Natural Gas & Precious Metal Prices To Spike Higher In 2014

Something quite interesting is taking place in the U.S. natural gas market this year.  As frigid temperatures blanketed the entire East Coast this winter, record natural gas demand has resulted in multi-year lows in gas storage levels.

The EIA came out with their Natural Gas Storage Report today showing a stunning 34% lower gas storage level compared to the same time last year.

U.S. Natural Gas Storage 21314

If you look at the light blue line (2014 storage trend), you will notice that current gas storage level is already below the lowest level reached at the end of March, 2013.  The dark blue dashed-line is my estimation of where the storage level will be by the end of March this year.

Furthermore, the lowest 5- year range of gas storage has never fallen below 1,600 billion cubic feet.  The data from the EIA Natural Gas Storage table shows that we have already reached this extreme low point.

U.S. Natural Gas Storage Table 21314

Last year’s Feb. 7th storage level was 2,549 Bcf (billion cubic feet), whereas this year the amount is 863 Bcf lower at 1,686 Bcf.  This is very disconcerting because the market will continue to draw gas supplies from underground storage until the end of March (based on 5-year trends).

Energy analyst Bill Powers (who I interviewed in January) believes we could see a gas storage level at 1,200 Bcf by the end of this month.  If the cold weather pattern plaguing the North East continues for the rest of the winter, we could see the U.S. gas storage level reach 800 Bcf by the end of March.

If the natural gas storage level falls this low, it will put severe strain on the U.S. natural gas market going into the spring and summer (the time when the industry begins to rebuild the underground storage supplies).  Already traders are pushing the price of natural gas well above the $5 level:

Bloomberg Natural Gas Price Feb 13 2014

UPDATE:  The price of Natural Gas closed up $0.40 (8.3%) at $5.22 today and is currently up $0.07 (1.3%) at $5.29 in the foreign markets.

Bill Powers (last year) forecasted that prices of natural gas would reach $5-$7 with much higher spikes in the next few years.  We have already reached $5 level and will more than likely see much higher natural gas prices as the record draw-down of underground gas storage continues.

Another factor that could result in much higher natural gas price spikes is the inability for the industry to maintain current shale gas production.  As I mentioned in my earlier article, 2014: The Year The Shale Gas Bubble Bursts & The Boom For Precious Metals?, the annual U.S. natural gas decline rate is a staggering 24%.

Thus, the industry has to replace nearly 100% of its production in 4 years to keep production flat — much less growing.  This is a whole lot of gas folks.

I will provide more details of the U.S. and world energy situation in my upcoming U.S. & GLOBAL COLLAPSE REPORT out later this month.

I recommend Bill Powers book, Exploding The Natural Gas Myth: COLD, HUNGRY AND IN THE DARK.  You can also follow him at his twitter address below:

https://twitter.com/billpowers1970

Big Spikes In the Precious Metals Coming In 2014?

Kitco Gold & Silver 21314

As the price of natural gas topped above $5 today, Gold finally surpassed the psychological $1,300 level.  This is quite interesting as the largest gold producer on the planet, Barrick just released its Q4 2013 results showing  “All-in costs” for mining gold at $1,317 an ounce.

As record demand for the yellow metal continues in 2014, the current price of gold is still below the total cost of production from one of the largest gold miners in the world.

The problem now plaguing the mining and energy industry is the huge increase in capital expenditures as prices remain flat (oil) or decline (gold).

For example, Goldcorp produced 2.6 million oz of gold in 2013, but stated an estimated negative $1.3 billion in Free Cash Flow.  Free cash flow is different from cash flow.  To get Free Cash flow, you deduct capital expenditures and dividends from the operation cash flow.

What this means is that Goldcorp is spending more on Capex and dividends than it is making by its operations.  Goldcorp isn’t the only gold producer suffering from negative free cash flow, many of the top gold miners are as well.

For example (according to Y-charts.com), Barrick stated a negative $913 million in free cash flow for the first nine months of 2013.  I would imagine this figure will increase as the results from the fourth quarter are included.

