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


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) 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, June 15, 2012

General Moly on a Tear; The Colonel's Gold, Silver & Copper Prices for Next Week

 Good Day for a Picnic, Eureka, Nevada

SPECIAL NOTE: The Colonel will be on the road soon, the next Friday report will be bright and early June 29.

 Latest Nevada Gas Prices (click this link)


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)

This morning's...
COMEX Gold price = $1,625.7/oz (August contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 101.53 (gold value gaps up, 5/4 & 6/1; gold value trending higher with respect to key commodities oil, copper & silver)
Value Adjusted Gold Price© (VAGP) = $1,338.0/oz
COMEX - VAGP = $287.7/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio remains above its 3-month average (bearish condition, Cu overall bearish)

Morning Miners!

It is 5:59 AM. Have a cup of Summer's Nearly Here and a view of Eureka from a dog's perspective. It was quite a memorable week of markets and a turn of fortune for one of our local miners. Gold is back over the psychologically impotant $1,600 per ounce level and General Moly cleared two significant hurdles...

General Moly on a Tear

General Moly (GMO) stock price rocketed over 21% yesterday to $3.31 on an eye-popping daily volume of 1,499,579 shares. Investors were bullish on our moly miner this week with a series of positive outcomes. On Monday, GMO announced the approval of the Mt. Hope Project's 3M Plan (Monitoring, Management and Mitigation) by the Nevada State Engineer:

General Moly Announces Approval of 3M Plan for Mt. Hope Project (Press Release, 6/11/2012)

Bruce D. Hansen, Chief Executive Officer of General Moly, said:

We are continuing to make good progress toward permitting the Mt. Hope Project and approval of the 3M Plan is another step in this direction. The community of Eureka County had substantial input in developing this robust 3M Plan and I am pleased with the result. Although our water permits remain subject to an appeal, we look forward to the Court's ruling, which could be in the next couple months. 

The Elko Daily Free Press carried this story:
State approves General Moly’s ‘3M’ Plan for Mt. Hope (By MARIANNE KOBAK McKOWN,  Elko Daily Free Press, 6/11/2012)

Mining Editor Marianne Kobak McKnown quoted Eureka County Commission Chairman Leonard Fiorenzi as saying, "We were fairly well pleased with it. We didn’t get everything we wanted, but we were happy with what we did.”

Then the water rights appeal cleared as GMO announced Thursday:

General Moly Announces Nevada State District Court Order Supporting Nevada State Engineer's Approval of Mt. Hope Water Rights (Press Release, 6/14/2012) 

Bruce Hansen then had this to say:

I am extremely pleased that the State Engineer's thorough and inclusive process in approving the Mt. Hope Project's water rights and permits has been affirmed by the Court. Obtaining water rights for the Mt. Hope Project has been a long process and I am eager to move beyond the protests and appeals of the past three years toward a more positive and engaged dialogue with the County of Eureka and its citizens. The 3M Plan, approved by the NSE earlier this week, provides mitigation protections to other water users if impacts are caused by the Mt. Hope project. With full access to our water rights and permits we look forward to the receipt of our remaining State and Federal permits and initiating construction activities later this year. The Mt. Hope project is moving forward. 

The ole Colonel congratulated Chief Operating Officer Bob Pennington by e-mail and his reply spoke volumes in seven words, "This is a real relief for us."

And a real relief for share holders and General Moly supporters, the Mt. Hope project is moving forward. 

The Elko Daily Free Press carried this article on the ruling:

Judge rules in favor of Mt. Hope (By MARIANNE KOBAK McKOWN,  Elko Daily Free Press, 6/15/2012)

The Eureka Miner respects the views of all miners, farmers and ranchers and their valuable contribution to Eureka County and hopes the 3M plan and resolution of the Mt. Hope water rights issue will provide an equitable solution for all concerned.

Hats off to the crew at General Moly and their local subsidiary Eureka Moly LLC.

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

Here is my input to the Kitco Weekly Gold Report:

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Up, $1,640 per ounce target

Q. Why?

A. Gold will likely remain range-bound in price performance between the June 6  intraday high ($1,642.4 per ounce) and its June 8 low ($1,556.4 per ounce)  with a bias above the psychologically important $1,600-level but failing to break the upper-end of the range.

Greek elections this weekend and the potential for coordinated action by central banks perpetuate an unsettled political climate and fuel the expectations for further monetary easing in the U.S. and Europe – all potentially supportive for gold price.

