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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: Gold Versus Copper, Oil and Silver: The Value Trend Is Your Friend (7/23/2012)
This morning's...
COMEX Gold price = $1,576.6/oz (August contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 95.92 (gold value gaps up, 5/4 & 6/1; gold value still high but now falling with respect to key commodities oil and copper)
Value Adjusted Gold Price© (VAGP) = $1,373.4/oz
COMEX - VAGP = $203.2/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio is below its 3-month average (bullish indication, Cu prospects for the second-half of the year improving)
Diēs Caniculārēs
The markets are open and the Dog Days of Summer are upon us. That name comes from the ancient belief that Sirius (aka the Dog Star), when in close proximity to the sun, was responsible for hot weather - apparently, not hot markets.
The S&P 500 actually had a pretty good week touching 1,380 yesterday, a level not seen since early May. But alas, the index of America's best 500 companies is heading south this morning presently trading down at 1,366 - not because earnings haven't been generally encouraging but Europe has again thrown a bucket of cold water on Thursday's optimism. This morning the yield on benchmark 10-year Spanish bonds rose back above the 7%-scary level for sovereigns while the U.S. Treasury's 10-year plumbed 1.47%. Obediently, the metals and miners have retreated to the dog house; gold is down, copper is down and bellwether miner Freeport-McMoran (FCX)is off 2%. The good news is that metals are not down much - the Dog Days of Summer are not that exciting.
The ole Colonel bets nothing too dramatic will happen across the pond until everyone completes their one-month summer holidays. I'm a little more worried about Syria and Iran - no time-off in the Middle East. As I say in my weekly input to the Kitco Gold Survey, oil is the commodity to watch in the coming weeks (see Weekly Oil Watch below). Moly oxide prices remain trapped in the $12 per pound never-never land (see Copper & Molybdenum Report).
Have a cup of Raine's delicious Red Label TGIF and enjoy your weekend!
The Colonel's Gold, Silver & Copper Prices for Next Week
My Friday input to the Kitco Weekly Gold Survey:
Q. Where do you see gold’s price headed next week, up, down or unchanged?
A. Up, $1,590 per ounce target
Q. Why?
A. In the short-term, gold will likely remain range-bound between July’s highs and lows ($1,625.7 and $1,554.4 per ounce) with a bias below the psychologically important $1,600-level and solid support at the low-end of the range. A multi-month high or new record is expected in the next two to seven months.
U.S. dollar-denominated gold price is looking for a catalyst to break out of the current trading range: lackluster physical demand, the summer holiday period and deflationary worries put pressure on gold in a strong U.S. dollar environment; recent rate cuts in China and Europe and the possibility with further quantitative easing in the U.S. are gold supportive. Caught between these dipoles, the yellow metal will most likely wander about the center of its current trading range until a new catalyst appears on the horizon.
Either negative market anticipation of the U.S. “fiscal cliff” or a conflict in the Persian Gulf could provide the catalyst for new highs or even a new record.
Oil price volatility remains a significant harbinger among the key commodities. Trading has reacted strongly to the upside with the re-emergence of tensions in the Middle East and to the downside with the release of the April, May and June U.S. jobs reports. There is growing consensus that the bottom is in for 2012.
Gold value relative to oil, copper and silver remains historically elevated although gold has lost value to global commodities oil and copper for most of July.
For $1,590 per ounce gold we can expect to see silver in a range of $27.1-$27.8 per ounce; and copper in a range of $3.30-$3.55 per pound
Background Notes:
- My $1,590 per ounce target is at the geometric mean ($1,589.7) of the July 3 intraday high ($1,625.7) and the July 12 low ($1,554.4). Gold price is likely to fail breaking resistance at the top-end but finds solid support at the low-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 95.92 this morning which is 12.8% below the Oct. 4 high of 109.97 and 6.6% below the recent peak of 102.74 set on June 1. Today gold value is below its 1-month moving average of 99.40; a value of 100 represents a historically high-value of gold relative to key commodities oil, copper and silver.
