The Eureka Miner

Friday, April 4, 2014

Jobs Report Lifts Gold: Looking Back One Year

Ray of Light, Gold Country, Nevada

Mariana's fine art prints are featured in Fine Art America: Mariana Titus

Friday's AM prices used for this morning's early analysis:

COMEX Gold price = $1,299.0/oz (June contract most active)
COMEX Silver = $20.090/oz (May)
COMEX Copper = $3.0535/lb (May)

NYMEX WTI crude = $101.21/bbl (May)
ICE Brent crude = $106.67/bbl (May)

Eureka Miner’s Gold Value Index© (GVI) = 88.38 (gold value relative to a basket of commodities that include oil, copper and silver; 100 is a high gold value)
Value Adjusted Gold Price© (VAGP) = $1,228.0/oz
COMEX - VAGP = +70.96/oz; gold is trading at a premium to key commodities (bullish implication - "bottom is in for gold"; bearish caution: premium is diminishing)

As of 9:15AM PDT (percentages are from yesterday's closing prices; parentheses are a comparison to last Friday's morning price):

Barrick Gold (ABX) = $18.70 up 1.91% (Last Friday AM $18.26)
Newmont Mining (NEM) = $24.42 up 1.33% ($23.77)
Midway Gold (MDW) = $0.9997 up 1.96% (unchanged) ($1.05)
General Moly (GMO) = $0.9299 down 1.18% ($1.05 )
Timberline Resources (TLR) = $0.153 up 2.00% ($0.155 )

S&P 500 = 1,877.75 down 0.58% (1,859.73)

Morning Miners!

Today started out just fine with the Labor Department's monthly jobs report (input to the weekly Kitco Gold Survey, see below):

This morning’s non-farm payroll report has something for everyone. Job growth at 192,000 fell short of the 200,000 expectation giving a boost to both Federal Reserve doves and metal prices which respond positively to hints of continued monetary accommodation. However, the closeness of the jobs number buoyed by modest upward revisions to previous months surged the S&P 500 to new all-time highs at the open as equity bulls divine slow but steady domestic growth from the data. Comex gold briefly broke the key $1,300 per ounce level and is presently trading near that number. Reduced anxiety about Federal Reserve tightening and simmering geo-political tensions in the Ukraine should support a further advance for the yellow metal. My gold target for next week is therefore up, likely stalling at $1,320 per ounce technical resistance.

Since I did my early morning analysis, Comex gold is up a bit more at $1,304.8 per ounce and the S&P 500 has lost some sizzzle dropping back from yesterday's close by 0.6% to trade at 1,877.75. The early all-time record nearly broke 1,900 at 1,897.28 - simply amazing [PM update: The S&P 500 lost a lot of sizzle as the trading day wore on closing at 1,865.09; Comex gold closed at a resilient $1,303.5 per ounce].

[This analysis was featured in today's Kitco Weekly Outlook: Gold Traders To Keep Eyeing U.S. Economy, Russia For Next Direction (April 4, 2014 3:10PM, Allen Sykora, Kitco News)]

Looking back one year...

I thought it would be fun to look at the labor report reaction one year ago less a day. On April 5, 2013 the expectation was also 200,000 new jobs but reality delivered a meager 88,000. On that dire note, The Eureka Miner observed:

OK, what are the positives? The Federal Reserve will no doubt continue their present quantitative easing program (aka QE3) to prop up the U.S. stock markets and put a floor under commodity prices, including metals. Scary reports generally boost gold prices making an absolutely horrible week for gold just a horrible week as I explain in my weekly input to the Kitco Gold Survey below. Copper prices that were falling through the floor yesterday (intraday Comex low of $3.306 per pound) are trading presently at $3.3465. The S&P 500 fell to 1,539.8 shortly after the open but has since crawled up to 1,541.39. Earlier in the week the S&P made an all-time closing high of 1,570.25 - shucks, we're only down 1.8% on a bum report!

A year later, U.S. employment recovery is not stellar but fairly decent. The morning employment rate is unchanged at 6.7%; a year ago it was 7.6%. A sample of last April's CNBC Business News post-report comments:

"A punch to the gut!"
"A puzzler for the Fed!"
"A tough report..."
"Massive decline in retail..."
"Terrible numbers!"
"Struggling to find anything good!"
"It's all about the sequester!"
"No it's not!"

