Friday, April 20, 2012
The Colonel's Friday Thoughts on Gold, Silver & Copper; Thompson Creek (TC) Reports
Latest Nevada Gas Prices (click this link)
NEW FORMAT for 2012
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: 2012 Copper and Gold - Is a Red Metal Crash Next? (4/16/2012)
My Latest International Business Times commentary: Silver & Gold, “Situation Normal…” (03/26/2012)
COMEX Gold price = $1,640.0/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 89.11 (gold value may resume trending lower)
Value Adjusted Gold Price© (VAGP) = $1,537.8/oz
COMEX - VAGP = $102.2/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio remains just above its 3-month average (Cu bearish trend weakening)
It is 5:46 AM. Have a welcome cup of Raine's delicious Red Label TGIF. Let's look forward to better markets next week...
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. Up, $1,660 per ounce target.
Precious and base metal prices continue to be range-bound and but relatively stable given the emerging 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. There is growing evidence that China’s central bank may indeed increase liquidity which should support gold price.
Gold value relative to key commodities may resume its trend lower from its mid-March move up – typically bullish for copper and silver. If the US dollar index falls below its 200-day average and gold stays above its 300-day, gold prices could move higher even if relative value declines.
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 (0.87X) gold and gold ratios are uncommonly stable (e.g., gold-to-copper & gold-to-silver).
For $1,660 per ounce gold we can expect to see silver in a range of $31.6-$32.7 per ounce; and copper, $3.61-$3.98 per pound.
1. Next week, it is likely for COMEX gold to trade between its April intraday low ($1,613.0/oz) and high at ($1,685.4/oz) with a positive bias from the mean. Therefore, my target will be $1,660/oz: slightly above this week’s high ($1,659.60/oz) and up from last week’s target which was the geometric mean of the April low and high or $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 89.11 this morning down 19.0% from the Oct. 4 high of 109.97, and at levels of early August, 2011.
4. The GVI may resume its trend lower from its mid-March move up – typically bullish for key commodities.
5. The gold-to-copper ratio today is 445.53 pounds per ounce and slightly above its 3-month moving average of 444.82 pounds per ounce. Remaining above this average and trending away from the 400 pounds per ounce level is bearish for copper but this condition may be weakening. 3-month rolling correlation is +0.47, relative volatility is 0.87X gold and price sensitivity (beta) is +0.41. Importantly, the 1-month correlation remains positive at +0.45
6. The gold-to-silver ratio is slightly above its historical norms at 51.825; 3-month rolling correlation is +0.89, relative volatility is 1.39X gold and price sensitivity (beta) is 1.24
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 continue in a mirror image dance with their longer term averages – bearish for gold and bullish for the US dollar. If the dollar index falls below its 200-day average this symmetry is challenged – potentially bullish for gold.
Thompson Creek (TC) Reports
Moly benchmark miner Thompson Creek (TC) reported after the bell yesterday. The ole Colonel hasn't had the time to go through this in detail but investors are punishing TC a bit this morning: $6.25/share down 2.2%
Here's the link:
Thompson Creek Announces Completion of the Endako Mill Expansion Project and Preliminary First Quarter 2012 Production and Cash Cost Results (Press Release, 4:37 PM EDT, 4/19/2012)
Kevin Loughrey, Chairman and Chief Executive Officer of Thompson Creek, had this to say:
"We are extremely pleased to have completed the construction of the new mill at the Endako mine and to have achieved design capacity throughput so quickly in the start-up process," said Kevin Loughrey, Chairman and Chief Executive Officer of Thompson Creek. "Our dedicated employees, contractors, and suppliers performed a remarkable job commissioning the new mill and achieving design capacity throughput in approximately 20 days under extreme and difficult winter conditions, with temperatures at times reaching -40°C," added Mr. Loughrey.
"The higher costs and lower production that we experienced during the commissioning and start-up phase are typical with projects like this, and although production was lower and costs were higher from the Endako mine in the first quarter of 2012, through continued optimization we expect to make up for the lower production throughout the remainder of 2012 and to meet our previously announced 2012 production guidance from the Endako mine of approximately 14 to 15 million pounds of molybdenum on a 100% basis, or 10 to 11 million pounds for the Company's 75% share," said Mr. Loughrey. "We anticipate meeting our total 2012 production guidance of approximately 26 to 28 million pounds of molybdenum; however, due to inflationary pressures on diesel fuel, consumables, and energy, we are currently tracking to the higher range of the Company's current 2012 average cash cost guidance of approximately $7.75 to $9.00 per pound produced. If the current inflationary pressures continue, our costs will continue to increase and potentially rise above the current guidance," added Mr. Loughrey.
You may remember that fuel prices have hit moly miners especially hard compared to copper or gold miners on a year-over-year basis. Moly and copper miners are both paying a healthy premium for oil in terms of their primary product; and gold miners, a discount.
Daily Market Roundup
This morning's mining stocks...
Barrick (ABX) $40.52 down 1.05%
Newmont (NEM) $47.87 up 0.13%
McEwen Mining (MUX) 3.55 up 2.90% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.12 up 1.63%
Thompson Creek (TC) $6.25 down 2.19%
Freeport-McMoRan (FCX) $37.94 down 0.24% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.47 unchanged
The Steels (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $17.22 up 1.59% - global steel producer
POSCO (PKX) $83.66 up 0.84% - 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 129.40, down from last report's 131.37 and below the 1-month moving average of 153.41. 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
COMEX gold is down $1.4/oz at $1,640.0/oz (June contract, most active)
COMEX silver is down $0.134/oz at $31.645/oz (May contract, most active)
The gold-to-silver ratio (Au:Ag) is 51.825 oz/oz
Silver 1-month CRS© is 0.87% (bullish level); very stable ratio; 1-month & 3-month < 3% (Ag bullish)
The Eureka Miner’s Gold Value Index© (GVI) is below-par at 89.11, down from last report's 90.66 and below its 1-month average of 89.22. Gold value may resume trending lower. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.
The Value Adjusted Gold Price© (VAGP) is $1,537.8/oz which is $102.2/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
COMEX copper is up $0.0535/lb at $3.6810/lb (May contract, most active)
The gold-to-copper ratio is 445.53 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is above its 3-month moving average of 444.82 (a weakening Cu bearish trend in a bearishPrice Domain B)
Copper 1-month CRS© is 2.38% (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
Ryan's Notes Average:
As of April 17, 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 $115/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 $104.06
ICE North Sea Brent crude $119.07
Spread (ICE- NYMEX) = $14.58 (last report, $16.19)
Here are the August contracts* with a narrower spread:
NYMEX light sweet crude $105.17
ICE North Sea Brent crude $118.40
Spread (ICE- NYMEX) = $13.23 (last report, $15.14)
* NYMEX futures contracts have rolled forward, we now show June and August.
NYMEX WTI 1-month CRS© is 1.62% (bullish level); CRS© stalled divergence (Oil neutral)
Prices remain high for 2012, we have $115+ 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 pipeline bottlenecks and persistent but diminished 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 76.2 down from last report's 81.5. 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 98.73 points to 13,062.83; the S&P 500 is up 7.93 points at 1,384.85
The Eureka Miner's Grubstake Portfolio is up 0.44% at $1,368,460.53 (what's this?).
Headline photograph by Mariana Titus
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market