The Colonel's Friday Thoughts on Gold, Silver & Copper; Lousy Jobs Report

La Loquita

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: 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 = $1,637.9/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 90.89 (gold value moving sideways)
Value Adjusted Gold Price© (VAGP) = $1,505.8/oz
COMEX - VAGP = $132.1/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio remains below its 3-month average (Cu weakly bullish)


Morning Miners!

It is 6:01 AM. Today finds us somewhere between Old Miner's Cold Reality coffee and Ruby T's Blue Sky java. Let me pour you a delicious cup of old reliable Raine's Red Label. Have a great weekend.

The Colonel's Friday Thoughts on Gold, Silver & Copper; Lousy Jobs Report

Nuts. Today's monthly Labor Department report showed the U.S. economy added fewer jobs than expected last month. Nonfarm payrolls grew by 115,000 in April, versus an anticipated an increase of 168,000 jobs. Although the unemployment rate dropped a tenth of percentage point to 8.1% some of the decline was due to people leaving the work force.

Gold, silver and copper reacted to the report in much the same way initially bouncing higher, then a move down and then a move back up a bit. The bounce was most likely traders betting that disappointing employment numbers may improve the chance for further quantitative easing (e.g. QE3) which typically boosts US dollar-denominated commodity prices.

COMEX gold went from $1,633.2 per ounce at 8:25 AM EDT to $1,642.1 then $1,634.8 by 8:40 AM EDT. Presently COMEX gold is trading at $1,637.9 per ounce. COMEX silver flirted with $29 per ounce before the report and is presently at $30.165 per ounce. COMEX copper is up a tenth of a penny from yesterday's close at $3.7370 per pound after briefly touching $3.7525.

Friday's jobs report is the second weaker-than-expected reading in a row and pushes the Eureka Miner's Index© (EMI) below the key 100-level at 97.10 (see Mining Report below). Seventeen of nineteen global markets are in the red. Nuts.

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, $1,615 per ounce target.

Q. Why?

A> It is likely that COMEX gold will test its April intraday low ($1,613.0/oz) on worsening news from Europe. Without a new catalyst, gold will probably continue to trade near this low and the April high at $1,685.4/oz for the near-term. My target next week is therefore biased to the lower end of the trading range (note 1).

Precious and base metal prices continue to be range-bound and relatively stable from early April into May as central banks attempt to manage a global slowdown and Europe shows signs of deepening financial crisis. 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, 3-month copper price volatility remains less than (0.93X) gold and gold ratios are still very stable (e.g., gold-to-copper & gold-to-silver). However, there has been bearish expansion of the gold-to-silver ratio since April 23.

For $1,615 per ounce gold we can expect to see silver in a range of $29.5-$31.5 per ounce; and copper, $3.58-$3.91 per pound.

Background Notes:

1. With expectations for further bad headlines in Europe, my target is biased below the geometric mean ($1,648.8 per ounce) of the April low and high.
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 90.89 this morning down 17.3% from the Oct. 4 high of 109.97. The GVI is presently moving sideways.
4. The gold-to-copper ratio today is 438.29 pounds per ounce and below its 3-month moving average of 443.45 pounds per ounce. Remaining below this average and trending away from the 400 pounds per ounce level is bullish for copper but the recent de-correlation with gold on a 1-month basis is potentially bearish (1-month rolling correlation is +0.02; 3-month is +0.50). 3-month relative volatility is 0.93X gold and price sensitivity (beta) is +0.46.
5. The gold-to-silver ratio is trending above its historical norm at 54.298 (bearish); 3-month rolling correlation is +0.89, relative volatility is 1.71X gold and price sensitivity (beta) is 1.52
6. The SPDR Gold Trust (GLD) is bouncing off its 300-day average and the PowerShares DB US Dollar Index Bullish Fund (UUP) is just above its 200-day average.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $38.24 up 0.68%
Newmont (NEM) $46.49 up 1.97%
McEwen Mining (MUX) 3.36 down 0.30% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.89 down 2.69%
Thompson Creek (TC) $5.53 down 2.12%
Freeport-McMoRan (FCX) $36.18 down 1.87% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.40 down 2.44%

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

ArcelorMittal (MT) $16.09 down 2.78% - global steel producer
POSCO (PKX) $81.35 down 1.14% - 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 97.10, down from last report's 114.67 and below the 1-month moving average of 122.78. 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 $3.1/oz at $1,637.9/oz (June contract, most active)

COMEX silver is up $0.155/oz at $30.165/oz (July contract, most active)

The gold-to-silver ratio (Au:Ag) is 54.298 oz/oz

Silver 1-month CRS© is 1.65% (bullish stability level); very stable ratio; 1-month & 3-month < 3% but divergent trend forming (Ag overall indicators bearish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 90.89, up from last report's 89.17 and below its 1-month average of 89.88. 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 $1,505.8/oz which is $132.1/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 $0.0010/lb at $3.7370/lb (July contract, most active)

The gold-to-copper ratio is 438.29 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 443.45 (Cu bullish trend in a bearishPrice Domain B)

Copper 1-month CRS© is 2.17% (bullish stability level); very stable ratio; 1-month & 3-month < 3% (overall indicators weakly bullish)

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

Metals Week Average:
US$14.15
As of May 7, 2012
(updated weekly)

Ryan's Notes Average:
US$14.20
As of May 1, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.15/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 $110/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 $100.09
ICE North Sea Brent crude $114.25
Spread (ICE- NYMEX) = $14.16 (last report, $13.33)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $100.83
ICE North Sea Brent crude $113.74
Spread (ICE- NYMEX) = $12.41 (last report, $12.08)

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

NYMEX WTI 1-month CRS© is 1.65% (bullish stability level); CRS© convergence (Oil neutral)

Prices remain high for 2012, we have $110+ 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 77.0 down from last report's 70.9. 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 down 120.41 points to 13,086.18; the S&P 500 is down 15.52 points at 1,376.05

The Eureka Miner's Grubstake Portfolio is down 0.67% at $1,301,613.26 (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