So the here’s the question… how can the top gold miners report $1,100-$1,300 All-in costs, when their free cash flow is negative?  Of course some of the capital expenditures are for new projects, but many of these new mining projects will add production just to offset declines or planned shut-downs from older mines.

2014 may indeed be the pivotal year for the financial markets.  There are so many negative factors going forward, I believe the broader stock & bond markets will finally succumb to the weight of the Hundred Trillion Dollar Derivative Monster.

David Stockman, Former Director of the U.S. Office Management & Budget spoke about the huge derivative bubble in a recent interview with King World News.  He believes Fed Chairman Janet Yellen and the Keynesians at the Fed are playing with “Fire” with their insane monetary policy.

Eric King asked David Stockman’s opinion about the Fed’s massive trading room:

That (Fed) trading room is a weapon of financial mass destruction.  That is the point that people need to understand.  The people running the Fed today have no clue of the danger that they are creating with this massive market manipulation and intervention.

The market isn’t trading on fundamentals whatsoever.

…… you know, the Gold Market could explode at any moment.

Stockman really sums up the entire financial situation in those few sentences.  If you haven’t listened to the interview, I highly recommend it.

As the U.S. and world move closer towards financial collapse, the volatility in the markets will continue to increase.  With the price of gold and silver still near their cost of production, I believe the volatility will impact the precious metals in a positive way, whereas the broader stock markets will suffer the opposite reaction.

2014 may well be the year that the price of natural gas, gold and silver all spike together.

I will be providing updates on Silver & Gold Eagle sales at the U.S. Mint, break-even analysis of the top 12 primary silver miners and energy data in the upcoming weeks.  Please check back at the SRSrocco Report for new posts and articles.

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18 Comments on "Natural Gas & Precious Metal Prices To Spike Higher In 2014"

  1. Do you know of any natural gas ETFs that trade solely on the value of natural gas and not companies that extract natural gas? It’s an attractive trade, but it’s probably not worth it in the long run. Gold, silver, First Majestic Silver Corp., and maybe a couple oil companies as an investment portfolio is probably good enough.

    • brendan,

      The UNG, is the one of largest NatGas ETF’s. There is also the UNL, the United States 12 Month Natural Gas fund. However, the UNG has the highest average daily volume at over 12 million shares.

      steve

      • steve, ty for everything. Excellence, as usual. Slow down if need be, cause you can start on fire from friction alone. lol n Stockman is one rogue rabbit that knows his stuff tell uwhat.

        That D monster being onloaded to CCPs is THE act of the century, passing the t$ risk to the constituents. IMF paper 11/66 Singh “After Lehman, regulators are “forcing” en-masse sizable OTC derivatives to CCPs. This is a huge transition, primarily to move this risk outside the banking system. These new entities may also be viewed as “derivative warehouses,” or concentrated “risk nodes” of global financial markets. Figure 1 illustrates that on average, each of the top ten SIFIs carries about $100 billion of derivatives- related tail risk—this is the cost to the financial system from the failure of a SIFI (see Section IV and Annex 1 for a snapshot of a SIFI’s derivative risk from its financial statement). Yet, instead of addressing the derivatives tail risk, the present regulatory agenda is focused on offloading all (or most) of the OTC derivatives book to CCPs” which are backed by the taxpayer, by the Fed via the DoddFrank law and as well, Citadel’s founder gleefully reminded at the NY Times ‘Dealbook’ conference that “significant credit… [and] operational risks,” would be off their backs (and onto ours).

        Story of the century. Many don’t understand the implications. Hard to state how bad contracts that don’t net out will be bourne by some CCP relief fund, and if the figure becomes larger, by the populace. Further, this allows for the liability expansion to proceed as asset reuse is more efficient and has these newly-found backers.

  2. Steve – please correct me if I’m wrong, but I understand that in ’13 ETF’s / Comex provided 1000 of the 4700 tons of supply (or 21%) to meet the record demand…so far in ’14 Chinese demand @ new record highs in Jan, India looking to officially get back in the gold biz, and now the ETF’s are net buyers…GLD as the largest sold 560 tons last year (drawdown from1350 —>790 tons) but so far this year adding 10 tons…that means somewhere there is maybe a 25% shortage of supply vs. demand…

    funny the price of gold wouldn’t go parabolic in this circumstance…very strange this massive, obvious shortage isn’t causing a huge short squeeze, seriously curious…Almost like the price we are watching has little correlation to the fundamentals of underlying asset???

