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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: 2012 Copper & Gold - One Nice Thing (06/25/2012)
COMEX Gold price = $1,595.4/oz (August contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 100.59 (gold value gaps up, 5/4 & 6/1; gold value stalling with respect to key commodities oil, copper & silver)
Value Adjusted Gold Price© (VAGP) = $1,325.2/oz
COMEX - VAGP = $270.2/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio closes on its 3-month average (bullish condition, Cu overall neutral-bullish)
It is 6:06 AM. Have a cup of Friday Glad It's Gone. The Pinto Fire, which is now 90% contained, brought some frightening moments to residents of Eureka County this week. Unfortunately this is probably only the first scare of a long dry summer and fall. Before we move to market firestorms, here are two terrific reports from the front lines...
My neighbor and volunteer fireman Mike Mears sent me a great link for tracking fires this season:
National Interagency Fire Center
Mike and Scott Raine of Raine's Market were up close to the action Tuesday before the winds turned the fire east placing the Eureka town site and the Baumann ranch out of harm's way. Here are their reports:
Mike Mears Report (Update Wednesday, Jun 27, 2012 at 10:12 AM)
Colonel – Very hairy situation. Fire started early Tuesday morning. Lots of wind and apparently arcing power lines got things going. We were toned out at around 12:15 am. Fire began southeast of the Baumann Ranch and was already extremely active. Winds were very erratic and moving the fire in all sorts of directions. We started building fire lines with dozers and blades and doing what we could in the dark. By the time the sun came up, we had at least 2500 acres burning and the fire started an easterly run towards the Pinto Creek Ranch in Newark Valley. My team got pulled off the mountain to provide structure protection at the ranch. Fire pushed close to the ranch, but then started another run to the north. Anyway, we were on the fire line for about 14 ½ hours before they finally released us. BLM has a ton of resources on it including two helicopters, two single engine air tankers, a large air tanker out of Battle Mountain, about 8 dozers and lots of personnel. At this point, it is up to 4000 acres and they are showing 25% containment. We’re a bit on edge as it tried a couple of times to run west which could be a threat to town or the Baumann’s. We have a pretty solid line built to keep that from happening, but we’re all waiting for the tones to go out and find ourselves back on the fire today. We’ll see what happens. Lots of power lines down, but Mt. Wheeler managed to get power back to town.
Scott Raine's Report (Update Friday, Jun 29, 2012 at 11:16 PM)
The fire was a bit warm, it would have even qualified as a genuine firestorm at times, I saw 40 to 50 foot flames driven by the wind in the Pinon Juniper forest. The 90% contained number is misleading though. The Eureka and Diamond Valley Departments only left the fire to the BLM well after what I would call "all significant structure and private property danger" had passed about 14 hours after responding to the fire. The remaining fire -if someone wanted to call it 10%- was largely in the rimrocks and large islands of unburned vegetation within the burned area.
In my opinion the vast majority of the habitat burned will be far better for having burned in a couple of years. Much of the area was closed canopy pinon juniper or other decadent brush that didn't provide hardly any forage for wildlife or livestock. Area springflows next year are likely to increase dramatically as well. The big losses were the damage to the power lines and communication lines. There were main transmission lines laying in the dirt... That can't be cheap to fix. We could use a few more cows, sheep, and woodcutters (if the BLM would let them cut / graze) to keep the overgrowth down in the future.
Hats off to Mike, Scott and their crews!
The Colonel's Gold, Silver & Copper Prices for Next Week
Any morning that oil jumps $4 and gold bounces $45 is a time to take notice. On the last day of the month and quarter, a surprising outcome to the recent EU summit has boosted commodities across the board on a falling dollar and surging euro. European leaders agreed on new measures to deal with the their mounting debt crisis. After all-night talks, the leaders of euro-zone agreed that rescue funds could be used for sovereign debt purchases without forcing countries to adopt extra austerity measures.
Additionally, China's central bank said it stands ready to keep credit and money supply growth at a steady and reasonable pace. This weekend China will releases its PMI numbers; if better-than-expected and European leaders demonstrate some new resolve, there could be a welcome change of tides for the metals and miners.
Here is my input to the Kitco Weekly Gold Report:
- My $1,610 per ounce target is slightly above the geometric mean ($1,599.95 per ounce) of the June 6 intraday high ($1,642.4) and last week’s low ($1,558.6). Gold price is likely to fail breaking resistance at the top-end.
