Friday, October 7, 2011
Jobs "Good News, Not Good Enough"; The Colonel's Thoughts on Gold Price
My Latest International Business Times commentary: What is Up (or Down) with Silver and Gold?
My latest Kitco commentary:
What is the Value of Gold? India Beckons (10/03/2011)
COMEX Gold price = $1,653.6/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 102.16
Value Adjusted Gold Price© (VAGP) = $1,352.5/oz
COMEX - VAGP = $301.1/oz; gold is trading at a premium; key gold-referenced commodity ratios are at recessionary levels (e.g., copper & oil)
It is 5:43 AM. Have an autumn cup of Raine's delicious Red Label TGIF. The ole Colonel just finished watching the U.S. Labor Department's monthly jobs report on CNBC Business News...
Jobs "Good News, Not Good Enough"
Two bits of good news on the jobs front: the U.S. economy added more jobs than expected last month and employment gains for the previous two months were revised higher.
The not so good news:The labor market continues to grow too slowly to bring down the jobless rate from 9.1%. the overall (U6) unemployment rate is 16.5%
In the words of one CNBC contributor, "Good news, not good enough." We need about 125,000 jobs to be added per month just to maintain the present level of unemployment; this morning;'s number was 103,000 but there were upwards revisions. The August "goose egg" was improved bringing that number from zero up to 57,000.
A good bar bet
I don't win a "trifecta bet" on commodities very often but this comes close...
Last week's bet on where gold was headed:
"Up, slightly ($1,650/oz gold with $3.30/lb copper & $82.5/bbl WTI wouldn't be surprising)"
9:24 AM ET $1,653/oz gold with $3.29/lb copper & $83.5/bbl WTI
Actually, this is much less impressive than it seems. I'll reveal my secret trick in a moment but first this morning's gold thoughts...
The Colonel's input to the Weekly Kitco Gold Survey
Here is my weekly input to the Kitco gold survey:
Q: Where do you see gold’s price headed next week, up, down or unchanged?
A: Down, slightly
Although the gold volatility index (GVZ) remains high, gold's volatility relative to oil, copper and silver continues to decline. Gold-referenced ratios for these key commodities are also compressing from elevated recessionary levels (especially copper & oil). If Europe continues to show progress on containing their debt crisis, the domestic recovery is less bleak than thought (e.g., better-than-expected jobs numbers this morning) and China maintains moderate growth, this trend should continue. In the short-term, stable to lower gold prices and slightly higher key commodity prices are expected.
How to make a good bar bet on commodities
Last week's three-way bet on gold, copper and oil required only being lucky on calling the price of gold. Since the copper & oil ratios to their lustrous friend had recently exhibited unusual stability at elevated levels (500 lb/oz & 50 bbl/oz), their prices just fell out of the rabbit's hat:
copper price = $1650/ (500 lb/oz) = $3.30/lb
oil price = $1650/(20 bbl/oz) = $82.50/bbl
Not a bad bet when times are hard.
On Tuesday, 10/4, the Eureka Miner’s Gold Value Index© (GVI) hit a 2010-2011 high of 109.5; this morning, it is down 7% at 102.2
Here are the associated compressions (bullish for commodities) of the GVI components:
Au:Oil 21.78 to 19.80 bbl/oz down 9.1%
Au:Ag 54.33 to 51.43 oz/oz down 5.3%
Au:Cu 533.75 lb/oz to 503.4 lb/oz down 5.7%
"Recessionary levels" for oil and copper are ratios above 20 bbl/oz & 400 lbs/oz respectively. At least we are headed in the right direction, pardner.
Daily Market Roundup
Enough talk, let's walk the walk:
Eureka Miner's Index(EMI)
This morning the Eureka Miner's Index© (EMI) is below-par at 51.32, up from yesterday's 41.71 and below the 1-month moving average of 63.01. The new record low for 2010-2011 was set Oct. 4, 2011 at 22.88. The 1-month average is currently below the 100-level putting us solidly in bear country for the metals & miners.
The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.