Hmm, the rhetoric has at least tamed down a bit nowadays.

QE3 is still with us. Although now tapering off, monetary easing continues to provide some floor to metal prices. It is encouraging that Comex copper has recovered above $3 to trade at $3.0535 per pound this morning but discouraging when compared to the April 5, 2013 price of $3.3465. Champagne corks would be hitting the Jackson House ceiling if gold prices were $1,540 today - last year that number made "an absolutely horrible week for gold just a horrible week." So it goes.

One thing consistently bullish is rising U.S. stock markets. They were punching out new highs then and are still punching out new highs. When will these brave equities be punched out? Who knows? Only the wildest-eyed bulls were predicting S&P 500 at 1,900 in 2014 - we're almost there, pardner, and it's only April.

Take some heart, things really are getting better even if you don't believe in stock market exuberance or find little joy in recent metal prices. Here's a positive thought from the Wall Street Journal today:

All of March's gains came from the private sector, bringing non-government employment to a new milestone. Private payrolls reached 116.09 million last month, surpassing the former high of 115.98 million reached in January 2008. "The private sector lost 8.8 million jobs during the labor market downturn and has gained 8.9 million since the employment low in February 2010," said Bureau of Labor Statistics Commissioner Erica Groshen. (WSJ, April 4, 2012)

May 21, 2013, the ole Colonel turned bearish on gold prices. On January 15, I turned bullish and remain so.

It's not a return to gold's heydays of recent years but I believe the lows are in.

I don't think any gold miners will complain if prices hover around $1,350 per ounce and that is certainly in the cards for 2014. An improving U.S. economy and China achieving (albeit lower) 7% GDP this year should keep copper prices above $3 per pound with or without QE3.

There's a growing ray of light over Gold Country, Nevada.

Keep the faith, pardner!

Kitco Gold Survey

My weekly input to the Kitco Gold Survey:

04/04/2014 (10:25 AM CDT)

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Up. My target price is $1,320 per ounce.

Q. Why?

This morning’s non-farm payroll report has something for everyone. Job growth at 192,000 fell short of the 200,000 expectation giving a boost to both Federal Reserve doves and metal prices which respond positively to hints of continued monetary accommodation. However, the closeness of the jobs number buoyed by modest upward revisions to previous months surged the S&P 500 to new all-time highs at the open as equity bulls divine slow but steady domestic growth from the data. Comex gold briefly broke the key $1,300 per ounce level and is presently trading near that number.

Reduced anxiety about Federal Reserve tightening and simmering geo-political tensions in the Ukraine should support a further advance for the yellow metal. My gold target for next week is therefore up, likely stalling at $1,320 per ounce technical resistance.

For $1,320 per ounce gold we can expect to see silver in a statistically bounded range* of $20.0-$20.8 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $20.355 per ounce. Volatility in the gold-to-copper ratio has decreased allowing the first range prediction in several weeks for copper price. Future copper is in a wide but statistically bounded range* of $2.75-$3.21 per ounce. Copper is expected to have a positive bias with respect to a range mean of $2.9776 per pound.

(* +/- 2-standard deviations, 1-month basis: prices that fall outside this range likely signal a market-changing event. Bias from mean infers expected market direction from a 1-month gold ratio average)

The S&P 500 opened with an all-time high of 1,897.28 but has fallen back some at 1,891.95, up 1.9% for the week in morning trading. Comex gold is up 0.4% for the week surrendering 1.5% in value to the S&P at $1,299.0 per ounce. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

The ratio slid into a descending channel mid-November 2012 as money rotated away from gold assets into the U.S. stock market. This trend transitioned to a sideways channel July 5, 2013 (dashed blue lines, AUSP=0.7431). The AUSP then broke decisively below the lower boundary for a second leg of descent (dashed red lines). This channel was bullishly broken to the upside in late-January and then rose above the lower boundary of the sideways channel (blue dashed line) However, this advance has now bearishly retreated below the lower boundary (red circle). This morning’s gold price represents a loss of 46.0% of value relative to the November peak (AUSP=1.2710).

