The Colonel's 2012 Predictions for Gold, Silver, Copper & ...Iran

Pickett's Charge - July 3,1863

*** BREAKING NEWS *** COMEX gold touched $1,752.60/oz at 13:50 ET, SPDR Gold trust GLD peaked at $170.09 at 13:54 ET. Gold was buoyed by a rising euro, oil prices and Bernanke comments reaffirming low interest rates until 2014.

die Lage im Nahen Osten spitzt sich zu or verschärft sich!

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 Move Uptown for 2012 (02/06/2011)

My latest Kitco commentary: Copper and Gold Plan Their 2012 World Tour (01/30/2012)

This morning's...
COMEX Gold price = $1,725.8/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 93.92 (rising gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,535.3
COMEX - VAGP = $190.5/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels


Morning Miners!

It is 7:06 AM. No, the Colonel didn't get up late - I've just been scratching my noggin on our favorite metals for 2012. Join me and Ruby for a cup of Up From Here and let's see where we stand on atomic numbers 79, 47 and 29...

The Colonel's 2012 Predictions for Gold, Silver & Copper &...Iran

In my commentaries of late, I've put together my thoughts on where three of our favorite metals are headed for 2012:

Gold and Silver Move Uptown for 2012 (02/06/2011)

Copper and Gold Plan Their 2012 World Tour (01/30/2012)

The whys and wherefores are in the articles but here's a quick summary if you're in a hurry:

Other than multi-year worry about the Greeks and European banks, the Colonel continues to believe that the Persian Gulf could be the biggest story for precious metals this year (this report's first blog on the impending Gulf crisis was in early December). As the English say, "Things are hotting up in Iran" - a misstep at the Strait of Hormuz could make Italy's debt-to-GDP ratio seem as insignificant as the proverbial flea on an Elephant's behind. With some great irony, this straight served as a land bridge for the great migrations from Africa that eventually populated Asia and the Americas; today it's the watery 30-mile gateway to a significant pool of the world's oil reserves and fragile prospects for global recovery.

The surging price spread between Western Texas Intermediate (WTI) light sweet crude and Brent North Sea crude oil is a loud warning bell this morning - the former is a domestic benchmark; the latter a global benchmark. At the close of 2011, the spread had fallen back to sub-$10/bbl registering $8.06/bbl for the front month futures contracts. This morning, the spread is back to Libyan crisis levels at $20.40/bbl (see Oil Watch below).

A crisis induced spike in oil prices could easily send gold to my $2,000+/oz peak prediction. The math is pretty simple: let's say Brent soars to $175/bbl, then a $25/bbl spread with WTI gives us $150/bbl WTI. When oil and gold spiked during the Libyan conflict the gold-to-WTI ratio was 13.7 bbl/oz for WTI north of $113/bbl. Applying that ratio to $150/bbl WTI gives you $2,055/oz gold.

Where do silver & gold go in a Persian Gulf scenario? If silver can avoid liquidations due to other adverse market reactions, I expect it to follow gold up to my $40+/oz top-end. COMEX copper would no doubt be whacked pretty hard but even using the most bearish ratio from the 2008-2009 financial crisis, the red metal should stay above my $3/lb floor.

Gold has been in the doldrums this week so I threw a little more in the buckboard this morning buying the SPDR Gold trust GLD at $167.55. COMEX gold is presently trading down $0.9 at $1,725.8/oz.

Please do your own research, the ole Colonel could dead wrong on this call.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $48.62 down 1.12%
Newmont (NEM) $60.21 down 1.12%
McEwen Mining (MUX) 5.62 down 0.18% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.92 down 2.97%
Thompson Creek (TC) $9.22 down 1.18%
Freeport-McMoRan (FCX) $45.77 down 2.05% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.02 unchanged
Timberline Resources (TLR) $0.53 down 1.85%

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

ArcelorMittal (MT) $21.83 up 1.82% - global steel producer
POSCO (PKX) $90.25 down 1.17% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is above-par at 215.95, down from last report's 222.70 and above the 1-month moving average of 162.49. 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 $0.9/oz at $1,725.8/oz (April contract, most active)

COMEX silver is down $0.0370/oz at $33.505/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.509 oz/oz

Silver 1-month CRS© is 3.09% (bullish level); weak convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 93.92, up from last report's 93.22 and above its 1-month average of 92.56. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,535.3/oz which is $190.5/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 0.0370/lb at $3.8275/lb (March contract, most active)

The gold-to-copper ratio is 450.89 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 2.38% (bullish level); stalled divergence (Cu neutral)

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

Metals Week Average:
US$14.125
As of February 6, 2012
(updated weekly)

Ryan's Notes Average:
US$14.25
As of February 3, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.10/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 $96.39
ICE North Sea Brent crude $116.79
Spread (ICE- NYMEX) = $20.40 (last report, $17.39)

Here are the May contracts* with a narrower spread:

NYMEX light sweet crude $97.56
ICE North Sea Brent crude $116.07
Spread (ICE- NYMEX) = $18.51 (last report, $15.88)

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

NYMEX WTI 1-month CRS© is 4.43% (bearish level); divergent (Oil bearish)

Prices are off their crisis highs and we have $110+ Brent and $95+ NYMEX in May favoring high oil prices this spring. The front-month spread 9>$20/bbl)is worrisome.

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 81.2 up from last report's 79.0. 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 51.20 to 12,793.93; the S&P 500 is down 7.29 points at 1,337.04

The Eureka Miner's Grubstake Portfolio is down 0.93% at $1,602,818.39 (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