"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, December 27, 2011

Is Silver Still a Good Investment?

Christmas BBQ Eureka 2011

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 = $1,598.8/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 92.53 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,443.7/oz
COMEX - VAGP = $155.1/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 7:24 AM. Have a cup of delicious 2011 Red Label, we're nearly at the bottom of the can. No worry, Scott Raine will surprise the break room with a fresh batch of 2012 soon. The ole Colonel trusts you had a peaceful Christmas break, it sure feels like spring in Eureka (except there would be more snow!).

Is Silver Still a Good Investment?

A good friend of this report asked me if I thought silver was still a good investment. If you are willing to sit through a lot of wild price swings, my answer is simply, "Yes!" Silver, like its companion gold, has good long term precious metal fundamentals. Silver also has a bright future as new uses in hi-tech applications will only increase its industrial demand - high-density batteries come to mind in our evermore electrified world.

That said, 2011 was a tumultuous year for silver as COMEX silver touched $49.880/oz on April, 25 followed by a bruising crash to the mid-$30/oz range. This morning, COMEX silver is trading at $29.060/oz. That might be enough to discourage any interest in the white metal unless you remember $9/oz prices during the 2008-2009 financial crisis - from that perspective $29/oz silver still looks good to me if you were fortunate enough to be a buyer then.

Presently, asking where silver is headed next is akin to asking where gold will go. I wrote for the International Business Times earlier this month about this precious metal reunion, Gold and Silver “Together Again” 12/5/2011. The commentary concluded borrowing a line from that old Ray Charles classic tune:

Positive correlation of gold not only with silver but other key commodities, silver’s high-beta, and a declining trend in the gold-to-silver ratio are bullish signs for a year end rally if prevailing market pessimism proves overdone. $36/oz silver could ride quite comfortably in the saddle with $1,800/oz gold for a sunset ride. Alternately, tomorrow’s dire headline might send them both packing to a cheap hotel. In either case our lustrous hero will no doubt sing to his white metal companion, “…nothing else matters baby, we’re together again.”

The Colonel is probably wrong about the year end rally since both have indeed checked into a cheap hotel. Although it didn't take a dire headline to get there, gold and silver have shared a fairly dramatic price consolidation. I'm not discouraged and will reveal my gold and silver price predictions for 2012 later this week. The present gold-to-silver ratio is 55 and demonstrates remarkable stability (less than 1.5% variation over the last month; less than 2.6% over 3-months). Even if gold heads for low-$1300/oz territory and stability persists, silver price should stay above $23.5/oz. If we reach the mercurial $2,000/oz level for gold in 2012, silver should easily return to the $35-$40/oz range. In that context, silver is starting to look interesting to the ole Colonel at present or lower prices.

Please do your own research, I could be dead wrong - but probably not dead wrong for the long run.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $45.82 down 0.43%
Newmont (NEM) $61.87 down 0.02%
US Gold (UXG) $3.24 down 0.92%
General Moly (Eureka Moly, LLC) (GMO) $3.24 down 1.82%
Thompson Creek (TC) $6.93 down 1.56%
Freeport-McMoRan (FCX) $38.02 down 0.78% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.75 down 0.53%
Timberline Resources (TLR) $0.61 up 7.02%

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

ArcelorMittal (MT) $18.50 up 0.82% - global steel producer
POSCO (PKX) $84.26 down 1.07% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is below-par at 84.68, down from last report's 93.13 and above the 1-month moving average of 78.19. 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 down $7.2/oz at $1,598.8/oz (February contract, most active)

COMEX silver is down $0.024/oz at $29.060/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 55.017 oz/oz

Silver 1-month CRS© is 1.47%; bullish level, very stable (Ag bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 92.53, down from last report's 92.78 and below its 1-month average of 95.77. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.
The Value Adjusted Gold Price© (VAGP) is $1,443.7/oz which is $155.1/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 $0.0345/lb at $3.430/lb (March contract, most active)

The gold-to-copper ratio (Au:Cu) is 465.44 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 2.61%; bullish level, converging stability (Cu bullish)

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 23, 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 ongoing crises in the Middle East and North Africa (MENA). It remains above $100/bbl with a narrowing 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 $100.46
ICE North Sea Brent crude $108.31
Spread (ICE- NYMEX) = $7.85(last report, $8.59)

Here are the April contracts* with a narrower spread:

NYMEX light sweet crude $100.85
ICE North Sea Brent crude $107.28
Spread (ICE- NYMEX) = $6.43 (last report, $7.03)

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

NYMEX WTI 1-month CRS© is 2.60%; bullish level; stalled convergence (Oil neutral)

Prices are off their crisis highs and we have $105+ Brent and $100+ 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 109.3 down from last report's 104.0. 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.

Stock Market Morning Update

The DOW is up 22.93 points to 12,316.93; the S&P 500 is up 3.31 points at 1268.64

The Eureka Miner's Grubstake Portfolio is down 0.41% at $1,368,324.71 (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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