946

61.8% retracement from 2/11 low = 1,978

Cheers - Colonel

Photos by Mariana Titus

Friday, March 4, 2016

Gold Soars on Mixed Jobs Report; Have Commodities Bottomed?

Ackerman Ranch

Eureka Miner, March 2011

Update Tuesday Morning (3/08/2016)

Oh-oh copper...Freeport McMoRan (FCX) down 11% early trading...

DOW JONES & COMPANY, INC. 7:13 AM ET 3/8/2016 Copper futures fell Tuesday, after declines in Chinese trade data triggered concerns that the top metal consumer is continuing to slow economically despite government interventions. Copper for May delivery was recently down 2.2% at $2.2340 a pound on the Comex division of the New York Mercantile Exchange.

Exports from China dropped 25.4% in February compared with a year earlier, according to data from the General Administration of Customs released Tuesday. The figure constituted the eighth monthly drop in a row and was "significantly poorer than anticipated," said Commerzbank AG in a note. China accounts for roughly 45% of global copper demand, so metal prices follow the country's economic fortunes closely. Plans by the Chinese government to reduce housing inventory are likely to weigh on copper prices, according to Goldman Sachs Group Inc.

Before you get too depressed, there are seasonal issues here. Remember that during the one week Lunar New Year holiday not too many fortune cookies leave for distant shores....Colonel

Please checkout my latest Kitco News commentary 2/29/2016:

Gold & Oil: A Historical Ratio Turns Bad

Mining Quarterly

The online version:

Spring 2016 Mining Quarterly

Commentary: A Bullish Turn for Gold

***

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for analysis (early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 304.52, 03/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $34.57 per barrel

Brent crude $ 37.50 per barrel

Comex copper $2.2365 per pound

Comex gold $1,276.4 per ounce

Comex silver $15.640 per ounce

Canary in the gold mine: Fate of high yield corporate bonds

iShares iBoxx $ High Yield Corporate Bond (HYG) $80.58 ($75.09 52-week low)

Trouble ahead: HYG < $82...lower but up lately....

Latest Nevada gasoline prices

Ackerman Ranch

Eureka Miner, March 2011

Gold Soars on Mixed Jobs Report

Macro drivers: Continued concerns about China, commodity-exporting economies; U.S. Federal Reserve interest rate trajectory

Wild cards: Brexit, "lower for longer" commodity prices, fate of high yield bonds

Gold bet for next week: $1,300 per ounce

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.

Morning Miners!

5:30 AM (Eureka time), the Labor Department released its February nonfarm payroll report. The NFP is an all important indicator of U.S. economic health, closely watched not only here but in markets worldwide. This results are mixed. On the positive, employment increased in February to a better-than-expected 242,000 jobs with an employment rate holding steady at 4.9%.

On the darker side, average hourly wage growth for February declined 3 cents to $25.35, following an increase of 12 cents in January. This suggests continued slack in the labor force which some believe is a more important data point than employment rate for the Federal Reserve timing of the next interest rate bump up.

Not unexpectedly, mining employment declined another 19,000 in February with most losses in support activities. Strong sectors were in health care, retail trade, education and construction. The participation rate remains unchanged from February 2015 at a lackluster 68.2%.

All-in-all, a few morning commentators believe the mixed report moves market participants from "a recession is coming" to a "still muddling along" sentiment. This is enough to keep the gold rally alive and well. My morning input to the Weekly Kitco Gold Survey:

After passing this morning's U.S. labor report test with flying colors, the next big challenge for gold is the upcoming ECB meeting on March 10. With great irony, today's rally brings gold (EUR 1,158 per ounce) within just a few euros of last year's peak when Mario Draghi introduced the ECB's "shock and awe" monetary easing program. That announcement began a one-year decline in gold priced in U.S. dollars, euros and Japanese yen. What will be the reaction this year?