The yellow metal halted its loss in value to oil and copper for the week, fractionally close to both; oil lost slightly to the red metal. The chart below is a week-over-week valuation matrix. The first row is the current commodity price in the given currency. For all other rows, read “1 unit of row A buys X units of column B”; for example, “1 ounce of gold buys 425.4 pounds of copper.” Percentages are deltas over one week.

On Jan. 14, I changed sides from bear to bull on gold price as explained in my Kitco commentaries: From Gold Bear to Gold Bull (Kitco News, 2/18/2014), Gold’s Wild Ride Down May Soon Be Up (Kitco News, 1/21/2014). However, there are some troubling signs in the ether as explained in my latest column, Oil, Copper & Gold Transmit a Distress Signal (Kitco news, 3/17/2014). Bearish trends have re-surfaced for the yellow metal but gold got a welcome breather this week.

Since November 2012, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil. However, its value relation with respect to copper has recovered ground in 2014.

As measured by the Eureka Miner’s Gold Value Index (GVI, Ref 1), the value of gold relative to global commodities copper and oil and companion metal silver is 88.38, below the key-100 level and the 1-month moving average of 90.65. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,228.0 per ounce or $70.96 discount to actual gold price (i.e. gold is trading at a diminishing premium to a basket of key commodities).

Cheers,

Colonel Possum

Photos by Mariana Titus

Please checkout bayoutales.com for books and book orders

Mariana's fine art prints are featured in Fine Art America: Mariana Titus

Paintings by Mariana Titus, The Three Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday, March 28, 2014

Gold Below $1,300 (Again); More Yuan per Buck; Timberline Gets Another Breather

Main Street, Austin, Nevada

*** Local Mining News ***

Timberline’s Plan of Compliance Accepted by NYSE MKT (Press release, 3/25/2014)

African Barrick seeks new name after partially splitting from Canadian parent (Mining News, March 19,2014)

Timberline and Wolfpack Gold to Merge (Press Release, March 13, 2014)

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:

Oil, Copper & Gold Transmit a Distress Signal (Kitco News, Mar. 18, 2014)

My latest column in the Mining Quarterly:

Major McCoy and the Rebellious Ores of Eureka (p. 83-87 online, MQ Spring Edition 2014)

Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday's AM prices used for this morning's early analysis:

COMEX Gold price = $1,288.5/oz (June contract most active)
COMEX Silver = $19.760/oz (May)
COMEX Copper = $3.0405/lb (May)
NYMEX WTI crude = $102.07/bbl (May)
ICE Brent crude = $108.26/bbl (May)

Eureka Miner’s Gold Value Index© (GVI) = 88.20 (gold value relative to a basket of commodities that include oil, copper and silver; 100 is a high gold value)
Value Adjusted Gold Price© (VAGP) = $1,220.6/oz
COMEX - VAGP = +67.91/oz; gold is trading at a premium to key commodities (bullish implication - "bottom is in for gold"; bearish caution: premium is diminishing)

As of 10:20AM (percentages are from yesterday's closing prices; parentheses are a comparison to last Friday's morning price):

Barrick Gold (ABX) = $18.26 up 1.00% (Last Friday AM $19.325)
Newmont Mining (NEM) = $23.77 up 3.62% ($24.58)
Midway Gold (MDW) = $1.05 up 3.96% (unchanged) ($1.10)
General Moly (GMO) = $1.05 down 0.94% ($1.045 )
Timberline Resources (TLR) = $0.155 up 6.09% ($0.1598)

S&P 500 = 1,859.73 up 0.58% (1,877.90)

Morning Miners!

Here is the most bullish comment the ole Colonel can make on recent gold price declines - sometimes it's smart to throw a rock in the mineshaft to test its depth.

As the issues with Russia and the Ukraine fade and market participants mull thoughts of Federal Reserve tapering and rising interest rates, gold prices will fall until physical buyers return in earnest - that marks the bottom of the current shaft. This morning Comex gold dipped to $1,286.1 per ounce before trading up to $1,288.5 (as I write this column, June contract most active).

Is this the bottom or just a false echo? I threw a rock down the shaft with Kitco News Global Editor Debbie Carlson in a second Q&A yesterday (see below). Not much has changed.

