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

Eureka, Nevada seen from South Ranch

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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: Silver & Gold, “Situation Normal…” (03/26/2012)

My latest Kitco commentary: Copper Bids Adieu to Gold and Silver (3/19/2012)

This morning's...
COMEX Gold price = $1,669.5/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.90 (gold value pause from trending down)
Value Adjusted Gold Price© (VAGP) = $1,569.2/oz
COMEX - VAGP = $100.3/oz; gold is trading at a small premium to key commodities; the gold-to-copper ratio remains below its 3-month average, compression stalling (Cu neutral)


Morning Miners!

It is 5:51 AM. Have an end-of-quarter TGIF cup of Raine's delicious Red Label. What a ride.

Copper (orange) has beat gold (blue) this quarter but both remain positive for the year-to-date; copper up 11% to gold's 6%.

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. Up, $1,690 per ounce target assuming no major geopolitical shocks.

Q. Why?

A. We continue to witness 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 geopolitical shock, the technical charts don’t favor gold but short-term dollar weakness and a resumption of physical demand in India may give the yellow metal a boost next week. Gold-to-silver and gold-to-copper ratios are uncommonly stable with the former near historical norms. There may be some weakness in copper next week but the trend is intact for the gold-to-copper ratio to bullishly fall below 400 pounds per ounce in late spring/early summer.

For $1,690 per ounce gold we can expect to see silver in a range of $32-$34 per ounce; and copper, $3.7-$3.9 per pound.


Background Notes:

1. Gold may move up to its 200-day moving average next week but will probably not break it with any conviction. My target is therefore $1,690 per ounce.

2. My Gold Value Index© (GVI) equals 88.90 this morning down 19.2% from the Oct. 4 high of 109.97, and at levels of early August, 2011.

3. The GVI trend lower has slowed and may trend side-ways in the short-term which is a bearish to neutral indication for key commodities.

4. The gold-to-copper ratio today is 434.77 pounds per ounce and below its 3-month moving average of 447.23 pounds per ounce. Remaining below this average and heading for the 400 pounds per ounce level is bullish for copper in the near-term. 3-month rolling correlation is +0.65, relative volatility is 1.23X gold and price sensitivity (beta) is 0.80. Importantly, the 1-month correlation has returned positive at +0.31 after a brief bearish sojourn into negative territory.

5. The gold-to-silver ratio is near historical norms at 51.3; 3-month rolling correlation is +0.89, relative volatility is 1.95X gold and price sensitivity (beta) is 1.73

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $43.45 up 0.74%
Newmont (NEM) $50.96 down 0.74%
McEwen Mining (MUX) 4.19 up 1.95% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.37 up 1.20%
Thompson Creek (TC) $6.75 down 1.03%
Freeport-McMoRan (FCX) $37.57 down 0.11% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.50 unchanged

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

ArcelorMittal (MT) $19.04 down 0.05% - global steel producer
POSCO (PKX) $83.72 up 0.56% - 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 173.56, up from last report's 150.56 and below the 1-month moving average of 185.80. 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 $14.6/oz at $1,669.5/oz (June contract, most active)

COMEX silver is up $0.548/oz at $32.540/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.306 oz/oz

Silver 1-month CRS© is 1.50% (bullish level); bullish compression stalled (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.90, up from last report's 88.73 and just above its 1-month average of 88.04. Gold value is taking a pause from trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,569.2/oz which is $100.3/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 up $0.0.0435/lb at $3.8400/lb (May contract, most active)

The gold-to-copper ratio is 434.77 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 447.23 (Although still below its 3-month average, a Cu bullish trend has stalled in Price Domain B)

Copper 1-month CRS© is 1.59% (bullish level); very stable ratio; 1-month & 3-month < 3% (Cu bullish)

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

Metals Week Average:
US$14.00
As of March 26, 2012
(updated weekly)

Ryan's Notes Average:
US$14.00
As of Mar 27, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.13/lb

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

US$14.06/lb (US$31,000/metric ton)

Daily Oil Watch

Latest Nevada Gas Prices (click this link)

Understanding the Price of Oil (click this link for a quick overview on crude oil prices)

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 $103.44
ICE North Sea Brent crude $123.33
Spread (ICE- NYMEX) = $19.89 (last report, $19.02)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $104.47
ICE North Sea Brent crude $121.79
Spread (ICE- NYMEX) = $17.32 (last report, $16.57)

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

NYMEX WTI 1-month CRS© is 1.50% (bullish level); CRS© weak convergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $100+ 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, getting pretty close to scary.

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 72.0 down from last report's 77.9. 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 49.34 to 13,195.16; the S&P 500 is up 4.61 points at 1,407.89

The Eureka Miner's Grubstake Portfolio is up 0.42% at $1,429,027.25 (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