    • and now oil / nat gas @ very high levels further putting negative pressure on producers.

    • Chris,

      From the data that I have come across, it looks like the Gold ETF’s supplied approximately 900 metric tons in 2013. However, it is still a great deal of gold and very close to your 1,000 mt figure.

      Chris, your comment:

      Almost like the price we are watching has little correlation to the fundamentals of underlying asset???

      …. is spot on. There market is totally disregarding fundamentals. This is exactly what David Stockman spoke about in his interview on KWN. Because the majority of the worlds investment funds have been siphoned into DERIVATIVES, there is no free market mechanism to properly price commodities, good & services.

      Peak Oil, the falling EROI & declining Net Oil Exports are putting severe pressure on the Global Derivative market.

      The death of the Hundred Trillion Dollar Derivative Monster is approaching.

      steve

  3. Silver is spiking right now overseas. Apmex has a deal going on Ebay right now. Ten sunshine rounds for $219.99 with free shipping. I seriously doubt they will be offering this much longer given the recent upturn in gold and silver. I think you can measure the lifespan of this deal in terms of minutes.

  4. HUMANITY in MASS IS a MESS,,,,,,,,,,,,,,,,,,,,FLY with the CROWS,get shot with the CROWS,,,,,,,,,,,Grandpa ,gave me 2 dimes to help when I was at USC,got a gallon of gas with them,,,,,,,still can, guess all three of his gifts would add a verse to ʻTHE GAMBLERʻ song by KENEEEEEEEEE

  5. “So the here’s the question… how can the top gold miners report $1,100-$1,300 All-in costs, when their free cash flow is negative?

    Hard not to take a swipe at a question posed like that! In fact, that may be one of the things that makes this site more interesting than your usual metals blog… the host actually asks questions instead of merely proffering endless ‘answers’ that suit the confirmation bias of the selected audience.

    And even though Steve openly acknowledges the perceived need to cater to that audience consensus which for convenience I’ll call the ‘hard money’ school, it’s little things like this that open up the debate to a much more creative level than that which can be had from watching battling monetary theorists make fools of themselves by attempting to fit real world situations into ‘economic laws’ which have zero relation to facts on(or below -as the case may be!) the ground. Indeed, historical truth and academic ‘knowledge’ seem much at opposite ends of the spectrum more often than not.

    One of the biggest problems in trying to make sense of reams of data, and glean from them some overall sense of our current situation, is the assumption that there is in operation anywhere in the West something even remotely resembling a “market economy”, a private sector which runs on and is motivated by entrepreneurial talents, a balanced playing field where risk and innovation can seek reward without prejudice, and pools of capital which are available to allow those innovators to reach their goals via a ‘free enterprise’ style of market-driven relationship to value and perceived need.

    Only when that total hoax is dispensed with is the onlooker free to observe the interlocking network(cabal if you will)that so dominates both state and society as to have asphyxiated any possibility of forming or running companies on a ‘profit loss’ basis. But lest anyone think that this scam is some new-fangled development, perhaps arising out of the last half of the C20th, the truth is that it’s been an ongoing distortion of natural economic life which can arguably be traced back through millennia(as per the sadly neglected opus of David Astle -Babylonian Woe-) …as there would be understandably a lot of resistance to that notion in the minds of most readers, and no space in this venue to flesh out it’s merits, I shall just close by quoting Montesquieu, that C18th pundit who, recognizing that the gold and silver of the Americas entered Europe at a value quite beneath the cost of production said:

    “The companies and banks established in various countries have maintained the undervaluation of gold and silver as equivalents for property; for by new devices(paper notes) they have so greatly magnified the size of the measure of value that gold and silver coins, now exercising only part, of the office of such measure, have become less valuable than before”

    As I have no way of bolding or underlining any text in this format, please do take note of two things in this quote: -AS EQUIVALENTS FOR PROPERTY-remembering this to be pre-age of petroleum, but applicable in effect to our current distorted commodity valuations(AS PER THE PRECIS OF THIS BLOG!)… and -THE SIZE OF THE MEASURE OF VALUE- quite a profound observation resonant with meaning for an economy and society manipulated in all ways…such as our of the moment.

