"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Friday, February 10, 2012

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

Lone Mountain, Eureka, Nevada

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 = $1,717.1/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 92.28 (gold value stalled, trend indeterminate - see below)
Value Adjusted Gold Price© (VAGP) = $1,554.8/oz
COMEX - VAGP = $162.1/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels

Morning Miners!

It's 6:12 AM. The ole Colonel is glad it is Friday, have a cup of Raine's delicious Red Label TGIF. Yesterday it was good news from Greece; today, bad. 18 out 19 global markets are in red, COMEX gold is down $24/oz with oil and base metals in retreat. There are very confusing cross-currents between gold, oil, and copper given the daily headlines from Europe and Iran. Below is may best shot at sorting out the commodity-relative technicals. Have a good weekend.

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 target

Q. Why?

A. Gold value with respect to key commodities oil, copper and silver has stabilized in the last several weeks after a steady decline since last October. Gold value is presently oscillating up and down about its 1-month average driven by news from Europe or Iran. Gold value is likely to pullout of this holding pattern, perhaps dramatically, in the coming weeks. Positive outcomes from the ongoing debt negotiations in Europe will cause relative value to decline, potentially a bullish condition for all four commodities. Escalating tensions in the Persian Gulf would be bullish for gold and oil; bearish for copper and silver with an overall rise in gold value (see notes). Next week’s outlook is biased for a slight rise in gold dollar price given expectations for improving conditions in Europe; no change in Iran. (see notes).

For $1,750/oz gold we can expect to see oil (WTI) in a range of $98-$101/bbl; silver, $33-$34/oz; and copper, $3.7-$3.9/lb.

Background Notes:

1) The Eureka Miner’s Gold Value Index© (GVI) equals 92.28 this morning down 15.9% from the Oct. 4 high of 109.97 but virtually unchanged from two weeks ago (GVI =92.22, 1/17/2012).
2) The GVI, which had been below its 1-month moving average for many weeks, is oscillating up and down about its average. Today it is slightly above (92.28 vs 92.44 average); 2-weeks ago, slightly below (92.22 vs 93.31 average, 1/17/2002)
3) If this pause in value decline is temporary, a bullish environment should remain in place for copper and silver. Gold has halted gaining value relative to oil.
4) If gold value trends higher from here, copper and silver could weaken (Ag, Cu bearish). Oil has just switched from negative to slightly positive correlation with the yellow metal (3-month correlation = +0.06 trending more positive). If this correlation firms, gold and oil prices could rise together with increasing gold value (oil bullish).
5) Scenario (3) is thought to be more likely than (4). If oil continues to re-correlate positively with oil, a bullish price condition for all four could develop in the near-term (e.g., improving conditions in Europe). However, rising tensions with Iran could quickly make scenario (4) more likely – a bullish condition for gold and oil alone.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $48.18 down 1.92%
Newmont (NEM) $59.56 down 1.78%
McEwen Mining (MUX) 5.16 down 3.19% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.69 down 4.90%
Thompson Creek (TC) $8.98 down 2.50%
Freeport-McMoRan (FCX) $45.19 down 2.65% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.00 down 0.27%
Timberline Resources (TLR) $0.50 unchanged

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

ArcelorMittal (MT) $22.30 down 4.29% - global steel producer
POSCO (PKX) $91.16 down 1.31% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) was re-calibrated 2/8 to reflect current 200-day moving averages for benchmark miners.

The EMI is above-par at 254.56, down down last report's 316.78 and above the 1-month moving average of 188.98. 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 $24.1/oz at $1,717.1/oz (April contract, most active)

COMEX silver is down $0.417/oz at $33.500/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 50.257 oz/oz

Silver 1-month CRS© is 2.65% (bullish level); weak convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 92.28, up from last report's 92.07 and below its 1-month average of 92.44. The gold value has stalled, trend indeterminate. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,554.8/oz which is $162.1/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 0.0825/lb at $3.8960/lb (March contract, most active)

The gold-to-copper ratio is 440.73 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 1.77% (bullish level); weak convergence (Cu neutral)

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

Metals Week Average:
As of February 13, 2012
(updated weekly)

Ryan's Notes Average:
As of February 7, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):

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

US$14.74/lb (US$32,500/metric ton)

Daily Oil Watch

Latest Nevada Fuel Prices (click this link)

A faithful friend of this report in Mumbai sent this insightful article on China, Iran and oil:

China buys up Saudi, Russian oil to squeeze Iran (Published on Wed, Feb 08, 2012, Reuters)

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 $97.81
ICE North Sea Brent crude $117.01
Spread (ICE- NYMEX) = $19.20 (last report, $18.43)

Here are the May contracts* with a narrower spread:

NYMEX light sweet crude $98.22
ICE North Sea Brent crude $116.10
Spread (ICE- NYMEX) = $17.88 (last report, $14.79)

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

NYMEX WTI 1-month CRS© is 3.31% (bearish level); weak convergence (Oil bullish)

Prices are off their crisis highs but we have $115+ Brent and $95+ NYMEX in May favoring high oil prices this spring. A front-month spread >$20/bbl is a trouble sign.

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 91.3 up from last report's 83.8. 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 117.27 to 12,773.19; the S&P 500 is down 10.79 points at 1,341.16

The Eureka Miner's Grubstake Portfolio is down 1.92% at $1,571,844.83 (what's this?).


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

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