My most recent thoughts on price direction next week are given in the input to this week's Kitco Gold Survey (following the Q&A):

This week, the yellow metal continued its broad decline, losing not only U.S. dollar price but significant value relative to equities and global commodities oil and copper. With the Ukraine crisis in idle for the time being, gold is lacking a catalyst to reverse its recent decent below $1,300 per ounce. A test for a physical buying floor may be in the offing although most of the selloff has been technical in nature. Continued weakening of the yuan versus the U.S. dollar also creates headwinds for buying in China. Although volatile, the U.S. dollar index is ending flat for the week and thereby less of a factor on the price movements of dollarized commodities. My gold target for next week is $1,300 per ounce assuming there may be one more charge to go in the land of the Light Brigade.

On a positive note, Comex copper is back above the key $3-level at $3.0405 per pound and the gold miners are mostly up on a down day for the yellow metal (above).

Keep the faith, pardner.

Carlson on Gold Price & Chinese Yuan Devaluation (Part II)

We have been following the dramatic weakening of the Chinese yuan since late-February. Last week, I asked Kitco Global Editor Debbie Carlson to explain some of the dynamics behind this change. This is a follow-up Q&A with Carlson conducted yesterday before today's dip to $1,286.1 per ounce.

Thursday, March 27 Q&A

Eureka Miner: On a morning with gold below $1,300 and the Ukraine Crisis in pause mode, a good test of physical support may be in the offing - no?

Carlson: Definitely of technical chart support, not sure yet about physical demand. Asian analysts said the slip under $1,300 didn't inspire any buying. It's only at a month low so perhaps shoppers are keeping their purses shut.

Eureka Miner: I noticed TD securities thinks it may be at the $1,295-level.

Carlson: Yes, that area as of Wednesday was the 200-day moving average for spot prices. That caused some excitement in the markets when we moved above it on the way up. This story by Kitco's Allen Sykora talks about what might happen if gold futures close under $1,300:

Technical Activity In Focus As Gold Futures Fall Back To 50, 200-Day Averages (Allen Sykora, Kitco news, March 26, 2014)

Eureka Miner: Continuing our conversation from last week, Chinese demand has been lackluster for a variety of reasons with SGE still trading at a discount to spot gold.

Carlson:Indeed, it has. Several traders who watch physical demand have said as much.

Eureka Miner: One factor we discussed was the recent devaluation of the yuan relative to the U.S dollar. Last Friday the yuan hit a high for the year at 6.2127 (USD/CNY), up 3.1% from its January low. This week the yuan retreated from this peak but appears to be on the march higher again. My understanding is that the new 2% trading band, moved from 1% March 15, gives a sense for how much higher the PBOC is willing to go in the near term. Thursday's reference rate is 6.1465 up from Wednesday's 6.1440. Using their latest target, a 2% rise would give 6.2694 - nearly 4% above January's number. How do these moves compare to seasonal softness?

Carlson: I'm no expert on currency fluctuations, but when the band expansion was announced, at least one currency analyst said in the past the yuan never really tested its full 1% band, so maybe this will give the currency more room to move. As far as Chinese currency weakening, gold analysts have said that's likely a factor.

Eureka Miner: Thank you!

Timberline (TLR) Gets Another Breather

Good news - the New York stock exchange (NYSE) has accepted a Plan of Compliance from Timberline Resources (TLR):

Timberline’s Plan of Compliance Accepted by NYSE MKT (Press release, 3/25/2014)

The NYSE was threatening to de-list TLR from the exchange but the new plan puts that decision off to this summer as the submitted plan is reviewed. Timberline has a diverse footprint in Eureka County of claims and recent explorations:

Timberline's exploration is primarily focused on the major gold districts of Nevada, where it is advancing its flagship Lookout Mountain Project toward a production decision while exploring a pipeline of quality earlier-stage projects at its South Eureka Property and elsewhere. Timberline's leadership has a proven track record of discovering economic mineral deposits that are developed into profitable mines.

The Report wishes them the best of luck on their new direction forward.

Spring 2014 Mining Quarterly

As mentioned for the last several reports, the Spring 2014 Mining Quarterly is out and can be accessed online.