- Given the target gold price, the silver and copper price ranges are derived from the 1-month gold ratio means (GSR & GCR) and their respective ratio stability (CRS©).
- My Gold Value Index© (GVI) equals 100.59 this morning and 8.5% below the Oct. 4 high of 109.97 but still near the recent peak of 102.74 set on June 1. Today gold value fell below its 1-month moving average of 101.33, a potentially bullish development for commodities.
- The gold-to-copper ratio today is 460.5 pounds per ounce and above its 3-month moving average of 456.52 pounds per ounce. Falling below this average and trending towards the 400 pounds per ounce level would be bullish for copper (1-month rolling correlation is +0.38; 3-month is +0.64). 3-month relative volatility is 2.25X gold and price sensitivity (beta) is +1.44
- The gold-to-silver ratio is above its historical norm at 57.90; 3-month rolling correlation is +0.0.87, relative volatility is 2.52X gold and price sensitivity (beta) is +2.20
Friday's Market Roundup
This morning's mining stocks with % price change from yesterday's close:
Barrick (ABX) $37.33 up 3.04%
Newmont (NEM) $48.13 up 2.14%
McEwen Mining (MUX) $2.98 up 6.05% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.11 up 2.64%
Thompson Creek (TC) $3.24 up 1.57%
Freeport-McMoRan (FCX) $33.93 up 3.66% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.28 up 3.70%
The Steels (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $15.26 up 6.34% - global steel producer
POSCO (PKX) $80.10 up 2.55% - 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 77.58, down from last week's 72.12 and above the 1-month moving average of 69.23. 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
COMEX gold is up $45.0/oz at $1,595.4/oz (August contract, most active)
COMEX silver is up $1.264/oz at $27.555/oz (September contract, most active)
The gold-to-silver-ratio (Au:Ag) is 57.899 oz/oz
Silver 1-month CRS© is 1.94% (bullish stability level); weak stability divergence (Ag overall indicators neutral-to-bullish with rising gold prices)
The Eureka Miner’s Gold Value Index© (GVI) is below-par at 100.59, down from last week's 102.33 and below its 1-month average of 101.33. Gold value gaped up 5/4/2012 and 6/1/2012, and has now stalled; a possible bullish indication for key commodities. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011; the 2012 peak was 102.74 set on June 1, 2012.
The Value Adjusted Gold Price© (VAGP) is $1,325.2/oz which is $270.2/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 & 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
COMEX copper is up $0.1330/lb at $3.4645/lb (September contract, most active)
The gold-to-copper ratio is 460.5 lb/oz; ratios in excess of 400 lb/oz are indicative of a bearish price domain; the ratio is above its 3-month moving average of 456.52 (Cu overall bearish conditions in a bearish Price Domain B)
Copper 1-month CRS© is 1.71% (bullish stability level); ratio weak divergence (overall Cu indicators neutral-bullish)
The latest western molybdenum oxide spot prices (courtesy of Thompson Creek Metals):
Metals Week Average:
As of June 25, 2012
Ryan's Notes Average:
As of June 26, 2012
(updated twice weekly)
European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
London metal Exchange (LME) molybdenum 3-month seller's contract:
US$13.02/lb (US$28,700/metric ton)
Weekly 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 is below $100/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 $81.91
ICE North Sea Brent crude $95.49
Spread (ICE- NYMEX) = $13.58 (last report, $15.29)
Here are the October contracts* with a narrower spread:
NYMEX light sweet crude $82.71
ICE North Sea Brent crude $95.41
Spread (ICE- NYMEX) = $12.70 (last report, $12.75 )
* NYMEX futures contracts have rolled forward, we now show August and October
The gold-to-WTI is 19.477 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil
NYMEX WTI 1-month CRS© is 2.40% (bullish stability level); weakening stability divergence (WTI overall indicators bearish)
Prices remain high for 2012 but have pulled back dramatically, we have $95+ Brent and $80+ NYMEX in October signalling moderating oil prices this summer and early fall. A front-month spread between Brent and WTI >$20/bbl is a trouble sign; the present spread is encouraging.
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 67.3 up from last Friday's 72.6. 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 up 219.67 points to 12,821.93; the S&P 500 is up 25.95 points at 1,354.99
The Eureka Miner's Grubstake Portfolio is up 2.88% at $1,222,446.24 (what's this?).
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market