The Colonel's Friday Thoughts on Gold; US Gold Now McEwen Mining

Goodbye for now old friend

NEW FORMAT for 2012

Morning Commentary
Daily Market Roundup
- Gold & Silver Report
- Copper & Molybdenum Report
- Oil Watch
- Debt Crisis Watch
- Stock Market Morning Update
- 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 = $1,722.5/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 92.22 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,562.4/oz
COMEX - VAGP = $160.1/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels


Morning Miners!

It is 6:03 AM. Have a cup of Raine's Red Label TGIF - you deserve it! Not a bad week for gold and the markets even though we're down a bit today. Things are looking up, pardner.

The Colonel's Friday Thoughts on Gold

My input to the Weekly Kitco Gold Survey:

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

A. Up - $1,750/oz possible

Q. Why?

A. The Federal Reserve extension of very low interest rates to late 2014 and the possibility of additional quantitative easing with today’s less-than-expected Q4 GDP create a favorable environment for gold and commodities going forward. Gold value with respect to key commodities oil, copper and silver has been falling since October but its descent is showing signs of slowing. It is likely that this pause is temporary and a bullish price environment could develop for all four in the near-term (see notes).

For $1,750/oz gold we can expect to see oil (WTI) in a range of $99-$101/bbl; silver, $33-$34/oz; and copper, $3.7-$3.9/lb.

Background Notes:

1. This report's Gold Value Index© (GVI) equals 92.22 this morning, down 16.1% from the Oct. 4 high of 109.97
2. The GVI, which has been below its 1-month moving average for many weeks, has just crossed above (92.22 vs 92.06 average)
3. If this pause in value decline is temporary, a bullish environment should remain in place for copper and silver. Gold is presently gaining the most value relative to oil.
4. If the gold value trends higher from here; copper and silver could weaken similar to oil. Oil is presently negatively correlated to the yellow metal (3-month correlation = -0.18, a typically bearish condition)
5. Scenario (3) is thought to be more likely than (4). Scenario (3) does not preclude a rising dollar gold price with a resumption of declining value. If oil re-correlates positively with gold, a bullish price condition for all four could develop in the near-term.

US Gold Now McEwen Mining

As of this morning, US Gold is listed with the NYSE as McEwen Mining, Inc. The NYSE sticker symbol has changed from UXG to MUX. Among many holdings, McEwen Mining owns a portion of the old Atlas Gold Bar Mine properties.

US Gold acquired Minera Andes in an all-stock deal announced in June. The enlarged company, now called McEwen Mining, is listed in Toronto and New York today with a market capitalization of some $1.3 billion. Here's the scoop:

McEwen determined to prove his mettle (Calgary Herald, 1/27/2012)

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $49.25 up 0.80%
Newmont (NEM) $60.66 up 0.35%
McEwen Mining (MUX) n/a
General Moly (Eureka Moly, LLC) (GMO) $3.58 down 2.45%
Thompson Creek (TC) $8.62 up 1.53%
Freeport-McMoRan (FCX) $47.01 up 1.10% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.90 down 0.20%
Timberline Resources (TLR) $0.53 unchanged

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

ArcelorMittal (MT) $21.44 down 1.65% - global steel producer
POSCO (PKX) $93.72 up 0.94% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is above-par at 199.55, up from last report's 214.84 and above the 1-month moving average of 122.09. The new record low for 2010-2012 was set Oct. 4, 2011 at 22.88. The 1-month average is currently above the key 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 $4.2/oz at $1,722.5/oz (February contract, most active)

COMEX silver is down $0.363/oz at $33.380/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.603 oz/oz

Silver 1-month CRS© is 3.31% (bullish level); weak divergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 92.22, up from last report's 91.51 and above its 1-month average of 92.06. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,562.4/oz which is $160.1/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 $0.0280/lb at $3.8730/lb (March contract, most active)

The gold-to-copper ratio is 444.75 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 2.67% (bullish level); divergent (Cu bearish)

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

Metals Week Average:
US$14.00
As of January 30, 2012
(updated weekly)

Ryan's Notes Average:
US$13.80
As of January 24, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.05/lb

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

US$14.29/lb (US$31,500/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 $99.51
ICE North Sea Brent crude $111.21
Spread (ICE- NYMEX) = $11.70 (last report, $10.54)

Here are the May contracts* with a narrower spread:

NYMEX light sweet crude $100.21
ICE North Sea Brent crude $110.68
Spread (ICE- NYMEX) = $10.47 (last report, $9.58)

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

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

Prices are off their crisis highs and we have $110+ Brent and $100+ 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 82.6 up from last report's 79.4. 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 49.38 points to 12,685.25; the S&P 500 is down 1.79 points at 1316.64

The Eureka Miner's Grubstake Portfolio is up 0.04% at $1,482,348.75 (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