"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, July 27, 2012

Timberline Rocks, Barrick Not; The Colonel's Gold, Silver & Copper Prices for Next Week

A good evening for kung pao, Eureka Cafe, Eureka, Nevada

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: Gold Versus Copper, Oil and Silver: The Value Trend Is Your Friend (7/23/2012)

This morning's...
COMEX Gold price = $1,618.4/oz (August contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 99.19 (gold value reversed to the upside this week and is historically high with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,363.4/oz
COMEX - VAGP = $255.0/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio is bearishly above its 3-month average (Cu prospects for the second-half of the year improving)

Morning Miners!

It is always good to see gold trading above $1,600 per ounce again after being in the doldrums for much of July. The broader markets are happier too with the DOW and S&P 500 on their way to challenge the highs for the month. Improving news from across the pond has been the prime mover with today's statements of support for the euro zone from German Chancellor Angela Merkel and French President Francois Hollande. The real push came Thursday when European Central Bank President Mario Draghi said the ECB is ready to do whatever it takes to preserve the common-currency union. Those words kicked off a global rally which closes the week on an uptick.

Even this mornings' report of slower growth in the U.S. for the second quarter didn't spoil the party. The GDP was 1.5%, not great but better than the consensus expectation of 1.2 to 1.3%. The higher number did pullback gold's early morning rally touching $1,628.5 per ounce since it diminishes the chances for aggressive U.S. monetary easing in the short-term. Consensus is building for another round of quantitative easing to be announced in September. COMEX gold is presently trading up $3.3 at $1,618.4 per ounce.

Several of our local gold miners are having a very good week but Barrick Gold (ABX) is not. Timberline Resources (TLR) has rallied up eight-out-of-nine market days rising 39% from its July 11 low of $0.2301. TLR is trading at $0.32 this morning. McEwing Mining (MUX formerly US Gold) has had a good run too up nearly 16% from its July low of $2.63; presently $3.04 per share.

Barrick Gold reported this week and we now may know why CEO Aaron Regent recently got the boot. As reported in the Financial Post, "Barrick Gold Corp. reported a massive capital cost over-run on Thursday as it delivered disappointing second-quarter results and lowered its long-term production outlook in a shift in strategy..." and, "The world’s biggest gold miner said that projected capital costs at Pascua-Lama, its most important development project, have jumped 50% to 60% from the top end of its prior estimate, which was US$5-billion."

Here's the the FP article:

Barrick Gold cuts production outlook, reviews projects as costs weigh (Peter Koven, Financial Post, Jul 26, 2012 – 7:56 AM ET)

Barrick Gold is down nearly 5% over the same period that TLR and MUX rallied; the giant stumbles, small gold miners rumble - ABX is plumbing $32.09 per share.

General Moly (GMO) has been pretty flat this week struggling with the $3-level, presently trading at $2.99 per share.

Euro Moly oxide fell below the key-$12 per pound level this week at $11.85. Western moly is not much better at $12.125-12.175 per pound and the LME 3-month seller rests at a more upbeat $12.70 per pound ($28,000 per tonne).

Have a relaxing 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 slightly, $1,620 per ounce target

Q. Why?

A. In the short-term, gold will likely remain range-bound between June’s high and July’s low ($1,642.4 and $1,554.4 per ounce) with a bias above 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 (Ref 1 & Ref 2)

Strong comments this week by European Central Bank President Mario Draghi in support of the euro brought gold higher but the rally faded with a somewhat better than expected U.S. GDP this morning. Both actions indicate gold price is presently driven by anticipated central bank actions; the latter damping short-term expectations of aggressive quantitative easing in the U.S.

U.S. dollar-denominated gold price is still looking for a catalyst to break above the June high: lackluster physical demand and the summer doldrums have capped gold’s gains although U.S. dollar strength is now weakening. Either negative market anticipation of the U.S. “fiscal cliff” or a conflict in the Middle East could provide the catalyst for new highs or even a new record.

Gold value relative to oil, copper and silver reversed this week to the upside and is again at historically elevated levels (i.e. bearish commodities). One-month gold-to-copper and -silver ratios are exceptionally stable reducing the likelihood of significant price corrections.

For $1,620 per ounce gold we can expect to see silver in a range of $27.2-$27.9 per ounce; and copper in a range of $3.32-$3.53 per pound

Background Notes:
  1. My $1,620 per ounce target is biased above the geometric mean ($1,597.8) of the June 6 intraday high ($1,642.4) 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.
  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 99.19 this morning which is 9.4% below the Oct. 4 high of 109.97 and 3.5% below the peak of 102.74 set on June 1. Today gold value is above its 1-month moving average of 98.55; a value of 100 represents a historically high-value of gold relative to key commodities oil, copper and silver.
  4. The gold-to-copper ratio today is 473.91 pounds per ounce and above its 3-month moving average of 461.85; moving above this average again and away from the 400 pounds per ounce level is a bearish indication for the red metal. The 1-month gold-to-copper ratio stability is exceptionally low at 1.50%. (1-month rolling correlation is +0.54; 3-month is +0.38). 3-month relative volatility is 2.18X gold and price sensitivity (beta) is +0.84
  5. The gold-to-silver ratio is above its historical norm at 58.001; the 3-month rolling correlation is +0.89, relative volatility is 2.17X gold and price sensitivity (beta) is +1.56. Similar to copper, silver remains bearishly above its 3-month average of 56.79. The 1-month gold-to-silver ratio stability is exceptionally low at 0.59%.

Friday's Market Roundup

Mining Report

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

Barrick (ABX) $32.09 down 1.96%
Newmont (NEM) $43.19 down 6.28%
McEwen Mining (MUX) $3.04 up 4.11%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.99 up 3.73%
Thompson Creek (TC) $2.64 up 2.33%
Freeport-McMoRan (FCX) $32.89 up 1.8% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.32 up 4.92%

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

ArcelorMittal (MT) $15.541 up 4.23% - global steel producer
POSCO (PKX) $79.24 up 1.38% - 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 49.59, down from last week's 57.62 and below the 1-month moving average of 62.79. 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 $3.3/oz at $1,618.4/oz (August contract, most active)

COMEX silver is up $0.016/oz at $27.430/oz (September contract, most active)

The gold-to-silver-ratio (Au:Ag) is 58.001 oz/oz

Silver 1-month CRS© is 0.59% (bullish stability level); weak stability divergence (Ag overall indicators neutral-to-bearish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 99.19, up from last week's 98.55 and above its 1-month average of 98.55. Gold value reversed to the upside this week and is historically high with respect to key commodities oil, copper and silver. 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 $1,363.4/oz which is $255.0/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 $0.0215/lb at $3.4150/lb (September contract, most active)

The gold-to-copper ratio is 473.91 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 461.85 (a Cu bearish indication; remains in a bearish Price Domain B)

Copper 1-month CRS© is 1.50% (bullish stability level); ratio stability weak convergence (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:
As of July 30, 2012
(updated weekly)

Ryan's Notes Average:
As of July 24, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday): US$11.85/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)

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 above $105/bbl again 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 $89.48
ICE North Sea Brent crude $105.78
Spread (ICE- NYMEX) = $16.30(last report, $14.28 )

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $90.15
ICE North Sea Brent crude $104.06
Spread (ICE- NYMEX) = $13.91 (last report, $13.23 )

* 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 3.48% (neutral 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 $85+ 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 58.8, up from last Friday's 52.4. 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 up 121.96 points to 13,009.89 the S&P 500 is up 16.91 points at 1,376.93

The Eureka Miner's Grubstake Portfolio is up 0.92% at $1,198,434.36 (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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