    Summary -BARRICK GOLD was never set up or intended to be a real mining play, nor a profit-seeking entity. It was seeded by and grew via blackops dollars n influence funnelled from other arms of the octopus in order to buy up, control, and disable one of the key productive sectors of the now defunct industrial economy of the west. But then, running at a profit has been historically other than the norm for mining throughout the ages; even if you don’t buy into the conspiratorial perspective that just how she blows …and while I don’t find Martin Armstrong’s approach overall so appealing, there is definitely something to be said for this ‘cycles’ thing!

    • rogue,

      Agreed on the Barrick two-step. From what I have read, Barrick was instrumental in buying up many of the gold mining companies in the 1980’s-early 90’s while transitioning the industry to OPEN-PIT mining rather than underground.

      OPEN-PIT allowed gold to be mined more cheaply (when energy was cheaper) with higher levels of production. The move to OPEN-PIT allowed the industry to produce a hell of a lot more gold than would have been accomplished by underground mining alone.

      While I agree that Armstrong has done some excellent work, his Pi-cycles will become meaningless in a peak energy environment. Thus, the majority of forecasting (from all institutions), here on out should be taken with a GRAIN OF SALT or PEPPER.

      We have no idea how this plays out with the amount of infrastructure, real estate and buildings that we have erected. Rome was an advanced city that was somewhat localized, so its collapse did not affect the overall population of the earth to much of a degree.

      However, the PEAK OIL COLLAPSE staring us right in the face will greatly impact the world’s population — to a negative degree.

      The big problem that I have with Armstrong is his inability to factor in ENERGY, the FALLING EROI, the ENVIRONMENT, INFINITE GROWTH or the CLIMATE. He is stuck on human-social cycles only.

      steve

  6. “The big problem that I have with Armstrong is his inability to factor in ENERGY, the FALLING EROI, the ENVIRONMENT, INFINITE GROWTH or the CLIMATE.
    He is stuck on human-social cycles only.”

    Yes, that is a key point which you and I touched upon in discussion months past. I actually have a different take on what Marty is ‘stuck on’ …but will leave that for a different time.

    The dynamic between an EROI driven by a geologic/ecologic-based perspective such as that of your blog, and a socio-economic one such as I have offered with reference to the human proclivity to “steal/appropriate/liberate[one’s chosen preferential term goes here!] ENERGY from other human beings -using various “religious” – “scientific” -“philosophic” -or “political” pretexts- is chockablock with potential to unwind the mystery as to what is really going on of the present moment.

    Unfortunately, almost all of our ‘best brains’ are divided into warring camps of either SCIENTIFICISM {the wish to attribute all phenomena…and human action… to various “laws” that operate in abeyance to subjective choice}or the TELEOLOGICAL{the need to attribute ‘intelligent purpose and design to natural phenomena} – to the detriment of all of us who need to find a middle road by which to navigate towards surviving the coming storm.

    I know that some readers will consider this a convoluted way of making a point. Therefore I can break this down into a simple statement which is both empirically sound and given the blessings of popular culture!

    IN NATURE AND IN HUMAN SOCIETY BOTH, THE DEFAULT PREFERENCE OF THE INDIVIDUAL IS TO APPROPRIATE{STEAL}THE PORTION BELONGING TO OTHERS, RATHER THAN SEEK OUT THEIR OWN ALLOTTED SHARE OF AVAILABLE ENERGY.

    Scientific observers have reported in multifarious detail how you will find in nature all kinds of thieving, cheating and deceit in populations ranging from the bacterial to the mammalian – in my own small case, I have repeatedly observed with wonder that my horses will, if allowed, always choose to pilfer the feed of their neighbor in preference to eating their own! It inevitably boils down to who is the biggest and strongest in their case… though sometimes who is the sly-est and most cunning in our human case.