This year has seen as many expectation flip-flops in the metals complex as in the U.S. electoral process. Last year's January reaction to the ECB announcement turned the gold market bearish; this year may be bullish lift given continued fears of Brexit in June. Other upbeat signs for gold are positive re-correlations with global commodities oil and copper - presently all three are trending higher.

Gold and Japanese yen continue to compete as safe haven trades with the yellow metal gaining on yen accelerating recent gains. Gold is a healthy 18% above its 2013 low in that currency and a very impressive 32% higher in euro. Yellow metal progress against major devalued currencies continues to be a bullish indication.

All-in-all the Lone Wolf is bullish and ups last week's target price.

My vote is up. Next week’s target $1,300 per ounce.

Some of my thoughts found there way into the Kitco Friday outlook:

Gold Could Rally Next Week On Currency Devaluation Fears - Analysts

The red metal continues its advance too. I thought copper may return to the sub-$2 basement after the Chinese traders returned from New Year holiday. Instead, copper got a bid rising from its February 11 low of $1.998 per pound to this morning's trade at $2.234, a nearly 12% rise.

Freeport still up-up

Copper mammoth and benchmark miner Freeport McMoRan (FCX) continues to show signs of life trading at $9.62 per share up from its January low of $3.52 - a 173% improvement!

Barrick & Newmont continue on a Roll

It is exciting to witness Nevada's two big mining giants recovering from the depths of 2015. From September's low of $5.91 per share, Barrick Gold (ABX) is up 149% to trade at $14.69 this morning. Newmont (NEM) is up a welcome 76%; from a September $15.43 to $27.12 per share.

Have Commodities Bottomed?

Wells Fargo Metals Director Janet Mirasola had this note in yesterday's pre-market brief:

Global markets are adding risk across the board as global recession fears faded supported by a strong suggestion from [Glencore CEO] Ivan Glasenberg that “Commodities have bottomed” taking a “whatever it takes” leaf from Draghi’s book. No matter that a major bank can lose 11% of value in a single morning or that China PMI can record its lowest result of 49.0 since November 2011. All these markets need obviously is a little confidence to see Portfolio Managers happy to add risk across most asset classes. Overnight the MSCI Asia Pacific Index rose 2.5% to its highest level since early January while the Nikkei surged by 4.11%. Shanghai Shares breathed a huge sigh of relief as they rallied hard closing up 4.26% by end of day.

Hmm...I note a hint of skepticism. The Goldman Sachs Commodity Index (GSCI, see below headline photo) is above 300 after plunging to 279 in January. Comex copper is handily above its January low and oil is back in the mid-$30 per barrel range. The ole Colonel is not quite ready to call a victory but the signs are indeed encouraging. Remember the old adage,"bottoming is a process, not a price."

Chart to Watch

Declining value of gold relative to a devalued currency is a red flag. Fortunately, January witnessed a key reversal in this downtrend for both euro and yen and it has been up and away ever since - a very bullish turn for gold.

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):

1,157.84 euros per ounce (+31.6% margin)
144,681 yen per ounce (+18.2% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 1,987.72 (Friday AM):

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%

For Fibonacci folks the December-January "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 - definitely a bullish indication.

Cheers - Colonel

Photos by Mariana Titus

Friday, February 19, 2016

Gold & Copper Hang Tough; Barrick & Newmont on a Roll

Bonnie & Clyde

Eureka Miner, September 2010

Please checkout my latest Kitco News commentary 2/29/2016):

Gold & Oil: A Historical Ratio Turns Bad

Update Friday, 2/26/2016

Gold price continues to be resilient even as risk appetite improves globally. Oil price is showing some signs of price stabilization and copper is on a tear given comments from China's Finance Minister Zhou Xiaochuan ahead of the G20 meetings in Shanghai. The PBOC is trying to damp fears of a dramatic yuan devaluation and to express flexibility in future monetary policy - both bullish indicators for markets. U.S GDP was also revised upwards for the fourth quarter from +0.9% to 1.0%; core inflation, from +0.9% to +1.0%. The latest data relieves some concerns about recession.

