"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Tuesday, July 28, 2009

The Colonel's Gold & Silver Price Predictions for the Summer

Morning Miners!

It is 5:44 AM, the coffee is gurgling and it is time for the ole Colonel to stick his neck out with some gold and silver price predictions for the summer. Have you ever noticed that the crazy relatives that are not much fun to be around create the most memorable family stories? In the precious metal family, silver is either obediently following her lustrous cousin gold or running in the park naked with her hair on fire. We talked about this a bit July 10th (Silver Stumbles on the Precious Metal Trail) when silver did an unexpected swan dive in the London spot market. Fortunately she recovered but has been displaying that loony split personality ever since.

In our previous article we talked about "beta" or the amount (on average) the price of one thing moves relative to the price change in another. If gold moves up 1% and silver follows with an increase of 1.5%, we say silver has a beta of 1.5 with respect to gold. Lately, silver has been showing off her bipolar disorder with two betas. The Colonel plots silver and gold futures prices to find these anomalies as shown in the figure below (a more readable copy can be found in Colonel Possum's Charts at the very bottom of this blog).

The slope of the lines indicates the silver/gold beta. The magenta line represents a 3-month average with a whopping beta of 2.3. The dotted line indicates a more typical beta of 1.7. The dots and squiggly lines are silver running in the park switching back and forth from normal to nutcase. Yesterday was a good example when silver suddenly jumped from the 1.7 line to break $14.

So what does all this mean for summer precious metal prices? Gold and oil are presently tightly correlated and will probably move higher together on the wave of the latest commodity reflation. Dennis Gartman, the "Commodity King", noted several months ago that gold has been hitting a brick wall every time it nears $980. He mentioned a mystery seller that appears at this level which pushes gold prices back down the hill. It could be the International Monetary Fund (IMF) which has a lot of gold and sells periodically to raise capital for struggling economies. They have pledged to sell a little at a time to avoid market disruption and their sell point could very well be $980. This is pure speculation on my part.

I have predicted earlier this year that gold will overcome selling pressure before Christmas and break $1050. The Colonel thinks this is more likely in the fall than the summer so I'll go with $980 gold in the near term. What about silver? Here's where beta helps us out, observe where the vertical line intersects the magenta and dotted slopes on the chart. If silver continues to run naked in the park, she should break $15.80; if not, she should return to quietly tagging along at $14.20 as gold sees $980.

Wasn't that fun? Here are the Colonel's gold & silver price predictions for the summer (I'll bet silver remains loony):

Gold will see $980 before Labor Day

Silver will see $15.80 before Labor Day

Enough number crunching and soothsaying, let's walk the walk:

Oil is down $0.82 to $67.56 in early trading (September contract); Gold is down $8.7 to $944.8 (August contract); Silver is down 0.120 to $13.870(September contract); Copper is down $0.01 to $2.5440 (September contract); Molybdenum remains at $15.

The DOW is down 23.71 points to 9084.78; the S&P 500, down 4.88 points to 977.30. The miners are down today:

Barrick (ABX) $34.37 down 1.74%
Newmont (NEM) $40.78 down 1.92%
General Moly (Eureka Moly, LLC) (GMO) $2.62 down 3.11%
Freeport McMoran (FCX) $58.95 down 1.67% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed (a "tell" for General Moly):

Nucor (NUE) $45.12 up 0.04% - domestic steel manufacturing
ArcelorMittal (MT) $36.86 down 2.02% - global steel producer
POSCO (PKX) $96.69 down 0.72%- South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 1.21% to $1,080,651.68


Colonel Possum

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