    The case of precious metals manipulation is absolutely no different than any of these observed phenomena. “Human Action” needs always be explained by reference to a combination of rational and irrational motivation. One without the other simply will not do.

    Which brings us back to Barrick. “The move to OPEN-PIT allowed the industry to produce a hell of a lot more gold than would have been accomplished by underground mining alone.” A decision apparently based on simple principles of technological efficiency in actuality betrays a glimpse of the grand strategy alluded to in my previous comment – the purpose of increasing gold extraction from the MOST ECONOMIC sources of production during a time of {artificially imposed}low prices meant that the highest ore grades have been extracted already… to the disadvantage of the industry, and in keeping with the purpose of the multi-leveled swindle that is modern “capitalism” = the antithesis of “free enterprise”…

    and as for those who consider my second explanation still too complex, I will fall back on my favorite instructional tool – the cinematic! – to give them the gist of the matter. https://www.youtube.com/watch?v=Epx4eElcQgc \The legend of the seven golden vampires\ was a classic 70s HammerStudios\Shaw co-production which just got everything right! Not only does it combine east and west in an action packed martial arts format(Peter Cushing as van Helsing\David Chiang as badass Chinese kung fu hero!!!), it gives even the most literal minded amongst us a chance to understand the mechanics of socio-economic reality… A TRUE GOLDEN TREASURE of SILVER SWORDMANSHIP… and a primer in how things really work in our society!

    It’s not for nuthin that they call wall streets’ evil villains “The VAMPIRE Squid!!”

  7. Hey SRSrocco,

    Thanks for mentioning all in costs for gold in this article. Do you know what the all in costs for Natural Gas is?

    Thanks

    • arsenal009,

      Sorry for not replying sooner. However, Art Berman estimates the BREAK-EVEN price for shale natural gas is about $6-7 MMBtu over the life of the well. Currently the price is running at $5.50.

      So, for the past several years, 95% of the shale gas industry has been losing money….LOL

      Very few people realize this… but the stock prices of these shale gas companies keep rising. Shale Gas Industry is behaving the same as was the MBS – Mortgage Backed Security market was in 2007

      steve

  8. Steve,

    Can you please explain how natural gas is related to precious metals?

    • Walter,

      That is a loaded question. Let me say this in a nutshell… Shale Energy whether it be shale oil or gas has been hyped as the new energy savior. It is supposed to make the U.S. energy independent. While it is a nice FEEL GOOD assumption… it couldn’t be further from the truth.

      My contention is that the Energy Industry and MSM has advertised that Shale will NOT allow the U.S. and world to continue BUSINESS AS USUAL for another several decades.

      I believe we peak in Global Oil Production within the next 1-2 years and U.S. Shale Oil & Gas will peak in the same time-frame. Which means the Greatest Ponzi Scheme in History… can not continue as the energy that powers it has peaked and soon to decline.

      The peaking of world oil production will cause severe stress on the Global Fiat Monetary System. The world will be forced to move back to a more physical-backed monetary system. Hence… GREAT NEWS for GOLD & SILVER.

      Do you see the connection now?

      I will be explaining this in detail in my upcoming Paid Report – THE U.S. & GLOBAL COLLAPSE REPORT.

      steve

  9. Steve,

    So if I understand this right, with the shale issue aside, there is a direct connection between oil and precious metals because oil is used as energy to mine the metals and keep up with the fast paced production which peak oil will not allow much longer.

    However, the natural gas is only related to the system as whole – the infrastructure, and does not directly affect precious metals?

  10. Nice exchange. I like the question, for it’s deceptive simplicity, and the follow up answer too. Made me think. And that’s exactly what I look for from a blog or news source…

    Natural gas, like any of the non-renewable petroleum-based energy stocks, ultimately has to find it’s measure of value against other commodities or hard assets. With the demonetization of gold, it’s been possible to pretend otherwise, for a long stretch of decades, but the inevitable reckoning has been merely put off. The challenge and the genius of our hosts’ EROI perspective is to bring this back into the light of day.

