Jobs Disappoint ...Again; The Colonel's Gold, Silver & Copper Prices for Next Week

Slag Jig-Saw Puzzle, Consolidated Mill Site, Eureka, Nevada

*** SPECIAL REPORT ***

Eureka to appeal Mt. Hope water rights ruling (By MARIANNE KOBAK McKOWN, Elko Daily Free Press, 7/11/2012)


Received 11:32 AM PDT July 10, 2012 at the Eureka Miner:

EUREKA COUNTY COMMISSION APPEALS WATER RIGHTS RULING TO STATE SUPREME COURT

Appeal Does not Block Eureka Moly’s Plans to Use Kobeh Valley Water

On July 10 at a special board meeting, the Eureka County Board of Commissioners decided to appeal the district court decision on Kobeh Valley Ranch water rights for the Mt. Hope project to the Nevada Supreme Court. The ruling by District Court Judge Dan Papez denied all points of appeal by Eureka County and other appellants. The ruling, if allowed to stand, will change the way Nevada water law is interpreted and applied for first-in-time senior water rights holders and uses. The district court ruling affirms the State Water Engineer’s process of postponing a hard look at what should be done for first-in-time water users who will be prevented from accessing their water in the traditional way.

The law allows for Eureka County to request a “stay” which would stop the project until a Nevada Supreme Court decision is reached. But the Board unanimously agreed that Eureka County does not want to stop the project.

“We’ve always said we want the Mt. Hope project done right,” said Commissioner Jim Ithurralde. “We believe that identified impacts to existing senior vested water rights holders must be avoided.”

The Board is hopeful that the mandatory settlement conference required by the Nevada Supreme Court will allow the State Engineer, Eureka Moly LLC and Eureka County to discuss Eureka County’s concerns and options to resolve the dispute, so the Board may withdraw its appeal.

Commission Chairman Leonard Fiorenzi said, “If the mine had changed their proposed well field pumping away from existing users as the County repeatedly requested over the years, we wouldn’t be involved now in this litigation.”

The Board questioned how the State Engineer can allow over 75% of the available water in one valley to be pumped into another valley, and yet not provide for guaranteed protection of established and pre-existing water users as required by state water law.

The Board raised concerns that the State district court’s opinion, if not challenged, grants authority to the State Water Engineer that the State Legislature did not provide to the State Engineer. The Board believes it is necessary to receive clarification from the Nevada Supreme Court on the State Engineer’s discretion.

“The Board’s appeal does not stop the water from being pumped, and the mine can still move forward with plans to use the water resource,” said Vice-Chairman Mike Page.

However, the appeal’s purpose is to clarify why a senior first-in-time vested surface water right should be forced to accept a conflict resulting from a junior later-in-time water user.
The District Court decision is on the home page of the County’s website: www.co.eureka.nv.us.

 Latest Nevada Gas Prices (click this link)


NEW WEEKLY SCHEDULE

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: Does Recent Oil Volatility Portend the Next Gold Record? (7/9/2012)

This morning's...
COMEX Gold price = $1,589.4/oz (August contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 99.42 (gold value gaps up, 5/4 & 6/1; gold value high but stalling with respect to key commodities oil, copper & silver)
Value Adjusted Gold Price© (VAGP) = $1,335.8/oz
COMEX - VAGP = $253.6/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio is above its 3-month average (bearish condition, Cu overall bearish)

Morning Miners!

It is 5:45 AM. Have a hot cup of Raine's delicious Red Label TGIF brew. The ole Colonel just watched the release of the U.S. monthly jobs report on CNBC Business News - not pretty. The positives are meager these days; hourly wages bumped up 6 cents and lower fuel prices are on the way. Higher gold prices may be coming too as the second-half of this year unfolds but it may be a case of watch-what-you-wish-for...

Jobs Disappoint...Again

It's seems like the endless rerun of a bad movie.

U.S. job growth barely picked up in June and provides the latest indication that economic growth has slowed. The Labor Department reports nonfarm payrolls grew by only 80,000 last month and the politically charged unemployment rate was unchanged at 8.2%. The talking head "whisper number" before the announcement fell in a range of 125,000 to 150,000. Nuts.

At least talking heads and the Labor Department are enjoying full employment. Here is a startling contrast: the economy added an average of 226,000 jobs a month in the first quarter, versus only 75,000 in the second quarter. Nuts, nuts.

The reaction has been swift with 18-out-of-19 global markets in the red and the 10-year Treasury plunging into 1.5% territory again. The dollar is on a tear, the euro is tumbling (1.2278, lowest level in two years) and commodities are getting clobbered. Although gold shed 20 bucks on the news there may be some surprising upside down the road as I reported to Kitco News this morning...

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 slightly, $1,595 per ounce target.