MQ editor Marianne Kobak McKown has done another terrific job putting together the latest mining news and events in Northern Nevada. The ole Colonel submitted a column on Eureka's Major William Wirt McCoy - someone we can be very proud as we celebrate Nevada's Sesquicentennial:

Major McCoy and the Rebellious Ores of Eureka (p. 83-87 online)

In his 70 years, Major McCoy was a physician, cattleman, statesman and mining entrepreneur. He served with distinction in the Mexican-American War and the legislatures of three states. Most importantly for Nevada, he found an economic way to reduce the stubborn argentiferous lead ores of the Eureka mining district. His solution brought Eureka from a struggling mining camp in 1869 to become Nevada’s second largest city with a population of 10,000 and a world class lead-silver producer by 1878. Before his death in 1881, this remarkable man had contributed to the creation of Nevada through his brave actions in the Mexican-American War, served as a Senator of the “Battle Born State” and helped form Eureka town site and County.

My most sincere thanks to the many folks in Eureka that contributed to the historical and field research for this article. This included locating the sites of the McCoy waterworks, Eureka Smelting Company, brickyard south of town and quarry for the sandstone that revolutionized smelting in the Eureka mining district.

Happy reading, pardner!

Kitco Gold Survey

My weekly inpt to the Kitco Gold Survey:

03/28/2014 (10:26 AM CDT)

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Up. My target price is $1,300 per ounce.

Q. Why?

This week, the yellow metal continued its broad decline, losing not only U.S. dollar price but significant value relative to equities and global commodities oil and copper. With the Ukraine crisis in idle for the time being, gold is lacking a catalyst to reverse its recent decent below $1,300 per ounce. A test for a physical buying floor may be in the offing although most of the selloff has been technical in nature. Continued weakening of the yuan versus the U.S. dollar also creates headwinds for buying in China. Although volatile, the U.S. dollar index is ending flat for the week and thereby less of a factor on the price movements of dollarized commodities.

My gold target for next week is $1,300 per ounce assuming there may be one more charge to go in the land of the Light Brigade.

For $1,300 per ounce gold we can expect to see silver in a statistically bounded range* of $19.5-$20.9 per ounce. Silver is expected to have a neutral bias with respect to a range mean of $20.200 per ounce. There is too much volatility in the gold-to-copper ratio to make a reliable range prediction for copper price. It is likely that red metal prices will hover around the $3 per pound territory until more positive data emerges from China.

The S&P 500 is near where it closed last Friday trading at 1,861.00, down 0.3% for the week in morning trading. Comex gold is down 3.6% for the week surrendering nearly 2% in value to the S&P at $1,288.5 per ounce. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

However, this advance has now bearishly retreated below the lower boundary (red circle). This morning’s gold price represents a loss of 44.7% of value relative to the November peak (AUSP=1.2710).

The yellow metal lost significant ground relative to oil and copper for the week; oil gained only slightly on the red metal although both enjoyed substantial dollar gains. The chart below is a week-over-week valuation matrix. The first row is the current commodity price in the given currency. For all other rows, read “1 unit of row A buys X units of column B”; for example, “1 ounce of gold buys 423.8 pounds of copper.” Percentages are deltas over one week.

Since November 2012, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil and copper. However, its value relation with respect to copper has recovered some ground in 2014.

As measured by the Eureka Miner’s Gold Value Index (GVI, Ref 1), the value of gold relative to global commodities copper and oil and companion metal silver is 88.20, below the key-100 level and below the 1-month moving average of 90.32. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,220.6 per ounce or $67.91 discount to actual gold price (i.e. gold is trading at a diminishing premium to a basket of key commodities).

Cheers,

Colonel Possum

Photos by Mariana Titus

Please checkout bayoutales.com for books and book orders

Paintings by Mariana Titus, The Three Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Friday, March 21, 2014

Gold Back in the Trenches, Copper Bounce; Watch the Chinese Yuan

Main Street, Eureka, Nevada

*** Local Mining News ***

African Barrick seeks new name after partially splitting from Canadian parent (Mining News, March 19,2014)

Timberline and Wolfpack Gold to Merge (Press Release, March 13, 2014)

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:

Oil, Copper & Gold Transmit a Distress Signal (Kitco News, Mar. 18, 2014)

My latest column in the Mining Quarterly:

Major McCoy and the Rebellious Ores of Eureka (p. 83-87 online, MQ Spring Edition 2014)

Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday's AM prices used for this morning's early analysis:

COMEX Gold price = $1,339.3/oz (April contract most active)
COMEX Silver = $20.440/oz (May)
COMEX Copper = $2.9555/lb (May)
NYMEX WTI crude = $99.27/bbl (May)
ICE Brent crude = $107.18/bbl (May)

Eureka Miner’s Gold Value Index© (GVI) = 92.13 (gold value relative to a basket of commodities that include oil, copper and silver; 100 is a high gold value)
Value Adjusted Gold Price© (VAGP) = $1,214.7/oz
COMEX - VAGP = +124.64/oz; gold is trading at a premium to key commodities (bullish implication - "bottom is in for gold")

As of 9:26 AM (percentages are from yesterday's closing prices; parentheses are a comparison to last Friday's morning price):

Barrick Gold (ABX) = $19.325 down 0.49% (Last Friday AM $20.855)
Newmont Mining (NEM) = $24.58 (unch) % ($25.97)
Midway Gold (MDW) = $1.10 down 3.51% (unchanged) ($1.28)
General Moly (GMO) = $1.045 up 3.47% ($1.11)
Timberline Resources (TLR) = $0.1598 down 3.09%% ($0.19)

S&P 500 = 1,877.90 up 0.31% (1,846.60)

Morning Miners!

If gold's fortune has an evil twin, she was busy this week. Posting a respectable intraday high of $1392.6 per ounce was a good way to start the week but then there was triple-trouble as explained in my input to this week's Kitco Gold Survey (see below):

Last week gold enjoyed a notable bounce in U.S. dollar price and significant value gains relative to equities and key commodities. This week, the yellow metal experienced a broad reversal in fortunes after the boil came off the Ukraine crisis and Federal Reserve Chairman Yellen hinted at higher interest rate hikes sooner than later. A rapidly weakening yuan versus the U.S. dollar has also created headwinds for physical buying in China. The dollar regained some ground on the euro and yen too putting further pressure on dollarized commodities.

Recent gold price fluctuations are reminiscent of trench warfare; incremental ground lost, then recaptured only to be lost again. For example, this morning’s gold price is only a few dollars from the 50% retracement of last June’s low to last May’s high ($1,338 per ounce for the current April contract) – an area of pricing revisited many times over the last nine months. On the positive side, the trend has been mostly up for 2014 and revisiting last year’s lows is unlikely. Attempting to break the psychologically important $1,400-level remains elusive as the rally stalled this week at a Comex intraday high of $1,392.6.

As the impact of the Yellen comment fades, a few more turns in the Ukraine crisis will no doubt return some safe-haven luster. My gold target for next week is therefore $1,370 per ounce.

Chinese Yuan Devaluation

We started following the dramatic weakening of the Chinese yuan in late-February and the pace has accelerated. I asked Kitco Global Editor Debbie Carlson to explain some of the dynamics behind this change:

Eureka Miner: The Chinese yuan [USD/CNY] is up another 0.5% today; 3.0% higher than its January low. The pace of yuan devaluation is striking. Is the story that China is allowing the fall to advantage exports or is this an insight into economic weakness or both?

Carlson: That's been the debate, why they're doing it. If they're doing it to increase exports, economists are worried about that. But if they're doing it because they're wanting to do this structural shift in their economy, then it may not have greater ramifications. No one is quite sure yet.

Eureka Miner: This can't be good for gold physical demand, eh?

Carlson: Yes, a weaker yuan is bad for Chinese gold demand. I think we're seeing this pay out in the somewhat reduced volume at the SGE [Shanghai Gold Exchange] and especially the modest premium/sometimes discount SGE trades to spot. I don't necessarily buy the idea that Chinese people are flocking to gold to preserve their value. Maybe people with money are doing that, but the average Chinese person is still poor.

Eureka Miner: And that explains why their GDP can grow so high?

Carlson: Correct, and if it's a decision between buying a month's worth of dinners for the family or a 1/2 ounce of gold, what would be your choice?

Eureka Miner: Got it. Thanks, I'll share this with my readers!

