The Gold-Dollar Challenge - "Every Which Way But Loose"

Every Which Way but Loose

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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 = $1,652.4/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 89.23 (gold value moving sideways)
Value Adjusted Gold Price© (VAGP) = $1,547.2/oz
COMEX - VAGP = $105.0/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio remains below its 3-month average (Cu bullish)

Morning Miners!

It is 5:48 AM. Have a cup of Philo Beddoe Special - it will turn you every which way but loose! The markets are uninspired today but this could become an interesting week with renewed fears about Europe and the big monthly jobs report on Friday. Let's take a moment to review what's happening with gold and the US dollar...

The Gold-Dollar Challenge - "Every Which Way But Loose"

Buried in the background notes of my Friday gold, silver and copper thoughts was the following observation:

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.

GLD tracks gold prices; UUP tracks the US Dollar Index.

I wrote this comment as a gold optimist, it would have a different last sentence if the ole Colonel was a gold skeptic, "Gold and the dollar continue in a mirror image dance with their longer term averages but have changed places – now twirling in circles going every which way but loose."

Yes, a borrowed title from Clint Eastwood's memorable movie may be the better interpretation until a new catalyst appears to move gold and the dollar to a different spot on the dance floor. Let's look at the charts, first here is GLD trapped below its 100-day moving average (red Line) since early-March:

And here is the U.S. dollar supported nicely by its 300-day average (red line) over roughly the same period:

Friday I thought the dollar may drop below its 300-day and GLD above its 100-day. Alas, there is enough new worry this morning about Europe to pull the dollar up on a weakening euro and push gold prices back to the middle of their April trading range - presently COMEX gold is $1,652.4 per ounce (trading range mean is $1,648.8 per ounce). UUP traded at $21.83 on the open just above its 300-day at $21.79. GLD opened at $160.5 below its 100-day at $162.50 - every which way but loose.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $40.07 down 1.45%
Newmont (NEM) $47.18 down 1.42%
McEwen Mining (MUX) 3.53 down 1.40% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.24 down 0.92%
Thompson Creek (TC) $6.04 down 0.66%
Freeport-McMoRan (FCX) $37.91 down 0.58% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.45 up 2.27%

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

ArcelorMittal (MT) $17.43 down 1.02% - global steel producer
POSCO (PKX) $83.48 down 0.88% - 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 124.10, down from last report's 136.24 and below the 1-month moving average of 133.68. 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 $12.4/oz at $1,652.4/oz (June contract, most active)

COMEX silver is down $0.611/oz at $30.800/oz (July contract, most active)

The gold-to-silver ratio (Au:Ag) is 53.649 oz/oz

Silver 1-month CRS© is 1.47% (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 89.23, up from last report's 89.10 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 $1,547.2/oz which is $105.0/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 down $0.0095/lb at $3.8155/lb (July contract, most active)

The gold-to-copper ratio is 433.08 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 444.49 (Cu bullish trend in a bearishPrice Domain B)

Copper 1-month CRS© is 2.31% (bullish stability level); very stable ratio; 1-month & 3-month < 3% (overall indicators mildly bullish)

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

Metals Week Average:
US$14.175
As of April 30, 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 $104.06
ICE North Sea Brent crude $119.19
Spread (ICE- NYMEX) = $15.13 (last report, $15.03)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $104.77
ICE North Sea Brent crude $118.45
Spread (ICE- NYMEX) = $13.68 (last report, $13.55)

* 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.

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 71.5 up from last report's 68.1. 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 37.31 points to 13,191.00; the S&P 500 is down 7.92 points at 1,395.44

The Eureka Miner's Grubstake Portfolio is down 0.93% at $1,356,754.69 (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