The Colonel's Friday Thoughts on Gold & Copper

Eureka Panel Truck Memories

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 = $1,651.5/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 91.29 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,511.6/oz
COMEX - VAGP = $139.9/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels


Morning Miners!

It is 8:41 AM. Have a hot cup of Raine's road weary White Line Fever. The ole Colonel has finished traveling and is back for today's wrap-up and gold survey. After a nice run for commodities, there are some bearish indicators for gold, oil and copper setting up before next week's Chinese Lunar New Year holiday...

The Colonel's Friday Thoughts on Gold & Copper

There was a good CNBC video with Freeport-McMoRan's CEO Richard Adkerson yesterday:

Power Lunch Interview with Richard Adkerson (CNBC video, 1/19/2012)

Although Adkerson would make a pretty large bird, he remains my favorite canary in the global mineshaft. Copper giant Freeport's profits are down because of recent strikes in Indonesian but beat expectations. Adkerson remains bullish for the outlook of copper and his company in 2012. From my view this is good news for not only the red metal but for gold which has been riding shotgun with key commodities for some time. Although we may see some pullbacks in the near term, I remain bullish on these two metals for 2012.

The Colonel's input to the Weekly Kitco Gold Survey

Q. Where do you see gold’s price headed next week, up, down or unchanged?
A. Down slightly - $1,649/oz mean, trading in range
Q. Why?
A. After 4-month highs for copper and a good start for gold, I believe we will see a price consolidation as we move into the Chinese Lunar New Year holidays next week. There are some bearish patterns setting up for gold with respect to key global benchmarks oil and copper. Presently both are less volatile in price with respect to the yellow metal, a fairly unusual condition that continues to warrant monitoring. Although gold made new highs last year under similar circumstances, volatility is a 2-way street and may signal a downward move in the present environment. Two related metrics are signaling distress: 1) the gold-to-oil ratio has bottomed and is trending up (oil bearish) and 2) the gold-to-copper ratio remains high and the recent compression trend is now showing signs of weakening (copper bearish - ratio level & trend). As long as gold behaves as a commodity these indicators could be bearish for all three in the next several weeks.


For a nominal COMEX gold price of $1,649/oz next week, one can expect NYMEX oil to trade below just below $100/bbl and COMEX copper to stay in a $3.6/lb to $3.8/lb range.

Background Notes:

1) The 3-month volatility of oil price relative to gold is 0.928 (VOL<1.00 implies gold more volatile than oil) 2) The 3-month volatility of copper price relative to gold is 0.934 (VOL<1.00 implies gold more volatile than copper) 3) The gold-to-NYMEX WTI ratio bottomed 12/29/2011 at 15.4 bbl/oz and is presently 16.6 bbl/oz on an up-trend 4) The 3-month rolling correlation of gold and NYMEX WTI reversed signs 1/11/12. It is presently -0.127 5) The gold-to-copper ratio is currently 437 lb/oz. Ratios greater than 400 lb/oz are considered recession levels. Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $46.38 down 0.17%
Newmont (NEM) $59.40 down 0.34%
US Gold (UXG) $4.69 up 1.30%
General Moly (Eureka Moly, LLC) (GMO) $3.28 down 0.30%
Thompson Creek (TC) $8.24 down 0.48%
Freeport-McMoRan (FCX) $43.86 down 1.15% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.87 down 0.20%
Timberline Resources (TLR) $0.48 down 2.04%

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

ArcelorMittal (MT) $21.02 down 0.80% - global steel producer
POSCO (PKX) $91.01 up 0.65% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is above-par at 147.85, up from last report's 147.72 and above the 1-month moving average of 100.18. The new record low for 2010-2012 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 2010-2012 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 $3.0/oz at $1,651.5/oz (February contract, most active)

COMEX silver is up $0.016/oz at $30.525/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 54.103 oz/oz

Silver 1-month CRS© is 1.69% (bullish level); stalled convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 91.29, up from last report's 90.81 and below its 1-month average of 92.72. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,511.6/oz which is $139.9/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 $0.0245/lb at $3.7760/lb (March contract, most active)

The gold-to-copper ratio is 437.4 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 2.89% (bullish level); divergent (Cu bearish)

The latest molybdenum oxide spot and futures prices (courtesy of Thompson Creek Metals):

Metals Week Average:
US$13.875
As of January 23, 2012
(updated weekly)

Ryan's Notes Average:
US$13.80
As of January 17, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$13.90/lb

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 (click this link)

On February 1st, 2011, 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 maintaining a spread above 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 $99.24
ICE North Sea Brent crude $110.92
Spread (ICE- NYMEX) = $11.68 (last report, $12.07)

Here are the April contracts* with a narrower spread:

NYMEX light sweet crude $99.99
ICE North Sea Brent crude $110.62
Spread (ICE- NYMEX) = $10.63 (last report, $11.11)

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

NYMEX WTI 1-month CRS© is 2.65% (bullish level); weak convergence (Oil neutral)

Prices are off their crisis highs and we have $110+ Brent and $95+ NYMEX in May favoring high oil prices this 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 89.3 up from last report's 87.5. 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 up 30.65 points to 12,654.63; the S&P 500 is down 4.21 points at 1310.29

The Eureka Miner's Grubstake Portfolio is down 0.14% at $1,482,840.35 (what's this?).

Cheers,

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