Debbie Carlson did a terrific column on metals last week that looks at the yuan and other factors currently challenging prices:

Silver, Copper Could Weaken Further If Chinese Economic Data Disappoints; Copper Breaks $3/Lb (Kitco News March 11, 2014)

I included her thoughts and some further analysis in my latest Kitco commentary:

Oil, Copper & Gold Transmit a Distress Signal (Kitco News, Mar. 18, 2014)

Copper Bounce and Freeport McMoRan (FCX)

Today's bounce in copper price and the resilience of copper giant Freeport-McMoran (FCX) throughout the pullback is encouraging. Comex copper is currently trading at $2.9555 per pound up 3% from Wednesday's $2.8770 intraday low.

[PM update: FCX closed up 4.56% at $32.31 breaking out of a $30.4 to $31.8 trading range where it has been trapped since March 10. This is potentially a bullish development for the mining sector. Often considered a bellwether stock, Freeport has also diversified into oil and natural gas. The annualized dividend is a healthy 3.87% at the closing price today. Please do your own research, markets can turn on you faster than a feral cat.]

Keep the faith, pardner!

Spring 2014 Mining Quarterly

Kitco Gold Survey

My input today for the Weekly Kitco Gold Survey:

03/21/2014 (10:40 AM CDT)

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Up. My target price is $1,370 per ounce.

Q. Why?

Last week gold enjoyed a notable bounce in U.S. dollar price and significant value gains relative to equities and key commodities. This week, the yellow metal experienced a broad reversal in fortunes after the boil came off the Ukraine crisis and Federal Reserve Chairman Yellen hinted at higher interest rate hikes sooner than later. A rapidly weakening yuan versus the U.S. dollar has also created headwinds for physical buying in China. The dollar regained some ground on the euro and yen too putting further pressure on dollarized commodities.

Recent gold price fluctuations are reminiscent of trench warfare; incremental ground lost, then recaptured only to be lost again. For example, this morning’s gold price is only a few dollars from the 50% retracement of last June’s low to last May’s high ($1,338 per ounce for the current April contract) – an area of pricing revisited many times over the last nine months. On the positive side, the trend has been mostly up for 2014 and revisiting last year’s lows is unlikely. Attempting to break the psychologically important 1,400-level remains elusive as the rally stalled this week at a Comex intraday high of $1,392.6.

As the impact of the Yellen comment fades, a few more turns in the Ukraine crisis will no doubt return some safe-haven luster. My gold target for next week is therefore $1,370 per ounce.

For $1,370 per ounce gold we can expect to see silver in a statistically bounded range* of $20.5-$22.7 per ounce. Silver is expected to have a negative bias with respect to a range mean of $21.624 per ounce. There is too much volatility in the gold-to-copper ratio to make a reliable range prediction for copper price. It is likely that red metal prices will hover below or near the sub-$3 per pound territory until more positive data emerges from China.

Today the S&P 500 set a new intraday record of 1,883.97 and is up 2.2% from Friday’s close at 1,881.47 in morning trading. In contrast gold is down 2.9% for the week losing 5% on the S&P. Comex April gold is presently trading at $1,339.3. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

The ratio slid into a descending channel mid-November 2012 as money rotated away from gold assets into the U.S. stock market. This trend transitioned to a sideways channel July 5, 2013 (dashed blue lines, AUSP=0.7431). The AUSP then broke decisively below the lower boundary for a second leg of descent (dashed red lines). This channel was bullishly broken to the upside in late-January and last week broke the lower boundary of the sideways channel (blue dashed line) However, this week’s ratio has bearishly fallenl below the lower boundary (reddish-brown circle). This morning’s gold price represents a loss of 44.0% of value relative to the November peak (AUSP=1.2710).

The yellow metal lost significant ground relative to oil and copper for the week; oil gained only slightly on the red metal. The chart below is a week-over-week valuation matrix. The first row is the current commodity price in the given currency. For all other rows, read “1 unit of row A buys X units of column B”; for example, “1 ounce of gold buys 453.2 pounds of copper.” Percentages are deltas over one week.

Since November 2012, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil. Its value relation with respect to copper has recovered significant ground in 2014.

As measured by the Eureka Miner’s Gold Value Index (GVI, Ref 1), the value of gold relative to global commodities copper and oil and companion metal silver is 92.13, below the key-100 level but above the 1-month moving average of 88.94. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,214.7 per ounce or $124.64 discount to actual gold price (i.e. gold is trading again at a premium to a basket of key commodities).

Cheers,

Colonel Possum