The Colonel's Friday Thoughts on Gold, Oil & Copper

The Ghosts of Whistler Mountain

*** BREAKING NEWS *** As reported by the Wall Street Journal, "Standard & Poor’s Ratings Services has notified the French government of its decision to downgrade the country’s credit rating, a senior French government official said Friday, a move that marks the long-awaited blow to France’s international standing and knocks the country out of the top financial league of the euro zone." (9:17 AM PT)

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 = $1,638.1/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 92.98 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,472.0/oz
COMEX - VAGP = $166.1/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 8:39 AM. Have a well deserved cup of Scott Raine's delicious Red Label TGIF. The ole Colonel will be on the road again next week but should be back for Friday's wrap-up and gold survey. This week's survey has some unusual twists and turns for gold in the world of oil and copper...

The Colonel's Friday Thoughts on Gold, Oil & Copper

Leave it to Standard & Poor's ratings agency to wait until Friday the 13th to shake the markets with a pending downgrade rumor. I'd love to be a fly on the wall at their annual analyst awards dinner, I've heard the Global Pariah Trophy is highly prized by their credit whiz kids. As the rumor goes, S&P could announce the downgrades in the credit ratings of a number of European governments as early as today.

Several interesting technical changes are occurring to gold prices relative to oil and copper as I discussed with Kitco News for their weekly gold survey...

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. Sideways - $1,638/oz mean, trading in range
Q. Why?
A. Although I rarely take a sideways bet, the reasons for gold to go higher seem to be at equilibrium with those that drive lower prices. Conflict escalation in the Persian Gulf (gold bullish) appears to be delayed with reports of a postponement of sanctions; worsening of the European sovereign debt crises (gold bearish) is likely next week with rumors of pending credit downgrades and a lackluster Italian debt auction; physical buying in China ahead of Lunar New Year (gold bullish) provides price support. Technically, there are several gold metrics that are sending warning signals with respect to key global benchmarks oil and copper. The unrelenting compression of the gold-to-oil ratio since early August has ceased and the 3-month rolling correlation of gold and oil turned negative earlier this week. As long as gold behaves as a commodity this could be a bearish development for both. The gold-to-copper ratio remains stubbornly high (copper bearish) but continues to slowly trend down (copper bullish). However, copper price remains less volatile relative to gold - a fairly unusual condition that warrants monitoring (gold made new highs last year under similar circumstances).


For a nominal COMEX gold price of $1,638/oz next week, one can expect NYMEX oil to trade below $100/bbl and COMEX copper to stay in a $3.5/lb to $3.6/lb range.

Background Notes:

1) The gold-to-NYMEX WTI ratio bottomed 12/29/2011 at 15.4 bbl/oz and is presently 16.7 bbl/oz on an up-trend.
2)The 3-month rolling correlation of gold and NYMEX WTI reversed signs Wednesday, 1/11. It is presently -0.025
3) The gold-to-copper ratio is currently 453 lb/oz trending slowly down. Ratios greater than 400 lb/oz are considered recession levels.
4) The volatility of copper price relative to gold is 0.84 (VOL<1.00 implies gold more volatile than copper). Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $48.15 down 1.35%
Newmont (NEM) $63.55 down 0.77%
US Gold (UXG) $4.13 unchanged
General Moly (Eureka Moly, LLC) (GMO) $3.26 up 1.51%
Thompson Creek (TC) $7.78 up 0.52%
Freeport-McMoRan (FCX) $42.09 down 0.85% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.90 down 0.59%
Timberline Resources (TLR) $0.56 down 1.75%

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

ArcelorMittal (MT) $19.34 down 2.47% - global steel producer
POSCO (PKX) $84.92 down 0.21% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is above-par at 121.41, up from last report's 118.86 and above the 1-month moving average of 88.27. 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 $9.6/oz at $1,638.1/oz (February contract, most active)

COMEX silver is down $0.289/oz at $29.835/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 54.905 oz/oz

Silver 1-month CRS© is 1.89% (bullish level); stalled convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 92.98, up from last report's 91.68 and below its 1-month average of 93.47. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,472.0/oz which is $166.1/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 down $0.0365/lb at $3.6125/lb (March contract, most active)

The gold-to-copper ratio is 453.45 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish) but the ratio continues to trend down (Cu bullish).

Copper 1-month CRS© is 2.23% (bullish level); stalled convergence (Cu neutral)

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

Metals Week Average:
US$13.775
As of January 16, 2012
(updated weekly)

Ryan's Notes Average:
US$13.80
As of January 10, 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$13.95/lb (US$30,750/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 now having up-trending 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 $98.23
ICE North Sea Brent crude $110.30
Spread (ICE- NYMEX) = $12.07 (last report, $11.96)

Here are the April contracts* with a narrower spread:

NYMEX light sweet crude $98.90
ICE North Sea Brent crude $110.1
Spread (ICE- NYMEX) = $11.11 (last report, $10.82)

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

NYMEX WTI 1-month CRS© is 3.11% (neutral level); weak convergence (Oil neutral)

Prices are off their crisis highs and we have $110+ 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 93.7 down from last report's 98.0. 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 and continuing into 2012.

Stock Market Morning Update

The DOW is down 112.08 points to 12,358.94; the S&P 500 is down 11.57 points at 1283.93

The Eureka Miner's Grubstake Portfolio is down 0.77% at $1,449,535.05 (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