The Colonel's Friday Thoughts on Gold; Moly Feeling Good

Not Forgotten

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 = $1,622.9/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 93.96 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,443.2/oz
COMEX - VAGP = $179.7/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 6:45 AM. Have the first cup of Raine's TGIF brew for 2012 A better-than-expected monthly jobs report started the day on a positive but the markets are still pretty glum about Europe.

Europe's woes don't seem to be hurting moly prices lately as LME moly futures popped to nearly $14/lb after being flat for many weeks. Western and European moly oxide are now trading in a range of $13.60/lb to $13.65/lb and that ain't all bad, pardner (see Copper & Molybdenum Report below)

The Colonel's input to the Weekly Kitco Gold Survey

Below 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. $1,644+/oz

Q. Why?

A. Sentiment appears to be returning to favorable for gold. Price has reacted positively to Persian Gulf concerns, mixed with respect to European sovereign debt issues and fairly neutral to improving domestic economic indicators (e.g., better-than-expected December jobs report). The price bias is nonetheless positive. With respect to key commodities, COMEX gold is now more volatile than COMEX copper on a 3-month basis (note 1). This may be reflecting the confused role of the yellow metal to recent global developments - something to monitor in the weeks to come (note 2).

Background notes:

Note 1. 3-month relative volatility of copper with respect to gold: VOL(Cu,Au) = 0.8728 (<1 implies gold is more volatile than copper) Note 2. Less than unity VOL (Cu,Au) is fairly rare occurring twice in 2011 during periods of market stress when gold made new highs: (4/8/2011 to 5/10/2011) & (8/10/2011 to 9/26/2011) Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $47.75 down 0.56%
Newmont (NEM) $61.92 down 0.29%
US Gold (UXG) $3.50 down 2.23%
General Moly (Eureka Moly, LLC) (GMO) $3.15 down 1.25%
Thompson Creek (TC) $7.17 down 1.10%
Freeport-McMoRan (FCX) $38.92 down 0.97% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.75 down 0.07%
Timberline Resources (TLR) $0.58 down 1.69%

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

ArcelorMittal (MT) $18.66 down 3.42% - global steel producer
POSCO (PKX) $82.53 down 2.37% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is below-par at 91.25, up from last report's 85.63 and below the 1-month moving average of 80.95. 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 2010-2011 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 $2.8/oz at $1,622.9/oz (February contract, most active)

COMEX silver is down $0.241/oz at $29.055/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 55.856 oz/oz

Silver 1-month CRS© is 2.28% (bullish level); slightly divergent (Ag bearish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 93.96, up from last report's 92.52 and below its 1-month average of 94.18. The new record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,441.6/oz which is $162.2/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 down $0.0255/lb at $3.4010/lb (March contract, most active)

The gold-to-copper ratio is 475.92 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 2.28% (bullish level); stalled convergence (Cu neutral)

The latest molybdenum oxide spot and futures prices:

Metals Week Average:
US$13.625
As of January 9, 2012
(updated weekly)

Ryan's Notes Average:
US$13.65
As of January 3, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$13.65/lb

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

US$13.95/lb (US$30,750/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 $101.31
ICE North Sea Brent crude $112.53
Spread (ICE- NYMEX) = $11.22 (last report, $10.85)

Here are the April contracts* with a narrower spread:

NYMEX light sweet crude $101.74
ICE North Sea Brent crude $111.85
Spread (ICE- NYMEX) = $10.11 (last report, $9.79)

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

NYMEX WTI 1-month CRS© is 3.80% (neutral level); slightly divergent (Oil bearish)

Prices are off their crisis highs and we have $110+ 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 105.0 down from last report's 110.9. 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 66.648 points to 12,349.06; the S&P 500 is down 6.42 points at 1274.64

The Eureka Miner's Grubstake Portfolio is down 0.98% at $1,386,546.52 (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