"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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, May 25, 2012

The Colonel's Gold, Silver & Copper Prices for Next Week

Old Glory, Eureka, Nevada


Latest Nevada Gas Prices (click this link)


NEW WEEKLY SCHEDULE - The Eureka Miner takes a brief hiatus from daily reports

Friday Commentary & Kitco Gold Survey
The Colonel's Weekly Gold, Silver & Copper Price Predictions
Weekly Market Roundup
- Gold & Silver Report
- Copper & Molybdenum Report
- Oil Watch
- Debt Crisis Watch
- Stock Market Update
- Eureka Miner's Million Dollar Grubstake Portfolio


My latest Kitco commentary: Gold Prices Falling, Gold Value Rising (5/29/2012)

This morning's...
COMEX Gold price = $1,563.1/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 94.44 (gold value gaps up, 5/4; gold value trending higher with respect to key commodities oil, copper & silver)
Value Adjusted Gold Price© (VAGP) = $1,404.1/oz
COMEX - VAGP = $180.1/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio remains above its 3-month average (bearish condition but average moving sideways, Cu overall bearish)



Morning Miners!

It is 6:00 AM. Have a welcome cup of Raine's delicious Red Label TGIF. Have a safe and happy Memorial Day weekend!



The Colonel's Gold, Silver & Copper Prices for Next Week

 I think the observation from Reuters Wednesday says a lot about commodities of late:

"Metals warehouses in China are said to be so full that workers are starting to stockpile iron ore in granaries and copper in car parks."

One has to wonder if we're headed back to the October market lows of last year?

Three tidbits from the Colonel's foxhole:
  1. Using this morning's COMEX prices, gold price adjusted for oil, copper & silver historical norms is $1,383.0 per ounce. In other words, gold trading presently at $1,563.1 per ounce is priced at a $180 per ounce premium to these three commodities.
  2. On the morning of Nov. 30, 2010 gold traded at $1,384.9/oz or a $1/oz premium to this same aggregate of oil, copper and silver prices (i.e. adjusted price then was $1,383.9/oz) - gold was "fairly valued" with respect to these key commodities
  3. At the S&P 500 low on Oct. 4, 2011 the adjusted price was a lowly $1,255.6/oz and a $397/oz premium to the same commodities (the morning gold price then was $1,652.5/oz)
Scary but still not October yet - some of this will be in my upcoming Kitco commentary on gold value.

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. Up slightly, $1,575 per ounce target.

Q. Why?

A. Gold will likely remain range bound between its mid-May low of $1,526.7 per ounce and Monday’s high of $1,599.0; $1,600 per ounce is the key level to break for higher gold prices.

Next week’s outlook is driven by the same factors that drove this week only conditions appear to have worsened – the European debt crisis may be spreading and economic data from Germany is weaker than expected; in China, brimming commodity inventories deepen demand concerns although the government may be ready to take simulative steps to boost their economy.

Presently key commodities oil, copper and silver have a high positive correlation with gold and in turn, gold has a high correlation with the euro. In marked contrast, when the S&P 500 bottomed Oct. 4, 2011, oil and copper were negatively correlated with the yellow metal and all three gold ratios were wildly divergent (gold-to-oil,-copper & -silver).

This suggests the downturn in precious and base metal prices is at least orderly and sets the stage for regaining substantial lost ground on any improving news from Europe even though significant challenges still exist for the Chinese demand story and pace of U.S. recovery.

For $1,575 per ounce gold we can expect to see silver in a range of $27.8-$29.9 per ounce; and copper, $3.37-$3.66 per pound.

Background Notes:
  1. Gold is range bound between the May 16 low of $1,526.7 per ounce and the May 21 high of $1,599.0. My $1,575 per ounce target is biased slightly above the geometric mean ($1,562.4 per ounce) of the trading range. $1,600 per ounce is the key psychological barrier to break.
  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 94.44 this morning, roughly where it was last Friday and down 14.0% from the Oct. 4 high of 109.97. Gold value is trending higher with respect to key commodities oil, copper & silver.
  4. The gold-to-copper ratio today is 454.52 pounds per ounce and above its 3-month moving average of 441.35 pounds per ounce. Remaining above this average and trending away from the 400 pounds per ounce level is bearish for copper but the average is still moving sideways for now (1-month rolling correlation is +0.90; 3-month is +0.83). 3-month relative volatility is 1.41X gold and price sensitivity (beta) is +1.17
  5. The gold-to-silver ratio is trending above its historical norm at 55.4 (bearish); 3-month rolling correlation is +0.96, relative volatility is 2.33X gold and price sensitivity (beta) is 2.24

Friday's Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $39.81 up 0.76%
Newmont (NEM) $48.88 up 0.51%
McEwen Mining (MUX) $2.44 up 1.24%  (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.56 down 0.39%
Thompson Creek (TC) $3.73 up 0.81%
Freeport-McMoRan (FCX) $32.57 unchanged (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.39 unchanged

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

ArcelorMittal (MT) $14.23 down 0.42% - global steel producer
POSCO (PKX) $74.90 down 0.20% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) was re-calibrated 5/24 to reflect current 200-day moving averages for benchmark miners.

The EMI is below-par at 71.31, up from last report's 39.72 and below the 1-month moving average of 76.79. The 1-month average is below the key 100-level (bearish condition)

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. The 2012 YTD low is 39.45 recorded 05/23/2012. 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 $5.6/oz at $1,563.1/oz (June contract, most active)

COMEX silver is up $0.028/oz at $28.185/oz (July contract, most active)

The gold-to-silver-ratio (Au:Ag) is 55.459 oz/oz

Silver 1-month CRS© is 1.88% (bullish stability level); weak stability divergence (Ag overall indicators bearish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 94.44, down from last report's 95.11 and above its 1-month average of 91.92. Gold value gaped up Friday, 5/4/2012, and is trending higher; a bearish indication for key commodities. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,383.0/oz which is $180.1/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 & silver 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 $0.0105/lb at $3.4390/lb (July contract, most active)

The gold-to-copper ratio is 454.52lb/oz; ratios in excess of 400 lb/oz are indicative of a bearish price domain; the ratio is below its 3-month moving average of 441.35 (Cu overall bearish conditions in a bearish Price Domain B)

Copper 1-month CRS© is 2.05% (bullish stability level); very stable ratio; 1-month & 3-month < 3% (however, overall indicators bearish)

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

Metals Week Average:
US$13.775

As of May 22, 2012
(updated weekly)

Ryan's Notes Average:
US$13.85

As of May 22, 2012
(updated twice weekly)
European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$13.65/lb

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

US$13.77/lb (US$30,350/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 $105/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 $90.66
ICE North Sea Brent crude $106.68
Spread (ICE- NYMEX) = $16.02 (last report, $15.87)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $91.22
ICE North Sea Brent crude $105.70
Spread (ICE- NYMEX) = $14.50 (last report, $14.42 )

* NYMEX futures contracts have rolled forward, we now show July and September

NYMEX WTI 1-month CRS© is 3.28% (neutral stability level); weak stability divergence (WTI overall indicators bearish)

Prices remain high for 2012 but have pulled back dramatically, we have $105+ Brent and $90+ NYMEX in September still favoring high but moderating oil prices this summer and early fall. 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 86.9 down from last report's 101.6. 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 28.45 points to 12,501.30; the S&P 500 is up 0.16 points at 1,320.84

The Eureka Miner's Grubstake Portfolio is up 0.19% at $1,199,864,72 (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

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