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

The Devil's in the Details, Devil's Gate, Eureka, Nevada

Latest Nevada Fuel Prices (click this link)

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 Kitco commentary: Silver & Copper 2012 - A Tale of Two Metals (03/05/2012)

My Latest International Business Times commentary: Silver to Gold, “Whither Thou Goest…” (02/27/2011)

This morning's...
COMEX Gold price = $1,643.6/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 86.10 (gold value trending down)
Value Adjusted Gold Price© (VAGP) = $1,595.1/oz
COMEX - VAGP = $48.5/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio remains below its 3-month average and compressing (Cu bullish)


Morning Miners!

It is 6:16 AM. Let me pour you a delicious cup of Raine's traditional Red Label TGIF brew. Have a great weekend and remember St.Patrick's Day is tomorrow. I'm Welsh-Irish-Norwegian...so THREE CHEERS!

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

It is the poorest taste to brag on predictions in this curious business. Please forgive me this one time because I am part Irish and it is nearly St. Paddy's - the ole Colonel got three out of four right within 1% this week (although this may have more to do with uncommon ratio stability than Irish luck):

“The effects of the dramatic Feb. 29 sell-off of gold and silver still cast a shadow on both metals and the yellow could return to mid-$1,650 per ounce territory by next week” (3/09/2012)

“For $1,650/oz gold we can expect to see oil (WTI) in a range of $99-$104/bbl; silver, $32-$33/oz; and copper, $3.7-$3.9/lb.” (3/09/2012)

Predictions within 1%?

NYMEX/COMEX 9:23 AM ET, Today...

$1,643.6/oz given $1,650.0/oz => Yes, estimate high by 0.4%

$105.86 given $99-$104 => No, top-end estimate low by 1.8% > 1%

$32.395 given $32-$33 => Yes

$3.9290 given $3.7-$3.9 => Yes, top-end estimate low by 0.7%

Here is my morning's input to the Weekly Kitco Gold Survey:

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

A. Down, $1,640 per ounce target assuming no further deterioration of Persian Gulf tensions. My 2012 price floor of $1,615 per ounce remains unchanged.

Q.Why?

A. Gold prices continue to struggle as three broader markets make new highs above key psychological levels. Although real negative rates and the possibility of escalating tensions in the Persian Gulf remain bullish for gold, the list of downward pressures grows. This morning’s announcement that India may impose an import duty on gold joins diminished prospects for further U.S. quantitative easing, a stabilizing Europe and a stronger the U.S. dollar as more reasons for the yellow metal to lose some luster. Falling gold and rising copper prices are a bullish sign for the red metal which continues to show resilience compared to precious metals. A key metric to watch is the gold-to-copper ratio; compression below the 400 pound per ounce level would be notably bullish for the red metal. Silver’s high correlation and volatility relative to gold do not bode well for the white metal although the gold-to-silver ratio is stable and near historic norms. Industrial demand for silver also gives the white metal additional price support.

For $1,640/oz gold we can expect to see oil (WTI) in a range of $102-$106/bbl; silver, $31-$33/oz; and copper, $3.8-$4.0/lb.

Please also checkout:

METALS OUTLOOK: Currency Markets Likely To Influence Gold Next Week (By Debbie Carlson Of Kitco News, 16 March 2012, 2:24 p.m.)

Background Notes:

1. My Gold Value Index© (GVI) equals 86.10 this morning down 21.7% from the Oct. 4 high of 109.97, and at levels of early August, 2011.
2. The GVI continues to trend lower which is bullish for key commodities.
3. The gold-to-copper ratio today is 418.1 pounds per ounce and below its 3-month moving average of 452.8 pounds per ounce. Remaining below this average is bullish for copper going forward. 3-month relative volatility is 1.4X gold; 1-month is 0.65X gold
4. The gold-to-silver ratio is near historic norms at 50.7; 3-month rolling correlation is +0.942, relative volatility is 2.03X gold and price sensitivity (beta) is 1.911

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $43.86 up 0.02%
Newmont (NEM) $53.91 up 0.13%
McEwen Mining (MUX) 4.21 down 0.24% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.33 down 0.89%
Thompson Creek (TC) $7.06 up 0.43%
Freeport-McMoRan (FCX) $38.36 up 0.03% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.52 unchanged

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

ArcelorMittal (MT) $20.87 up 1.31% - global steel producer
POSCO (PKX) $89.04 unchanged - 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 200.14, up from last report's 192.57 and below the 1-month moving average of 206.82. The 1-month average is falling but still 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 $15.9/oz at $1,643.6/oz (April contract, most active)

COMEX silver is down $0.331/oz at $32.395/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 50.736 oz/oz

Silver 1-month CRS© is 1.95% (bullish level); CRS© stalled divergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 86.10, down from last report's 86.72 and below its 1-month average of 89.66. Gold value is now solidly trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,584.7/oz which is only $59.9/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 up $0.0315/lb at $3.9290/lb (May contract, most active)

The gold-to-copper ratio is 418.13 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 452.79 (Cu bullish trend emerging in Price Domain B)

Copper 1-month CRS© is 3.03% (bullish level); divergent, compressing ratio(Cu bullish)

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

Metals Week Average:
US$14.125
As of March 19, 2012
(updated weekly)

Ryan's Notes Average:
US$14.30
As of March 13, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.15/lb

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

US$14.52/lb (US$32,000/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 $120/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 $105.86
ICE North Sea Brent crude $123.96
Spread (ICE- NYMEX) = $18.10 (last report, $18.34)

Here are the June contracts* with a narrower spread:

NYMEX light sweet crude $106.92
ICE North Sea Brent crude $122.95
Spread (ICE- NYMEX) = $16.03 (last report, $16.85)

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

NYMEX WTI 1-month CRS© is 2.74% (bullish level); CRS© divergent (Oil bearish)

Prices are near highs for 2012, we have $120+ Brent and $105+ NYMEX in June favoring high oil prices this spring into summer. A front-month spread between Brent and WTI >$20/bbl is a trouble sign, OK for now but getting closer.

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 is 71.2 up from last report's 67.4. A level above 200 is time for serious concern - we are now well below that level. The highest level recorded since inception was 271.0 Aug. 9, 2011; the lowest level is 65.1 on Mar. 13, 2012

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 up 6.69 to 13,529.45; the S&P 500 is up 1.67 points at 1,404.27

The Eureka Miner's Grubstake Portfolio is up 0.04% at $1,462,836.35 (what's this?).

Cheers,

Colonel Possum

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market