Current Comex/Nymex prices this morning:

Gold $1,229.8/oz

WTI crudes $34.09/bbl

Copper $2.1395/lb

Barrick Gold (ABX) $13.39

Newmont (NEM) $25.69

Freeport-McMoRan (FCX) $7.675

My input to the weekly Kitco Gold Survey:

Gold's relation with commodities remains dramatically broken:

Valuations relative to global benchmarks oil and copper are near historic highs (i.e an ounce of gold buys a whole lot of either)
The correlation with the red metal is zero on both a 1-month & 3-month basis - a highly unusual combination!
Looking forward, the the 5-day correlations with gold & copper are negative - the yellow metal is traveling on a different highway; going to a different destination.

A better model for future gold price arises from its relation to currencies. Gold in euro terms continues to rise higher on Brexit concerns [i.e the U.K. June referendum to stay in or exit from the European Union] topping EUR 1,120 this week (up nearly 30% from its 2013 low). Gold and Japanese yen continue to compete as safe haven trades with the yellow metal moving sideways in yen terms blunting recent gains to the upside. Nonetheless, gold is a healthy 14% above its 2013 low in that currency.

Yellow metal progress against major devalued currencies continues to be a bullish indication. All-in-all the Lone Wolf is bullish and reiterates last week's target price.

My vote is up. Next week’s target $1,260 per ounce.

Mining Quarterly

The Spring 2016 Spring Edition of the Mining Quarterly will be out March 2.

I have recently submitted an update on the gold and copper price ranges discussed in the last issue below - gold is starting to show some glitter, pardner!!

The online version:

Winter 2015 Mining Quarterly

"Click to read" and the online version looks much like the printed magazine. My column on copper and gold prices for 2016 starts on page 85 (page 82 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 December 3:

What do copper & gold signal for 2016?

***

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for analysis (AM prices):

Goldman Sachs Commodity Index

S&P GSCI 294.7, 03/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $32.08 per barrel

Brent crude $ 33.58 per barrel

Comex copper $2.0755 per pound

Comex gold $1,228.4 per ounce

Comex silver $15.395 per ounce

Canary in the gold mine: Fate of high yield corporate bonds

iShares iBoxx $ High Yield Corporate Bond (HYG) $77.19 ($75.09 52-week low)

Trouble ahead: HYG < $82...oh-oh

Latest Nevada gasoline prices

Alpine Bar Mirror

Eureka Miner, September 2010

Gold & Copper Hang Tough

Macro drivers: Continued concerns about China, commodity-exporting economies; U.S. Federal Reserve interest rate trajectory

Wild cards: "Lower for longer" commodity prices, Fate of high yield bonds

Gold bet for next week: $1,260

Morning Miners!

For old times sake, The Eureka Miner will feature photos and excerpts from the past in this report and ones to follow. Here's an oldie interview with Barrick Gold ex-CEO Aaron Regent from September 23, 2010:

Arguing the reasonableness of $1300/oz gold, Mr. Regent stated that in "real terms" the present price is only 55% of the 1980 peak of $2300/oz (i.e. the inflation adjusted price). He also cited the stability of oil and copper prices in terms of gold (i.e barrels of oil and pounds of copper per ounce of gold). Followers of this Report understand the importance of the oil/gold and copper/gold relation since both oil and copper are proxies for global growth. Comparing their value with gold removes currency variability. Mr. Regent said that historical averages of 15 barrels of oil and 433 pounds of copper per ounce of gold are in line with today's prices...

Was Aaron Regent right about gold and oil? Checkout the "Chart to Watch" below.

