"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, October 13, 2009

Where are Gold and Oil Headed for 2009?

Morning Miners!

It is 5:54 AM and the coffee is a lot hotter than outside. Gold set new highs on the London Exchange this morning breaching $1060 and silver followed entering $18 territory. As I promised yesterday, we'll take a broader look at both gold and oil in a minute (Ghosts, Gold & Oil).

The ole Colonel is always scouting news that may become a game changer in the marketplace. For the good part of this year, the Report has watched copper as our canary in the global recovery mineshaft. That bird is still struggling to break $3 and has not enjoyed much lift from the declining dollar or rising gold. There is another mineshaft that we don't visit as often but has a passel of taxpayer money at its bottom. That hole is called the U.S. banking industry and a favorite Wall Street canary is Goldman Sachs. Goldman is the only major investment bank that didn't belly flop during the financial crisis and has enjoyed a spectacular rise in their share price since the March lows. Many say as Goldman goes so goes the recent rally in the financial and broader markets. This morning, Meredith Whitney downgraded Goldman Sachs without comment:

"The Goldman downgrade comes ahead of the firm's scheduled quarterly earnings on Thursday, and is consistent with the caution Ms. Whitney has voiced over the airwaves and on Op-Ed pages in recent weeks." (WSJ, 10/13/2009)

As you may recall from earlier reports, Ms. Whitney gained attention during the financial crisis for bearish calls on the stocks of large banks that were ultimately proven correct. She spoke favorably of Goldman shares as recently as last month. I'm watching this news very carefully buckaroos. Stay tuned.

Now for a little more on the gold and oil story. Yesterday we picked a 10-month period last year that saw lofty peaks in both gold and oil to compare to their year-to-date performance this year (see note 1). Here are the peaks:

Peak Gold (2008) $1,033 (Bear Stearn's collapse, March 18)
Peak Oil (2008) $147.27 (Summer rally, July 11)

Peak Gold (2009) $1,060 (Today's rally)
Peak Oil (2009) $75.21 (August 6, November contract)

Now, let's look at the 10-month average price of gold and oil over the same time frame:

Gold average price (2008) $897.45
Oil average price (2008) $110.80

Gold average price (2009) $938.18
Oil average price (2009) $57.73

If we take the ratio of the peak and average prices for 2008 and 2009, they are suprisingly close:

Gold (peak/average) ratio (2008) 1.151
Gold (peak/average) ratio (2009) 1.130

Oil (peak/average) ratio (2008) 1.329
Oil (peak/average) ratio (2009) 1.303

Finally, if we take the 2008 ratios and apply them to the 2009 averages we have:

Gold peak estimate (2009) $1,080 (1.151 x $938.18)
Oil peak estimate (2009) $76.72 (1.329 x $57.73)

Now I know that's a lot of blasted number crunching but it gives you another way to look at the near term performance of gold and oil pardner. Gold may be near a top at $1,080 and $80 oil before Christmas is looking "iffy". More mañana, I'm not ready to make a new prediction yet.

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (what's this?)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is up $0.40 in early trading to $73.67 (November contract); Gold is up $2.8 to $1060.3 (December contract, most active); Silver is up $0.110 to $17.710(December contract); Copper is down $0.0850 to $2.7720 (December contract); Molybdenum is steady at $13.625.

The DOW is down 37.64 points to 9848.16; the S&P 500, down 6,81 points to 1069.38. The miners are mixed:

Barrick (ABX) $39.58 up 0.56%
Newmont (NEM) $47.58 up 2.37%
General Moly (Eureka Moly, LLC) (GMO) $2.92 down 4.26%
Freeport McMoran (FCX) $74.43 down 0.07% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $44.81 down 0.02% - domestic steel manufacturing
ArcelorMittal (MT) $38.30 up 1.62% - global steel producer
POSCO (PKX) $108.87 up 3.13% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.17% to $1,241,284.84 (what is this?).


Colonel Possum

Headline Photograph by Mariana Titus

Note 1 - My observations today are based on two records of gold and oil price data:

Record 1 - November 2007 through August 2008
Record 2 - January 2009 to the present

Both records span 10 months, the first begins just ahead of the recession and covers both peak oil and gold prices in 2008 ($147 oil, $1,033 gold); the second, the year-to-date performance for 2009.

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