"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.

Friday, November 25, 2011

The Colonel's Friday Thoughts on Gold

NEW FORMAT for 2012

The Eureka Miner's Market Report has a new format. Three daily reports, "Mining", "Gold & Silver" and "Copper & Molybdenum" consolidate key morning market information for metals and mining relevant to Eureka County and surrounding areas with new expanded detail on moly prices.

The "Daily Market Roundup" also includes an "Oil Watch" and "Debt Crisis Watch" to monitor the impacts of global events on oil and fuel prices and the unfolding debt crises here and in Europe. Finally, "Stock Market Morning Update" provides the latest on the broader markets as well as the Eureka Miner's Million Dollar Grubstake Portfolio.

Have a good read and welcome back!

This morning's...
COMEX Gold price = $1,679.9/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 99.48
Value Adjusted Gold Price© (VAGP) = $1411.0/oz
COMEX - VAGP = $268.9/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels

Morning Miners!

It is 6:22 AM. Have a cup of delicious Raine's Red Label TGIF brew, the tryptophan is wearing off! I hope you had a relaxing Thanksgiving, the ole Colonel is actually feeling a little chipper about gold's prospects even though its down another 16 bucks this morning...

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: Up. $1,725+/oz territory.

Q: Why?

A: If the euro is truly headed for sub-1.30 by year's end, there is more than a good chance that safe haven sentiment will shift back to gold. The present market fear and downward pressure on precious and base metals is reminiscent of early December 2008 when there was credible fear of a run on U.S. banks following the Lehman collapse that September. On arguably one of the worst weeks for the metals & miners, gold dipped to $779.4/oz on Dec. 5, 2008 only to rally back to $900+ by Dec. 29 and then up more than 30% from the December low to $1,027.5/oz on Feb. 20, 2009. On that day, copper giant Freeport-McMoRan enjoyed an 80+% rise from its Dec. 5, 2009 low even though copper prices were still less than $2/lb. Copper and gold were early recovery stories before most equities found their nadir later in March, 2009.

Background notes:

Brown Brothers Harriman year-end euro target of 1.29 (Kitco Nugget, 11/25/2011)

9/15/2008  Lehman collapse; COMEX gold $816.2/oz; COMEX copper $3.3845/lb

9/22/2008  COMEX gold closes at $938.2/oz

12/5/2008  COMEX gold dips to $779.4/oz, FCX plummets to $7.85 (as adjusted for later stock split); COMEX copper $1.6145/lb

12/29/2008  COMEX gold $902.5/oz (up 15.8%)

2/20/2009  COMEX gold 1027.5/oz (up 31.8%): COMEX copper $1.6545/lb; FCX $14.30

3/6/2009  S&P 500 intraday bottom (666.79); COMEX gold $968/oz; COMEX copper $1.9105/lb; FCX $16.94

Have a good weekend!

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $48.44 up 1.00%
Newmont (NEM) $64.42 up 0.33%
US Gold (UXG) $3.87 down 0.51%
General Moly (Eureka Moly, LLC) (GMO) $2.80 down 0.36%
Thompson Creek (TC) $6.18 up 1.64%
Freeport-McMoRan (FCX) $34.40 up 0.06% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.28 up 2.00%
Timberline Resources (TLR) $0.61 down 1.61%

The Steels  (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $15.64 up 2.84% - global steel producer
POSCO (PKX) $75.88 up 0.49% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is below-par at 48.03, up from Wednesday's 45.94 and below the 1-month moving average of 73.14. 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.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record 2010-2011 high for the EMI is 816.78 set 01/04/2011; the low was set 10/4/2010 at 22.88. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

Gold & Silver Report

This morning's...

COMEX gold is down $16.0/oz at $1,679.9/oz (December contract most active)

COMEX silver is down $0.764/oz at $31.120/oz (December contract, most active)

The gold-to-silver ratio (Au:Ag) is 53.981 oz/oz

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 99.48, down from Wednesday's 99.63 and above its 1-month average of 98.78. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,411.0/oz which is $268.9/oz below the current COMEX gold price.

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 price is less than the VAGP, then gold is undervalued; if above, overvalued.

Copper & Molybdenum Report

This morning's...

COMEX copper is down $0.0235 at $3.2555/lb (December contract, most active)

The gold-to-copper ratio (Au:Cu) is 516.02 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"

Western molybdenum oxide (price per pound):

Metals Week Average:
As of November 21, 2011
(updated weekly)

Ryan's Notes Average:
As of Nov 22, 2011
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):

London metal Exchange (LME) molybdenum 3-month seller's contract:

US$13.83/lb (US$30,500/metric ton)

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the ongoing crises in the Middle East and North Africa (MENA). It remains above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX.

Here are the key front-month contracts this morning:

NYMEX light sweet crude $95.92
ICE North Sea Brent crude $106.75
Spread (ICE- NYMEX) = $10.83 (last report, $11.34)

Here are the March contracts* with a narrower spread:

NYMEX light sweet crude $96.17
ICE North Sea Brent crude $105.60
Spread (ICE- NYMEX) = $9.43 (last report, $10.24)

* NYMEX futures contracts have rolled forward, we now show January and March for a 2-month look-ahead

Prices are off their crisis highs and we have $100+ Brent and $90+ NYMEX in March favoring high oil prices throughout the winter and into spring.

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 196.0 up from Wednesday's 181.6. A level above 200 is time for serious concern. We are now just below that level.

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.

Stock Market Morning Update

The DOW is up 81.06 points to 11,338.61; the S&P 500 is up 8.60 points at 1,170.39

The Eureka Miner's Grubstake Portfolio is up 0.26% at $1,328,338.39 (what's this?).


Colonel Possum

Headline photo by Mariana Titus

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

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