It would be great if gold price would return to $1,300 per ounce this year, so far it's showing a lot of strength. Thursday Comex gold touched $1,240 presently trading at $1,228.4. I believe the 2-month uptrend is still intact. It is important to compare gold performance with currencies instead of commodities in this environment. My morning input to the Weekly Kitco Gold Survey:

On the currency front, gold continues to bullishly rise in euro terms peaking at EUR 1,110 yesterday. Gold in yen terms has softened with a strengthening Japanese currency but is still more than 13% above its 2013 low. By comparison gold in euro is more than 25% above this key benchmark. Yellow metal progress against major devalued currencies is a bullish indication.

All-in-all the Lone Wolf remains bullish and reiterates last week's target.

My vote is up. Next week’s target $1,260 per ounce

The red metal is faring pretty well too. I thought copper may return to the sub-$2 basement after the Chinese traders returned from New Year holiday. Instead, copper got a bid rising from its February 11 low of $1.998 per pound to a high today of $2.0940, a nearly 5% rise.

Freeport Up-up

Copper mammoth and benchmark miner Freeport McMoRan (FCX) is also showing signs of life trading at $7.05 per share up from its January low of $3.52 - a 100% improvement!

Barrick & Newmont on a Roll

It is exceptionally encouraging to witness Nevada's two big mining giants recovering from the depths of 2015. From September's low of $5.91 per share, Barrick Gold (ABX) is up 119% to trade at $12.94 this morning. Newmont (NEM) is up a respectable 65%; from a September $15.43 to $25.60 per share.

A sobering comparison is Barrick at $46.78 and Newmont at $64.30 per share in today's oldie September, 2010 report. Those were the days - let's hope the worst id behind us, pardner.

Chart to Watch

The ignominious demise of a gold & oil platitude [updated with corrections 2/24/2016]

In 2010, Barrick Gold ex-CEO Aaron Regent cited a historical gold-to-oil ratio of 15 bbl/oz when asked if $1,300/oz was an excessive price for gold. His reply was that gold price was in inline with the "historical average" for the ratio. [Regent Video CNBC News, 9/23/2010]

Comex Gold-to-Nymex WTI Ratio

(click on chart for larger image)

The above chart shows that Mr. Regent's comment was not unreasonable from the start QE-2 to the end of QE-3 (11/3/2010 to 10/29/2014). During that period, the mean ratio was 15.7 bbl/oz with a standard deviation of 2.5 bbl/oz. Through the high oil prices of Arab Spring & peak gold following the U.S. credit crisis, most of the data fall obediently within 2-standard deviations of the mean. After October 2014 the model diverged to a climax of 47.1 bbl/oz this February - a jaw-dropping 12.5-standard deviations.

This model has followed Mr. Regent down the mine shaft.

Lesson Learned: A technological disruption (fracking shale) has dramatically changed oil's valuation relative to gold - somewhat like comparing the value shift from wooden wheels to rubber tires. It is anyone's guess what the new steady-state ratio will be.

The gold-to-copper ratio scored a high on par with its 2009 peak (~620 lbs per ounce) on the same day as the oil ratio peaked (2/11/2016). However, the technology of mining gold and base metals hasn't changed and varies mostly in the recovery/reduction process of the extracted ore (digging ore out the ground is essentially the same). In other words, the gold/copper model is pretty good, pretty stable with R-squared ~0.6 (more statistical gibberish that indicates reasonable model quality).

Over the same QE-2 to QE-3 period, the gold-to-copper ratio was 420 lbs per ounce. Again, reasonably close to Aaron Regent's average. The current 3-month average ratio is 530 pounds per ounce. Gold value relative to copper has been slowly trending higher since mid-2006.

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 1,905.61 (Friday AM):

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%

For Fibonacci folks the December-January "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 still below the Dec-Feb fib box - a very bearish indication.

