"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, March 23, 2012

The Colonel's Friday Thoughts on Gold, Silver & Copper; Adella on GMO, MQ

Spring 2012 Mining Quarterly, Adella Harding, The Elko Daily Free Press

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: Copper Bids Adieu to Gold and Silver (3/19/2011)

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

This morning's...
COMEX Gold price = $1,656.3/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.56 (gold value pause from trending down)
Value Adjusted Gold Price© (VAGP) = $1,562.7/oz
COMEX - VAGP = $93.6/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio remains below its 3-month average, compression stalling (Cu neutral)

Morning Miners!

It is 5:46 AM. Have a fresh cup of Raine's up-and-at'em Red Label TGIF. Let's see what's brewing with our favorite metals and the latest at the Elko Daily Free Press...

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

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, $1,630 per ounce target assuming no major Geo-political shocks. My 2012 price floor of $1,615 per ounce remains unchanged.

Q. Why?

A. We are witnessing a major re-pricing exercise between precious and base metals to a global outlook in flux: better-than expected domestic recovery, lower-than-expected Chinese demand for raw materials and a Europe that has stabilized but moves forward with serious challenges. Lacking a Geo-political shock, gold and silver will continue to be under pressure next week.

Silver and copper are now losing value relative to gold on a short-term basis. The trend for the red metal should reverse to the upside in the near-term with the gold-to-copper ratio bullishly falling below 400 lb/oz later this spring. The gold-to-silver ratio remains stable and near historic norms. Industrial demand for silver gives the white metal price additional price support.

For $1,630 per ounce gold we can expect to see silver in a range of $30-$32 per ounce; and copper, $3.6-$3.8 per pound.

Background Notes:

1. The geometric mean of last week’s target ($1640/oz) and my 2012 price floor ($1615/oz) is $1,627.50/oz, reassuringly the intraday low for COMEX gold on Thursday ($1,627.50/oz). My target for next week is therefore $1,630/oz assuming we are approaching the floor in steps.

2. My Gold Value Index© (GVI) equals 88.56 this morning down 19.5% from the Oct. 4 high of 109.97.

3. The GVI trend lower has slowed and may trend higher in the short-term which is bearish for key commodities.

4. The gold-to-copper ratio today is 437.1 pounds per ounce and below its 3-month moving average of 449.2 pounds per ounce. Remaining below this average is bullish for copper in the near-term. 3-month rolling correlation is +0.78, relative volatility is 1.27X gold and price sensitivity (beta) is 0.99. Importantly, the 1-month correlation has returned positive at +0.28 after a brief bearish sojourn into negative territory.

5. The gold-to-silver ratio is slightly above historic norms at 52.2; 3-month rolling correlation is +0.93, relative volatility is 2.00X gold and price sensitivity (beta) is 1.86

Adella on General Moly (GMO), Mining Quarterly

Adella Harding, Mining Editor of the Elko Daily Free Press, added some good detail yesterday on Tuesday's rejection of the General Moly "Good Neighbor" offer which the Report has been tracking this week:

Eureka County rejects General Moly offer (Adella Harding, Mining Editor of the Elko Daily Free Press, Thursday, March 22, 2012 5:47 pm)

If you haven't had a chance, checkout Adella's Spring 2012 edition of the Mining Quarterly - it's a dandy! It has great articles and updates on the Barrick Cortez and Newmont gold mines, the Rochester silver mine, General Moly's Mt. Hope study, mining jobs and the upcoming Elko Mining Exposition.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $43.75 up 1.56%
Newmont (NEM) $53.48 up 2.04%
McEwen Mining (MUX) 4.04 up 8.02% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.32 up 1.22%
Thompson Creek (TC) $6.96 up 1.16%
Freeport-McMoRan (FCX) $38.50 up 0.44% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.51 up 6.25%

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

ArcelorMittal (MT) $19.54 up 0.62% - global steel producer
POSCO (PKX) $84.23 up 0.08% - 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 181.11, up from last report's 170.24 and below the 1-month moving average of 198.49. 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 up $13.8/oz at $1,656.3/oz (April contract, most active)

COMEX silver is up $0.395/oz at $31.740/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 52.183 oz/oz

Silver 1-month CRS© is 1.80% (bullish level); CRS© weak convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.56, up from last report's 87.77 and just below its 1-month average of 88.57. Gold value is now trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,562.7/oz which is only $93.6/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 $0.0235/lb at $3.7890/lb (May contract, most active)

The gold-to-copper ratio is 437.13 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 449.18 (Cu bullish trend has paused in Price Domain B)

Copper 1-month CRS© is 2.76% (bullish level); convergence, compression stalling (Cu neutral)

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

Metals Week Average:
As of March 26, 2012
(updated weekly)

Ryan's Notes Average:
As of March 20, 2012
(updated twice weekly)

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

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

US$14.06/lb (US$31,000/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 $105.56
ICE North Sea Brent crude $123.75
Spread (ICE- NYMEX) = $18.19 (last report, $17.84)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $106.58
ICE North Sea Brent crude $122.50
Spread (ICE- NYMEX) = $15.92 (last report, $15.73)

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

NYMEX WTI 1-month CRS© is 2.40% (bullish level); CRS© weak divergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $105+ NYMEX in July 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.

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 73.2 down from last report's 76.3. 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 13.96 to 13,060.10; the S&P 500 is up 0.99 points at 1,393.77

The Eureka Miner's Grubstake Portfolio is up 1.94% at $1,433,467.47 (what's this?).


Colonel Possum

Headline photograph supplied by the Elko Daily Free Press

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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