"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, December 30, 2011

The Colonel's 2012 Predictions for Gold & Silver

Scott Raine of Raine's Market

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.

My Latest International Business Times commentary: Gold and Silver “Together Again” (12/05/2011)

My latest Kitco commentary:
What does CRS© tell us about Gold, Copper & Oil? (11/28/2011)

This morning's...
COMEX Gold price = $1,569.1/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 92.16 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,422.7/oz
COMEX - VAGP = $146.2/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels but is trending down

Morning Miners!

It is 6:29 AM. Have a last cup of Raine's 2011 Red Label. Scott Raine bought over a whole new batch of 2012 brew last night. We'll be up and at'em for the New Year...

The Colonel's 2012 Predictions for Gold & Silver

2012 may prove to be an "outside" year for gold prices exceeding both the highs and lows of 2011. This would see gold near or above the $2,000/oz level on the high side and at the low-$1,300/oz level on the low side. I plan to write a Kitco News commentary on why next month but here are some possible drivers:

1) A conflict in the Persian Gulf could very well cause a sharp spike in oil prices. $150/bbl oil and $2,000/oz gold are compatible if the yellow metal recovers some of its safe-haven status and applying the 13 bbl/oz gold-to-oil ratio experienced during the 2011 Arab Spring (early April).

2) Continued downward revisions of global growth due to worsening problems in Europe and China could result in a disinflationary environment (i.e. decreasing inflation rate). For this case, base and precious metal price could fall further pushing gold into $1,300/oz territory and copper below $3.00/lb.

3) Quantitative easing in Europe and possibly the U.S. (in response to item 2 if disinflation becomes deflation) could boost both gold and base metals resulting in price performance somewhere between the extremes of (1) and (2).

Debbie Carlson, Kitco Global News Editor, agrees that 2012 may be "..a very volatile market next year, especially in 1H. I think there are some good opportunities to buy gold cheaper in Q1." There is good logic to this with respect to Europe as we enter the third year of their sovereign debt crisis. Unless the details of a solid plan are worked out soon, it is doubtful that credit markets will wait for many more shoes to drop from dithering political leaders and an intransigent ECB. Uncertainty creates volatility.

The Persian Gulf has become a tinder box given recent tensions with Iran - now that our troops have departed Iraq, with their ally Syria on the brink of collapse and an atomic program inching ever closer to weapon capability. Recent Iranian naval exercises have had a lot to do with $100/bbl oil prices lately although the US Seventh Fleet remains a stabilizing factor in the region.

My 2012 prediction for silver is somewhat more muted. I don't believe we'll test the highs of 2011 and my latest calculations suggest a pretty solid price floor around $22.50/oz. On the high side, silver should be able to crest $34/oz and possibly return to $40/oz territory; $50+/oz silver seems much less likely for 2012.

The long term fundamentals for gold and silver are intact.

The Colonel's input to the Weekly Kitco Gold Survey

Below is my weekly input to the Kitco gold survey. Gold and silver appear to headed for reversals on this last market day of the year (i.e higher highs, higher lows and higher close). If this is indeed the case, a relief rally extending into next week is likely.

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Up.

Q. Why?

A. Relief rally on the New Year.

May you and your family have a happy and safe New Year and thank you for following the Eureka Miner!

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $45.70 up 1.17%
Newmont (NEM) $60.62 up 0.43%
US Gold (UXG) $3.45 up 4.23%
General Moly (Eureka Moly, LLC) (GMO) $3.00 unchanged
Thompson Creek (TC) $6.89 up 0.44%
Freeport-McMoRan (FCX) $36.91 up 1.01% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.83 down 0.07%
Timberline Resources (TLR) $0.55 down 1.79%

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

ArcelorMittal (MT) $18.20 up 0.44% - global steel producer
POSCO (PKX) $81.80 up 0.04% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is below-par at 77.61, up from last report's 68.79 and below the 1-month moving average of 80.99. 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 10/4/2011 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 up $28.2/oz at $1,569.1/oz (February contract, most active)

COMEX silver is up $0.745/oz at $28.060/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 55.919 oz/oz

Silver 1-month CRS© is 2.42%; bullish level, diminishing stability (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 92.16, up from last report's 91.92 and below its 1-month average of 94.92. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,422.7/oz which is $146.2/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 up $0.0560/lb at $3.4260/lb (March contract, most active)
458.00 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish) but the ratio is trending down (Cu bullish).

Copper 1-month CRS© is 2.42%; bullish level, divergent (Cu bearish)

The latest molybdenum oxide spot and futures prices:

Metals Week Average:
As of December 26, 2011
(updated weekly)

Ryan's Notes Average:
As of December 27, 2011
(updated twice weekly)

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

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

US$13.61/lb (US$30,000/metric ton)

Daily Oil Watch

Latest Nevada Fuel Prices (click this link)

On February 1st we identified North Sea Brent crude oil as a good barometer for the crises in the Middle East and North Africa (MENA). The next conflict could be in the Persian Gulf. Brent remains above $100/bbl with a narrowing spread with 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 $99.06
ICE North Sea Brent crude $107.12
Spread (ICE- NYMEX) = $8.06 (last report, $8.04)

Here are the April contracts* with a narrower spread:

NYMEX light sweet crude $99.37
ICE North Sea Brent crude $106.32
Spread (ICE- NYMEX) = $6.95 (last report, $7.05)

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

NYMEX WTI 1-month CRS© is 3.56%; neutral level; stalled convergence (Oil neutral)

Prices are off their crisis highs and we have $105+ Brent and $95+ NYMEX in April favoring high oil prices throughout the winter and 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 105.1 down from last report's 107.5. A level above 200 is time for serious concern. We are now well 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 and continuing into 2012.

Stock Market Morning Update

The DOW is down 5.91 points to 12,281.13; the S&P 500 is down 0.11 points at 1262.91

The Eureka Miner's Grubstake Portfolio is up 0.81% at $1,343,523.31 (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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