Cheers - Colonel

Photos by Mariana Titus

Friday, February 5, 2016

Gold & Copper Giddy-up Go - Year of the Red Fire Monkey

Newark Valley, Nevada
Eureka Miner, February 2011

Update Friday February 12, 2016

Comex gold touched a new high yesterday ($1,263.9 per ounce). Although the yellow metal has pulled back to presently trade $1,235.2, the ole Colonel believes it has more room to run next week. My input to this morning's Weekly Kitco Gold Survey:

A very important indicator for gold price next week will be copper. I believe when Chinese trader's return from holiday, copper will take another trip below $2.0 per pound ($4400/tonne) blunting its recent rally. As copper tumbles, gold will rally on renewed fears about decline in global growth. The gold-to-copper ratio Thursday hit levels not seen since the 2008-2009 financial crisis (620 pounds per ounce) and will likely rise further (>700) as copper seeks equilibrium with sub-$30 per barrel oil. The oil-to-copper ratio plumbed an historic low yesterday (13 pounds per barrel) and should find relief next week with falling copper prices (chart below).

On the currency front gold continues to bullishly rise in value relative to both the euro and yen. It will be interesting to monitor the Chinese yuan post-holiday given a widening spread between offshore (CNH) and official rates (CNY). Gold price has been rising in terms of yuan which has not yet dampened consumer enthusiasm for the yellow metal as a currency hedge. All-in-all the Lone Wolf is feeling rather bullish lately.

My vote is up. Next week’s target $1,260 per ounce

My thoughts on currencies and gold (near end of column):

Love For Gold Spreads Worldwide (Sarah Benali, Kitco News, 2/11/2016)

A historic low will find relief next week on falling copper prices

(click for larger view)

Update Thursday February 11, 2016

Terrific morning for gold & gold miners on another global market selloff! Investors are racing to gold, Japanese yen and US Treasuries for safe haven as oil dips below $27/bbl and stocks plunge. Gold is pulling ahead in the currency war (see chart):

Comex Au $1,263.4/oz 11:30am ET; presently $1,251.8/oz

Comex Ag $15.975/oz 11:30am ET; presently$15.965/oz

Comex Cu presently, $2.01250/lb (hanging in there, still>$2)

Nymex WTI crude $26.22/bbl new low, falls below $27/bbl; presently $27.14

10:42am ET

Newmont (NEM) $25.27 up 3.996%

Barrick (ABX) $12.48 up 7.73%

This is good news for gold miners! What a morning...

Gold is pulling ahead in the currency war (click for larger view)

Mining Quarterly

The Spring 2016 Spring Edition of the Mining Quarterly will be out March 2.

I have just submitted an update on the gold and copper price ranges discussed in the last issue below - gold is starting to show some glitter, pardner!!

The online version:

Winter 2015 Mining Quarterly

What do copper & gold signal for 2016?

***

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Numbers used for analysis (AM prices):

Goldman Sachs Commodity Index

S&P GSCI 290.55, 02/16 contract (intraday low 269.00, on 01/20/2016)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $31.11 per barrel

Brent crude $ 33.98 per barrel

Comex copper $2.0980 per pound

Comex gold $1,149.7 per ounce

Comex silver $14.745 per ounce

Canary in the gold mine: Fate of high yield corporate bonds

iShares iBoxx $ High Yield Corporate Bond (HYG) $77.85 ($75.82 52-week low)

Trouble ahead: HYG < $82...oh-oh

Latest Nevada gasoline prices

Big Smoky Valley

Eureka Miner, February 2011

Gold & Copper Giddy-up Go

Macro drivers: Continued concerns about China, commodity-exporting economies; U.S. Federal Reserve interest rate trajectory

Wild cards: "Lower for longer" commodity prices, Fate of high yield bonds

Gold bet for next week: $1,135 trend support

Morning Miners!

For old times sake, The Eureka Miner will feature photos and excerpts from 2011 in this report and ones to follow. That was the year when China began to slow but oil and copper prices started on a tear. Gold would set an all time record later that year along with some market mayhem. Here's a blurb from February 15, 2011:

Let's update the record books for the big three metals with copper's new high and add Brent crude as a reminder of what may come our way soon:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $31.275/oz 08:15:00 ET 01/03/2011, March contract most active
COMEX Copper $4.6495/lb 18:15:00 ET 02/14/2011, March contract most active
ICE Brent crude $104.30/bbl 16:30:00 ET 02/14/2011, April contract most active

Those were the days my friend!