- The gold-to-copper ratio today is 456.72 pounds per ounce and below its 3-month moving average of 459.25 pounds per ounce; it has bearishly lingered above this average since mid-May so moving below this average and towards the 400 pounds per ounce level is a bullish indication for the red metal (1-month rolling correlation is +0.63; 3-month is +0.55). 3-month relative volatility is 2.22X gold and price sensitivity (beta) is +1.23
- The gold-to-silver ratio is above its historical norm at 58.719; the 3-month rolling correlation is +0.0.82, relative volatility is 2.30X gold and price sensitivity (beta) is +1.88. Unlike copper, silver remains bearishly above its 3-month average of 56.37
Mining Report
This morning's mining stocks with % price change from yesterday's close:
Barrick (ABX) $34.53 down 0.69%
Newmont (NEM) $44.96 down 0.42%
McEwen Mining (MUX) $3.00 unchanged (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.01 down 2.90%
Thompson Creek (TC) $2.76 down 3.16%
Freeport-McMoRan (FCX) $33.65 down 2.24% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.27 unchanged
The Steels (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $14.77 down 4.15% - global steel producer
POSCO (PKX) $78.68 down 1.43% - 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 58.88, down from last week's 63.99 and below the 1-month moving average of 69.90. 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 down $3.8/oz at $1,576.6/oz (August contract, most active)
COMEX silver is down $0.0.367/oz at $26.850/oz (September contract, most active)
The gold-to-silver-ratio (Au:Ag) is 58.719 oz/oz
Silver 1-month CRS© is 0.72% (bullish stability level); weak stability divergence (Ag overall indicators neutral-to-bearish)
The Eureka Miner’s Gold Value Index© (GVI) is below-par at 95.92, down from last week's 97.69 and below its 1-month average of 99.40. Gold value gaped up 5/4/2012 and 6/1/2012, and is heading back down. 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 $1,373.4/oz which is $203.2/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 down $0.0850/lb at $3.4520/lb (September contract, most active)
The gold-to-copper ratio is 456.72 lb/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 459.25 (a Cu bullish indication; improving conditions in a bearish Price Domain B)
Copper 1-month CRS© is 1.81% (bullish stability level); ratio stability weak divergence (Cu prospects for the second-half of the year improving)
The latest western molybdenum oxide spot prices (courtesy of Thompson Creek Metals):
Metals Week Average:
US$12.40
As of July 23, 2012
(updated weekly)
Ryan's Notes Average:
US$12.65
As of July 17, 2012
(updated twice weekly)
European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday): US$12.32/lb
London metal Exchange (LME) molybdenum 3-month seller's contract:
US$12.70/lb (US$28,000/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)
Here are the key front-month contracts this morning:
NYMEX light sweet crude $91.68
ICE North Sea Brent crude $106.50
Spread (ICE- NYMEX) = $14.28 (last report, $14.14)
Here are the November contracts* with a narrower spread:
NYMEX light sweet crude $92.18
ICE North Sea Brent crude $105.41
Spread (ICE- NYMEX) = $13.23 (last report, $12.83 )
* NYMEX futures contracts have rolled forward, we now show September and November
The gold-to-WTI is 17.197 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil
NYMEX WTI 1-month CRS© is 4.33% (bearish stability level); strengthening stability divergence (WTI overall indicators presently neutral; supply/demand does not justify the high price but geo-political situation could spike oil higher )
Prices for 2012 have headed north again, we have $105+ Brent and $90+ NYMEX in November signalling higher 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 below that level but trending up for July.
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 52.5, a down from last Friday's 54.9. 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 51.2 set July 18, 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 89.08 points to 12,854.28 the S&P 500 is down 9.88 points at 1,366.63
The Eureka Miner's Grubstake Portfolio is down 1.00% at $1,191,362.27 (what's this?).
Cheers,
Colonel Possum
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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