Q. Why?

A. Gold will likely remain range-bound in price performance between June’s highs and lows ($1,642.4 and $1,547.6 per ounce) with a bias below the psychologically important $1,600-level and solid support at the low-end of the range.


Today’s disappointing jobs numbers are a pale cast on domestic growth expectations. Lately, global growth concerns are dollar supportive but recent with rate cuts in China and Europe together with more quantitative easing in the U.K. are gold friendly moves. 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.

Realistically, the current correlation of gold price and the euro needs to breakdown to set the stage for the next gold rally. Either negative market anticipation of the U.S. “fiscal cliff” or a re-emergence of conflict in the Persian Gulf could provide the catalyst for new highs or even a new record.


Oil price volatility has emerged as a significant harbinger among the key commodities. It has reacted strongly to the downside with the release of the May, June and today’s U.S. jobs reports. Oil is presently 4 times more volatile than oil, a “super-spike” in price variability. In the last five years there have been five such events and five-out-of-five oil/gold super-spikes have coincided with the start of gold rallies resulting in gold multi-month highs or new all-time records. This may take 1 to 7 months to play out but it bodes well for the yellow metal going forward.


An additional bullish indication is that gold value relative to oil, copper and silver remains historically elevated.


For $1,595 per ounce gold we can expect to see silver in a range of $26.8-$29.1 per ounce; and copper in a range of $3.27-$3.53 per pound.


Background Notes:

1. My $1,595 per ounce target is at the geometric mean ($1,594.3 per ounce) of the June 6 intraday high ($1,642.4) and the June 28 low ($1,547.6). Gold price is likely to fail breaking resistance at the top-end but find solid support at the low-end.
2. 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©).
3. My Gold Value Index© (GVI) equals 99.42 this morning and 9.6% below the Oct. 4 high of 109.97 but still near the recent peak of 102.74 set on June 1. Today gold value is below its 1-month moving average of 100.89; a value of 100 represents an historically high-value of gold relative to key commodities oil, copper and silver.
4. The gold-to-copper ratio today is 463.65 pounds per ounce and above its 3-month moving average of 458.37 pounds per ounce. Remaining above this average is bearish for copper prices (1-month rolling correlation is +0.0.50; 3-month is +0.62). 3-month relative volatility is 2.12X gold and price sensitivity (beta) is +1.31
5. The gold-to-silver ratio is above its historical norm at 58.402; the 3-month rolling correlation is +0.86, relative volatility is 2.49X gold and price sensitivity (beta) is +2.13

Friday's Market Roundup

Mining Report

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

Barrick (ABX) $37.71 down 1.02%
Newmont (NEM) $48.33 down 1.45%
McEwen Mining (MUX) $3.11 down 3.72%  (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.23 down 1.22%
Thompson Creek (TC) $3.33 down 2.35%
Freeport-McMoRan (FCX) $34.80 down 1.89% (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) $15.09 down 2.08% - global steel producer
POSCO (PKX) $81.45 down 1.26% - 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 80.28, up from last week's 79.77 and above the 1-month moving average of 74.20. 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 $20.0/oz at $1,589.4/oz (August contract, most active)

COMEX silver is down $0.457/oz at $27.215/oz (September contract, most active)

The gold-to-silver-ratio (Au:Ag) is 58.402 oz/oz

Silver 1-month CRS© is 2.03% (bullish stability level); weak stability divergence (Ag overall indicators neutral-to-bearish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 99.42, up from last week's 99.27 and below its 1-month average of 100.89. Gold value gaped up 5/4/2012 and 6/1/2012, and has now stalled. 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 $1,335.8/oz which is $253.2/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

This morning's...

COMEX copper is down $0.0650/lb at $3.4280/lb (September contract, most active)

The gold-to-copper ratio is 463.65 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 458.37 (Cu overall bearish conditions in a bearish Price Domain B)

Copper 1-month CRS© is 1.87% (bullish stability level); ratio weak convergence (overall Cu indicators bearish)

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

Metals Week Average:
US$12.85
As of July 9, 2012
(updated weekly)

Ryan's Notes Average:
US$12.95
As of July 3, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$12.75/lb

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

US$13.15/lb (US$29,000/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)

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 $84.94
ICE North Sea Brent crude $98.86
Spread (ICE- NYMEX) = $13.60 (last report, $13.58)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $85.66
ICE North Sea Brent crude $98.17
Spread (ICE- NYMEX) = $12.51 (last report, $12.70 )

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

The gold-to-WTI is 18.712 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 3.35% (bullish stability level); weak stability divergence (WTI overall indicators bearish)

Prices remain 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 relatively stable.

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 63.0 down from last Friday's 63.8. 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 60.1 on July 3, 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 143.42 points to 12,735.25; the S&P 500 is down 13.65 points at 1,353.93

The Eureka Miner's Grubstake Portfolio is down 1.61% at $1,235,060.64 (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