"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.

Tuesday, February 14, 2012

Does Silver Still Shine?

What's Next for Silver?

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 = $1,725.4/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 92.00 (gold value sideways, trend indeterminate)
Value Adjusted Gold Price© (VAGP) = $1,567.1/oz
COMEX - VAGP = $158.3/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels

Morning Miners!

It is 6:17 AM. Have a cup of Cheer and a few of Ruby T's delicious Valentine Day's cookies - if you forgot your valentine; there's still time, pardner. The ole Colonel will not be signing in tomorrow but we'll be back and at'em Thursday. Let's check out what's going on with silver before I leave...

Does Silver Still Shine?

The Report put a spotlight on silver in late December - a little tarnished then trading below $30/oz; COMEX silver sat at $29.70/oz when we asked the question, Is Silver Still a Good Investment?(12/27/2011). I answered this way:

If you are willing to sit through a lot of wild price swings, my answer is simply, "Yes!" Silver, like its companion gold, has good long term precious metal fundamentals. Silver also has a bright future as new uses in hi-tech applications will only increase its industrial demand - high-density batteries come to mind in our evermore electrified world.

For the long haul silver remains a good investment if you have a strong stomach and balance your holding with gold and currencies. Presently the Colonel splits it this way: Gold (68%), silver (10%) and U.S. dollar index (22%). There are far fancier (and often better) ways to hedge precious metals with currencies but for an old timer that takes life a little slower than the young bucks, holding the U.S. dollar index covers those days when the dollar is strong and precious metals are weak. Carrying silver as a smaller percentage of the total is also a good way to keep your blood pressure down during the white metal metal's crazy spells. Here are some popular exchange traded funds to cover all three bases:

SPDR Gold Trust (GLD)
iShares Silver Trust (SLV)
Powersahres DB US Dollar Index Bullish Fund (UUP)

Silver hasn't been a bad trade for the short haul either. This morning with COMEX silver at $34.765/oz, it's 20% above the closing price for 2011. COMEX gold by comparison is up 9.9% trading at $1,725.4/oz. Is there more room to go?

The gold-to-silver ratio is a good one to watch to answer that question. At the close of 2011 it was at an elevated 57.7 which reads gold strong; silver weak. Today the ratio at 51.1 is hovering near its more historical value of 51 (at least that's the number I use for "normal"). The lowest the ratio scored recently was 50.97 on the Feb. 9. Currently, silver is showing strength relative to gold with a "very stable" ratio (i.e. the 1-month standard deviation normalized by its mean is only 2.4%, this report considers anything less than 3% to be very stable).

If ratio stability holds and COMEX gold returns to $1,775/oz territory, we can take out the 11/16 silver high of $34.68/oz. Breaking this resistance sends the white metal another leg up. My peak price target for silver this year is $40+/oz with a nominal price of $35/oz.

I believe gold is headed higher so my answer to the question begged by today's title is - Yes!

As this report always cautions: please do your own research, the Colonel may be dead wrong. Silver can take you for a wild ride down as well as up.

I threw a few shares of SLV into the buckboard this morning at $32.71. What the heck.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $47.80 down 0.48%
Newmont (NEM) $58.95 down 0.77%
McEwen Mining (MUX) 5.05 down 0.59% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.53 down 3.29%
Thompson Creek (TC) $8.81 up 0.11%
Freeport-McMoRan (FCX) $43.88 down 1.75% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.96 down 0.07%
Timberline Resources (TLR) $0.50 unchanged

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

ArcelorMittal (MT) $21.96 down 2.83% - global steel producer
POSCO (PKX) $91.01 down 1.18% - 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 235.1, up down last report's 256.9 and above the 1-month moving average of 200.8. The 1-month average is safely 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 up $0.5/oz at $1,725.4/oz (April contract, most active)

COMEX silver is up $0.0.043/oz at $33.765/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.100 oz/oz

Silver 1-month CRS© is 2.40% (bullish level); stalled convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 92.00, up from last report's 91.83 and below its 1-month average of 92.40. The gold value has stalled, and the trend is again indeterminate. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,567.1/oz which is $158.3/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 $3.8115/lb (March contract, most active)

The gold-to-copper ratio is 452.68 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 1.37% (bullish level); ratio convergence (Cu bullish)

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 10, 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)

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 $101.56
ICE North Sea Brent crude $117.25
Spread (ICE- NYMEX) = $15.69 (last report, $17.45)

Here are the May contracts* with a narrower spread:

NYMEX light sweet crude $102.39
ICE North Sea Brent crude $116.78
Spread (ICE- NYMEX) = $14.39 (last report, $16.08)

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

NYMEX WTI 1-month CRS© is 2.82% (bullish level); ratio convergence (Oil bullish)

Prices are off their crisis highs but we have $115+ Brent and $100+ 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 88.3 up from last report's 87.3. 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 42.80 to 12,831.24; the S&P 500 is down 6.09 points at 1,345.68

The Eureka Miner's Grubstake Portfolio is down 0.81% at $1,557,214.47 (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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