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

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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 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)

This morning's...
COMEX Gold price = $1,664.9/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 89.4 (gold value moving sideways)
Value Adjusted Gold Price© (VAGP) = $1,555.9/oz
COMEX - VAGP = $109.0/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio remains just below its 3-month average (Cu bullish)


Morning Miners!

It is 6:02 AM. Have a well deserved cup of Raine's famous Red Label TGIF. Have a great weekend!



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

The Commerce Department just reported that the gross domestic product (GDP) grew at an inflation-adjusted annual rate of 2.2% in the first quarter of 2012. Not great but the metals & miners are feeling pretty good today. Here is 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 metal prices continue to be range-bound and relatively stable as central banks attempt to manage a global slowdown and Europe shows signs of deepening financial turmoil. Accommodative monetary is generally bullish for gold but the European debt crisis dampens price increases. Given lower demand expectations, base metals like copper are supported by growing supply tightness.

Lacking any major geopolitical shocks, price crashes in either precious or base metals are unlikely. For example, 1-month copper price volatility remains less than (0.91X) gold and gold ratios are still uncommonly stable (e.g., gold-to-copper & gold-to-silver).

For $1,650 per ounce gold we can expect to see silver in a range of $30.6-$32.4 per ounce; and copper, $3.59-$3.93 per pound.


Background Notes:

1. Without a new catalyst, it is likely that COMEX gold will trade down on expectations for further bad headlines in Europe but remain between its April intraday low ($1,613.0/oz) and high at ($1,685.4/oz). My target will return to 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 respective ratio stability (CRS©)
3. My Gold Value Index© (GVI) equals 89.4 this morning down 18.8% from the Oct. 4 high of 109.97, and at levels of early August, 2011. The GVI is presently moving sideways.
4. The gold-to-copper ratio today is 437.10 pounds per ounce and below its 3-month moving average of 444.82 pounds per ounce. Remaining below this average and trending away from the 400 pounds per ounce level is bullish for copper. 3-month rolling correlation is +0.51, relative volatility is 0.91X gold and price sensitivity (beta) is +0.46. Importantly, the 1-month correlation remains positive at +0.44
5. The gold-to-silver ratio is trending above its historical norm at 53.090 (bearish); 3-month rolling correlation is +0.89, relative volatility is 1.51X gold and price sensitivity (beta) is 1.35
6. The SPDR Gold Trust (GLD) is trending up to its 100-day average and the PowerShares DB US Dollar Index Bullish Fund (UUP) is threatening to break below its 300-day average. Gold and the dollar continue in a mirror image dance with their longer term averages but have changed places – now a bullish chart emerging for gold and bearish for the US dollar.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $40.45 up 1.28%
Newmont (NEM) $48.03 up 0.63%
McEwen Mining (MUX) 3.61 up 1.12% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.30 up 0.30%
Thompson Creek (TC) $6.09 down 0.16%
Freeport-McMoRan (FCX) $38.11 up 0.95% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.45 up 4.65%

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

ArcelorMittal (MT) $17.55 up 1.50% - global steel producer
POSCO (PKX) $84.30 down 0.65% - 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 below-par at 135.74, up from last report's 119.56 and below the 1-month moving average of 135.93. 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 $4.4/oz at $1,664.9/oz (June contract, most active)

COMEX silver is up $0.084/oz at $31.360/oz (July contract, most active)

The gold-to-silver ratio (Au:Ag) is 53.090 oz/oz

Silver 1-month CRS© is 1.39% (bullish stability level); very stable ratio; 1-month & 3-month < 3% (Ag bullish mid-term stability, overall indicators bearish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 89.4, down from last report's 90.03 and below its 1-month average of 89.71. Gold value is oscillating about its average and moving sideways. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,555.9/oz which is $109.0/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 $0.0355/lb at $3.8090/lb (July contract, most active)

The gold-to-copper ratio is 437.10 lb/oz; ratios in excess of 400 lb/oz are indicative of a bearish price domian; the ratio is below its 3-month moving average of 444.82 (Cu bullish trend in a bearishPrice Domain B)

Copper 1-month CRS© is 2.25% (bullish stability level); very stable ratio; 1-month & 3-month < 3% (Cu mid-term stability bullish)

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

Metals Week Average:
US$14.225
As of April 23, 2012
(updated weekly)

Ryan's Notes Average:
US$14.20
As of April 24, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.23/lb

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

US$14.29/lb (US$31,500/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 $104.53
ICE North Sea Brent crude $119.56
Spread (ICE- NYMEX) = $15.03 (last report, $15.51)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $105.20
ICE North Sea Brent crude $118.75
Spread (ICE- NYMEX) = $13.55 (last report, $13.89)

* NYMEX futures contracts have rolled forward, we now show June and August.

NYMEX WTI 1-month CRS© is 1.17% (bullish stability level); CRS© weak convergence (Oil neutral)

Prices remain high for 2012, we have $115+ Brent and $100+ NYMEX in August favoring high oil prices this summer. A front-month spread between Brent and WTI >$20/bbl is a trouble sign; we continue to fall away from that 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 68.7 down from last report's 72.5. 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 25.13 points to 13,229.75; the S&P 500 is up 1.69 points at 1,401.67

The Eureka Miner's Grubstake Portfolio is up 0.59% at $1,372,960.49 (what's this?).

Cheers,

Colonel Possum

Note 1: The actual comment was, "a bumpy journey to a new normal."

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