Year of the Red Fire Monkey

Gold and copper are feeling some giddy-up go this new year of the Chinese Red Fire Monkey against a backdrop of otherwise declining commodity and equity markets. I just submitted a column on both for the upcoming Spring 2016 Edition of the Mining Quarterly which will be out March 2.

This morning Comex gold posted a 3-1/2 high of $1,164.0, now trading at $1,149.7 per ounce [UPDATE: Friday close $1,157.7, new intraday high $1,175]. Comex copper has recovered nicely from its scary $1.936 low January 19 posting its recent 2016 high yesterday at $2.138 per ounce, now trading at $2.0980 per pound. I believe gold has more to go but the red metal may need another trip to the basement after the Chinese New Year before heading higher again.

This is how the ole Colonel summarized the near term fortunes of both metals for the Kitco Weekly Gold Survey:

Will a confluence of celebrations - Super Bowl, Mardi Gras & Chinese Lunar New Year - bring more glitter to gold? Probably not.

Chinese New Year will draw liquidity form the metals market potentially increasing volatility next week. When traders there return from holiday it is likely copper will retreat from recent highs and gold may resume its rally on renewed fears of declining global growth.

In the meantime, I believe the yellow metal will step back to trend support after making 3-1/2 month highs. Key features this week were the abrupt decline of the U.S dollar relative to the euro and yen together with a rapid re-correlation of copper with gold. Although these events supported price increases for both, this may not last.

There is still divergence of monetary policy between the U.S. vis-à-vis Europe and Japan, even though the U.S. Fed may slow the pace of interest rate increase. This supports a stronger dollar. Although to a lesser degree than oil, copper production is not slowing fast enough to support much higher prices and could again retest sub-$2 per pound lows.

My vote is down. Target for next week $1,135 per ounce.

Hey, I'm not a party pooper - it's just a tough market environment, pardner!

Jobs, Jobs...

For example, this morning was a mixed monthly jobs report. It disappointed on jobs added, 151,000 versus 185,000 expected, but unemployment fell to 4.9% with a slightly higher participation rate. This restarts the debate about what the Fed will do in March with consensus still favoring a delay in rate hikes on fears that the U.S. economy is slowing. A delay will favor gold price.

Here's the whole enchilada for January:

Employment Situation Summary

Unemployment 4.9% (5.0% December)
Participation rate 62.7% (62.6% December)

Employment in mining continued to decline in January (-7,000). Since reaching a peak in September 2014, employment in the industry has fallen by 146,000, or 17 percent.

Let's put that behind us for now and look forward to a great Super Bowl weekend!

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 and has 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).

Since late-October, the margin's rapid decline relative to yen was particularly troubling. I maintain that declining value of gold relative to a devalued currency is a red flag. Fortunately, January witnessed a key reversal in this downtrend for both euro and yen - very bullish for gold!

2013 lows:

879.64 euros per ounce on 12/20/2013
122,443 yen per ounce on 6/28/2013

Friday AM (02/05/2016):

1033.44 euros per ounce (+18.8% margin)
134,655 yen per ounce (+9.8% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 1,901.35 (Friday AM):

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 January downdraft:

S&P 500 high: 2,081.56, 12/29/2015
S&P 500 low: 1,812.29, on 1/20/2015 down 12.0% & 15.1% from 5/20/2015 high

S&P 500 bear market begins below 20% at 1,707.78

For Fibonacci folks the December-January "fib box" is:

50.0% retracement from 1/20 low = 1,946.9

61.8% retracement from 1/20 low = 1,978.7

Getting inside the "fib box" is generally considered a "bullish" move to the upside; failing the "fib box" is a bearish indication.

We're still below the Dec-Jan fib box - a very bearish indication.

Cheers - Colonel

Photos by Mariana Titus