    Before the “Oil Shock” oil traded 1 to 1 against a bushel of made in USA wheat. After the shock, the same barrel of oil traded for 9 bushels of wheat. Ask yourself how a bushel of wheat in US$ is today, and how much is a barrel of oil. Only by means of a shell game sleight of hand has the consequence of this revaluation been muted to date.

    The so-called “Closing of the Gold Window” by Washington in the 70s was in fact the default of the USA on it’s obligation to exchange dollars for gold when so requested by it’s international creditors. Because of the importance of the dollar as international reserve currency, instead of the default producing a dollar currency crisis, it resulted in an agreement between the major western trading nations to allow the dollar to avoid devaluation against gold, and maintain it’s pre-eminent position in trade settlement.

    Post 1971, with the US Treasury Dept no long constrained by the anchor of gold on it’s balance sheet, the middle eastern oil bought with it’s fiat currency was effectively almost ‘free’ – even though the cost at the pumps for the individual consumer would seem to tell a very different story. The story behind that discrepancy has never really been addressed.

    This was all predicated on the establishment of the so-called Petro-dollar… but in effect, this was an agreement between the Americans and the oil-producing countries to devalue the dollar against oil, instead of gold! The Sheiks had been a bit slow to cotton on to the previous, PAX Americana system by which their oil was slowly but steadily devalued against the fiat dollar… but when they finally woke up, they demanded their pound of flesh… or more precisely, their ounce of gold! All that’s happened in the 40 years since is that America and Europe have descended into a morass of unpayable debt tied to an energy-exorbitant lifestyle funded and maintained by printed paper with which the Arab were bribed to take instead. Now the Sheiks, and the former bicyclists/now lexus drivers of the East, want AU instead of promise to pay, someday.

    Cheap(priced in non-gold terms)petroleum allowed an orgy of consumerism to sweep away the ingrained values of debt free conservation of wealth, as a flood of new gadgetry made in far away lands by people with a much much smaller ‘energy footprint’ could be shipped to the west at low cost. People transitioning from riding oxen and water buffalo to riding bicycles and scooters were the secret ingredient for 40 years of unchecked debt-fueled consumer abundance. Economic vampirism has ironically resulted in a zombified western world of bloated debt-slaves cannibalizing their last remaining natural resources in a desperate rush to stave off the day of the downsizing.

    The myth of shale gas was that it was supposed to allow jobs to return to the west from the now not so low cost east. But there’ a reason that motive power is still expressed in terms of HP… the engine of growth in any human society is the ability of it’s members to produce more energy than they consume. In the transition from horsepower to industrialized labor, to mechanized transportation and production as long as the energy source utilized was in some way measured against another constant, like the precious metals, it was impossible to fall far away from realizing when this basic principle of economic life has been deviated from. But in the “post-industrial” post-reality western world, just like in the mirrors of a funhouse, nothing can really be seen for what it is.

    And once again, BARRICK provides the perfect example of funhouse ‘capitalism’ in action! It’s scarcely a dozen years since that outfit was claiming an all in cash cost of $171 per ounce of gold produced. A rise of over 1000$ in that space of time is not reflecting an increase in proportion of costs like labor, taxes, or acquisitions…. it’s reflective of the increasing international demand of energy suppliers for valuation of energy by a meaningful yardstick(gold) and THE DEGRADED QUALITY OF THE ORE BODIES it is working, thanks to it’s role as Dracula for the mining industry.

    Cannibals, zombies, vampires… don’t wake up, cause you won’t want to watch this wide-screen horror flick coming to a theatre near you!

    Natgas, in short, relates to the precious metals much the same way that all petroleum products relate to their means of conveyance. An oil or gas well lacking the piping or container to ship it is an asset without marketable value, and a hazard to it’s surroundings. An energy source without a yardstick of some REAL tangible wealth against which to measure it’s value is a toxin to the social fabric, and an asset doomed to be used with profligacy to the detriment of all!

    Wheat, oil, a day’s labor, the coin in hand that recompensed the toil. A big, harmonious circle… much like life could be if we could once again drive the moneychangers out of the temple.

  11. Thank you for the great summary roguefaction, I still have a lot to learn.

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