200-day averages are used to update mining equity norms in the EMI on a monthly basis.
Gold Value Index (GVI
The Eureka Miner’s Gold Value Index© (GVI) is above-par at 102.16, down from yesterday's 105.31 and equal to its 1-month average of 102.16. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011. The Value Adjusted Gold Price© (VAGP) is $1,352.5/oz which is $301.1/oz below the current COMEX gold price.
The GVI initially trended down from 6/7/2010 when it had a value of 100; gold regained value reversing the trend, moved sideways for a time and and headed back up with vigor. A sustained presence around the 100-level may prove to be a recession warning for a second dip down in the economy.
The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil derivatives are a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious and industrial metal that now competes with gold for investment and as a hedge against fiat currencies.
The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.
Daily Debt Crisis Watch
July 26th we introduced the Debt Crisis Index (DCI). The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI and GVI indices. Today, the DCI has a value of 218.3 down from yesterday's 221.2. Our benchmark is 100, a value of the DCI at a level above 200 is time for serious concern. We are now above that level.
Daily Oil Watch
Latest Nevada Fuel Prices
On'>http://eurekaminer.blogspot.com/2011/02/new-record-for-copper-is-100-oil-next.html">On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.
Here are the key front-month contracts as of this morning:
NYMEX light sweet crude $83.53
ICE North Sea Brent crude $105.93
Spread (ICE- NYMEX) = $22.10 (last report, $22.54)
Here are the January contracts* with a narrower spread:
NYMEX light sweet crude $83.70
ICE North Sea Brent crude $103.14
Spread (ICE- NYMEX) = $19.44 (last report, $19.80)
* NYMEX futures contracts have rolled forward, we now show November and January for a 2-month look-ahead
Prices are off their crisis highs and we have $100+ Brent and $80+ NYMEX in January favoring high oil prices throughout the late fall and early winter. My last December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.
Eureka Outlook Dashboard
4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is seriously below its 200-day moving average of $51.92 (our new key level, 09/21 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.
The ORANGE light is turned on for Commodity Reflation with copper trading below $3.50/lb
The YELLOW light is turned on for Stable Markets with the VIX above the 30 level (what's this?)
The YELLOW light is turned on for Inflation Watch The Federal Reserve phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates until mid-2013
The RED light is turned back on for Investor Confidence with investors very adverse to commodity-sensitive equities
The YELLOW light is turned on our Fuel Gauge with oil above $80
A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
Commodity Market Morning Update
NYMEX/COMEX: Oil is up $0.94 in early trading at $83.53 (November contract, most active); Gold is up $0.4 to $1653.6 (December contract, most active); Silver is up $0.150 to $32.155 (December contract, most active); Copper is up $0.0385 at $3.2850 (December contract, most active)
Western Molybdenum Oxide (General Moly website) is $14.00; European Molybdenum Oxide (Bloomberg) is $13.70; LME cash seller is $14.06, LME moly 3-month seller's contract is $14.06
Stock Market Morning Update
The DOW is up 73.07 points to 11,196.40; the S&P 500 is up 1.70 points at 1166.67
Miners are mixed:
Barrick (ABX) $47.59 down 0.27%
Newmont (NEM) $63.82 down 0.37%
US Gold (UXG) $4.00 up 0.50%
General Moly (Eureka Moly, LLC) (GMO) $2.68 down 3.25%
Thompson Creek (TC) $7.24 up 1.54%
Freeport-McMoRan (FCX) $35.59 up 2.04% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $10.22 up 3.24%
Timberline Resources (TLR) $0.64 down 5.88%
The Steels are up (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $18.04 up 1.52% - global steel producer
POSCO (PKX) $80.17 up 2.99% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 0.41% at $1,337,258.83 (what's this?).
Note 1 - West Texas Intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)
Note 2 - The impact of the U.S. debt ceiling debate affected investment decisions for weeks before its resolution August 2nd and was followed by an S&P credit downgrade. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.
Headline photo by Mariana Titus
Write Colonel Possum at firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market