As the European crisis continues without resolution against a backdrop of softer global growth and over-supply, base metals like copper are likely to see more downside in the near-term with a bearish expansion of gold-ratios. Gold value relative to oil, copper and silver remains near the highs for 2012 and just below the 2011 peak.

Both 1-month rolling correlations of oil and copper relative to gold remained negative this week and their positive 3-month positive correlations are softening (<+0.7). Negative 1- and 3-month correlations typically signal a very bearish environment for commodity prices so these continue to be key metrics to monitor going forward.

For $1,640 per ounce gold we can expect to see silver in a range of $28.2-$29.7 per ounce; and copper with a target price of $3.38 per pound and price floor of $3.16 per pound

Background Notes:

  1. My $1,640 per ounce target is above the geometric mean ($1,598.82 per ounce) of the June 6 intraday high ($1,642.4) and June 8 low ($1,556.4, June contract). Gold price is likely to fail breaking resistance at the top-end.
  2. Given the target gold price, the silver price ranges are derived from the 1-month gold ratio mean (GSR) and respective ratio stability (CRS©). Since copper is de-correlating form gold, a different technique is used to compute a target and floor for the red metal.
  3. My Gold Value Index© (GVI) equals 101.53 this morning and only 7.7% from the Oct. 4 high of 109.97; near the recent peak of 102.74 set on June 1. On a 1-month basis, gold value continues to trend strongly higher with respect to key commodities oil, copper & silver.
  4. The gold-to-copper ratio today is 480.76 pounds per ounce and above its 3-month moving average of 450.32 pounds per ounce. Remaining above this average and trending away from the 400 pounds per ounce level is bearish for copper (1-month rolling correlation is -0.47; 3-month is +0.69). 3-month relative volatility is 2.16X gold and price sensitivity (beta) is +1.50
  5. The gold-to-silver ratio is trending above its historical norm at 56.82; 3-month rolling correlation is +0.90, relative volatility is 2.38X gold and price sensitivity (beta) is 2.14

Friday's Market Roundup

Mining Report

This morning's mining stocks with % price change from yesterday's close:

Barrick (ABX) $39.02 up 0.08%
Newmont (NEM) $50.66 down 0.03%
McEwen Mining (MUX) $2.88 up 1.05%  (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.30 down 0.30%
Thompson Creek (TC) $3.21 up 0.94%
Freeport-McMoRan (FCX) $33.93 up 0.09% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.33 unchanged

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

ArcelorMittal (MT) $14.44 up 3.74% - global steel producer
POSCO (PKX) $80.90 up 0.32% - 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 61.65, down from last week's 70.89 and above the 1-month moving average of 59.77. 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 $6.1/oz at $1,625.7/oz (August contract, most active)

COMEX silver is up $0.203/oz at $28.610/oz (July contract, most active)

The gold-to-silver-ratio (Au:Ag) is 56.833 oz/oz

Silver 1-month CRS© is 1.25% (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 101.53, up from last week's 100.47 and above its 1-month average of 97.91. Gold value gaped up 5/4/2012 and 6/1/2012, 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 2012 peak was 102.74 set on June 1, 2012.

The Value Adjusted Gold Price© (VAGP) is $1,338.0/oz which is $287.7/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 $0.0270/lb at $3.3815/lb (July contract, most active)

The gold-to-copper ratio is 480.76 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 450.32 (Cu overall bearish conditions in a bearish Price Domain B)

Copper 1-month CRS© is 3.35% (neutral stability level); ratio weak divergence (overall Cu indicators remain bearish)

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

Metals Week Average:

As of June 11, 2012
(updated weekly)

Ryan's Notes Average:

As of June 12, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):

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

US$13.54/lb (US$29,850/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 $83.85
ICE North Sea Brent crude $97.21
Spread (ICE- NYMEX) = $ (last report, $15.29)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $84.44
ICE North Sea Brent crude $97.19
Spread (ICE- NYMEX) = $12.75 (last report, $14.05 )

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

The gold-to-WTI is 19.388 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 6.02% (bearish stability level); strong stability divergence (WTI overall indicators bearish)

Prices remain high for 2012 but have pulled back dramatically, we have $95+ Brent and $80+ NYMEX in September 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 87.2 up from last Friday's 85.1. 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 up 68.75 points to 12,720.66; the S&P 500 is up 7.61 points at 1,336.71

The Eureka Miner's Grubstake Portfolio is up 0.25% at $1,250,708.21 (what's this?).


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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