"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, April 13, 2012

The Colonel's Friday Thoughts on Gold, Silver & Copper; Gibellini Vanadium Update

Rhyolitic Ash-Flow Tuff, South Ranch, Eureka, Nevada

Latest Nevada Gas 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: The 2012 Copper & Gold Conundrum (4/02/2012)

My Latest International Business Times commentary: Silver & Gold, “Situation Normal…” (03/26/2012)

This morning's...
COMEX Gold price = $1,670.2/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 90.89 (gold value trending higher)
Value Adjusted Gold Price© (VAGP) = $1,535.5/oz
COMEX - VAGP = $134.7/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio remains above its 3-month average (Cu bearish trend)

Morning Miners!

It is 5:56 AM. Have a welcome cup for Raine's delicious and no less famous Red Label TGIF. It has been a rough week in the precious and base metal markets; not so much for the price swings (which have been contained) but some of the bearish trends that may be forming. The best news is something that may be in the future for the south-east corner of our county...

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

My input to the Weekly Kitco Gold Survey:

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

A. Down, $1,650 per ounce target.

Q. Why?

A. Precious and base metals will continue to undergo an occasionally messy but relatively stable re-pricing exercise given the emerging change in global outlook: a better but frustratingly bumpy U.S. recovery, lower-than-expected Chinese demand for raw materials and a Europe that has stabilized but shows new signs of deterioration. Pricing volatility is exacerbated by on-again/off-again anticipation of further quantitative easing in the U.S. and China. However, lacking any major geopolitical shocks, price crashes in either precious or base metals are unlikely. For example, 1-month copper price volatility is actually less than (0.72X) gold and gold ratios are uncommonly stable (e.g., gold-to-copper & gold-to-silver).

Gold value relative to key commodities, after a long decline, may be reversing to the upside - typically bearish for copper and silver. Gold and the dollar continue a mirror image dance with their longer term averages – generally bearish for gold and bullish for the US dollar.

For $1,650 per ounce gold we can expect to see silver in a range of $31.7-$33.1 per ounce; and copper, $3.58-$3.90 per pound.

Background Notes:

1. Next week, it is equally likely in my view for COMEX gold to test either its April intraday low ($1,613.0/oz) or high at ($1,685.4/oz). Therefore, my target remains unchanged from last week given as the geometric mean of the two; $1,650/oz (i.e. $1,648.8/oz)

2. Given the target gold price, the copper and silver price ranges are derived from the 1-month gold ratio mean (GCR & GSR) and the respective ratio stability (CRS©)

3. My Gold Value Index© (GVI) equals 90.89 this morning down 17.4% from the Oct. 4 high of 109.97, and at levels of early August, 2011.

4. The GVI trend lower has paused but may be reversing in the near-term which is bearish for key commodities.

5. The gold-to-copper ratio today is 456.34 pounds per ounce and above its 3-month moving average of 443.88 pounds per ounce. Remaining above this average and trending away from the 400 pounds per ounce level is bearish for copper in the near-term. 3-month rolling correlation is +0.40, relative volatility is 0.72X gold and price sensitivity (beta) is 0.29. Importantly, the 1-month correlation remains positive at +0.20 after a recent bearish sojourn into negative territory.

6. The gold-to-silver ratio is slightly above its historical norm at 51.8; 3-month rolling correlation is +0.85, relative volatility is 1.53X gold and price sensitivity (beta) is 1.31

7. The SPDR Gold Trust (GLD) is above its 300-day moving average and the PowerShares DB US Dollar Index Bullish Fund (UUP) is below its 100-day average. Gold and the dollar are now in a mirror image dance with their longer term averages – bearish for gold and bullish for the US dollar

American Vanadium Update

With all the market turmoil this week, the ole Colonel overlooked an exciting development in the south-east corner of our county. As excellently reported by Mining Editor Adella Harding, American Vanadium American Vanadium is contemplating the installation of a renewable power generation capability at their Gibellini Vanadium Project:

American Vanadium eyes renewable energy at site (Adella Harding, Elko Daily Free Press, 4/13/2012)

Eric Pastorino sent me the link to their press release:

American Vanadium Aims to be Greenest Mine in America (Press Release, 4/11/2012).

As reported by Adella, "The system would include a vanadium flow battery combined with integrated solar and wind electric power generation capable of providing energy in excess of the needs of the proposed Gibellini vanadium mine."

The ole Colonel plans to do some follow-up on this soon!

Have a good weekend.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $41.43 down 1.82%
Newmont (NEM) $49.15 up 1.69%
McEwen Mining (MUX) 4.02 down 2.43% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.07 down 2.58%
Thompson Creek (TC) $6.45 down 2.57%
Freeport-McMoRan (FCX) $36.98 down 2.40% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.50 up 4.17%

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

ArcelorMittal (MT) $17.54 down 3.84% - global steel producer
POSCO (PKX) $83.58 down 0.70% - 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 127.37, down from last report's 128.96 and below the 1-month moving average of 169.13. 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 $10.4/oz at $1,670.2/oz (June contract, most active)

COMEX silver is down $0.310/oz at $32.215/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.845 oz/oz

Silver 1-month CRS© is 1.02% (bullish level); very stable ratio; 1-month & 3-month < 3% (Ag bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 90.89, up from last report's 90.50 and above its 1-month average of 88.40. Gold value may return to trending up. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,535.5/oz which is $134.7/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 $0.0605/lb at $3.6600/lb (May contract, most active)

The gold-to-copper ratio is 456.34 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is above its 3-month moving average of 443.8 (a Cu bearish trend forming in bearishPrice Domain B)

Copper 1-month CRS© is 2.15% (bullish stability 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:
As of April 16, 2012
(updated weekly)

Ryan's Notes Average:
As of April 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$14.52/lb (US$32,000/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 $103.49
ICE North Sea Brent crude $121.34
Spread (ICE- NYMEX) = $17.85 (last report, $16.68)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $104.41
ICE North Sea Brent crude $120.97
Spread (ICE- NYMEX) = $16.56 (last report, $15.35)

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

NYMEX WTI 1-month CRS© is 2.00% (bullish level); CRS© weak divergence (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; we're falling away from that now; latest spread is a mix of domestic oversupply and persistent Iran concerns.

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 81.5 down from last report's 85.7. 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 down 96.80 points to 12,889.78; the S&P 500 is down 10.89 points at 1,376.68

The Eureka Miner's Grubstake Portfolio is down 1.31% at $1,390,052.05 (what's this?).


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

No comments:

Post a Comment