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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: Glad of His Gold Gifts, Six-for-Six (08/31/2012)
This morning's...
COMEX Gold price = $1,672.2/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 96.58 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,446.8/oz
COMEX - VAGP = $225.4/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio remains bearishly above its 3-month average; the gold-to-silver ratio continues to bullishly compress below its average
As summer winds down, the markets are focused on what Federal Reserve Chairman Ben Bernanke said at the Economic Symposium in Jackson Hole, Wyoming. Metal prices are very sensitive to any hints of further monetary easing in the U.S. or abroad. Next week it will be President of the European Central Bank Mario Draghi's turn to comment on future policy followed by the FOMC meeting in mid-September. To add to all this eco-drama, Germany’s Constitutional Court is scheduled to rule on the legality of the country’s funding for the European Stability Mechanism on Sept. 12.
When Ben Bernanke began speaking at 10:00AM EDT, COMEX gold dropped to $1,647.1 per ounce then bounced back into the green at $1,672.2 by 10:32AM. The Chairman offered a defense of the effectiveness of the central bank's easy-money policies and left little doubt that he is looking toward doing more to give the economy a lift at the policy meeting in September. That was enough to lift gold and add $0.774 per ounce to COMEX silver now trading at $31.220; COMEX copper languished at $3.4465 per pound.
The red metal is caught between falling global demand and supply restriction making it very difficult to judge which direction new headlines will take it. However, this week BNP Paribas said copper may approach $9,000 a metric ton ($4.08 per pound) later this year, “We expect the price then to come under sustained downward pressure, although losses should be limited by still-low inventories and supportive longer-term fundamental prospects.” (Kitco Market Nuggets, August 30, 2012)
Moly prices made another move up this week on the spot and futures market suggesting September may indeed be a period of price recovery - more typical of less economically stressed times. The Western moly oxide price range trended up to $11.20-$11.75 per pound from last week's $10.88-$11.63 spread. The LME moly 3-month seller's contract is bullishly back in $12 country at $12.247 per pound ($27,000 per metric ton).
Beleaguered moly benchmark miner Thompson Creek (TC) got a much needed boost from Dahlman Rose this morning when they announced a "buy" recommendation. Their price target is $4 per share. TC is presently up a healthy 8% at $2.71; General Moly (GMO) is up 0.75% at $2.68. Moly miners have been in a world of hurt for most of this year, let's hope this signals a reversal of fortune.
Finally, gold miners are holding on to last week's gains. Gold giant Barrick (ABX) is about where it was last Friday at $37.82 per share; McEwing Mining (MUX, formerly US Gold) is just slightly down on the week at $3.81 and Timberline resources (TLR) is unchanged at $0.34.
Where do gold, silver and copper prices go from here? Checkout my latest Kitco News article, The Next Gold Record - the Quiet before the Storm, and input to the weekly Kitco gold survey below.
Have a cup of Raine's delicious Red Label TGIF and have a terrific Labor Day weekend!
The Colonel's Gold, Silver & Copper Prices for Next Week
Here is 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, $1,705 per ounce target.
Q. Why?
A. This week, COMEX gold weathered the much anticipated Ben Bernanke speech at Jackson Hole and is likely to trend higher; the June high resistance has become support at $1,646.4 per ounce. A significant high or new record is expected in the next six months. Presently gold price is on historical trajectory BM-1 which suggests a $1,705 per ounce target by next Friday. (Ref 3, Ref 4).
The last day of the month coincides with the Jackson Hole speech making for a very volatile trading day. Although COMEX gold dipped briefly to $1,647.1 per ounce as the speech commenced it recovered in positive territory as Bernanke left the door open for further monetary easing in September. Expectations of further monetary easing in the U.S, China and Europe have provided the impetus for the current gold rally. Negative market anticipation of the U.S. “fiscal cliff” or conflict escalation in Middle East could deliver significant gold highs.
The Brent-WTI spread in crude oil futures remains high at $17.7 per barrel but appears to have peaked on Aug. 13. The wide spread reflects the current tensions in the Middle East and expectations of global monetary easing. Oil markets have proved a harbinger for market direction and gold price since early May (Ref 1 ).
Gold value relative to oil, copper and silver continues to be elevated hovering just below the key-100-level (bullish for gold, Ref 2 ). Gold value relative to the S&P 500 has risen nearly 5% since mid-August, another bullish sign for the yellow metal.
For $1,705 per ounce gold we can expect to see silver in a range of $28.5-$32.3 per ounce; and copper in a range of $3.47-$3.59 per pound
Background Notes:
- My $1,705 per ounce target is a projection based on historical trajectories following gold/oil supper-spikes, the most recent occurring July 13. The June intraday peak becomes price support at $1,646.4 per ounce.
- Given the target gold price, the silver price ranges are derived from the 1-month gold ratio mean (GSR) and its respective ratio stability (CRS©). The 3-month correlation of copper & gold is positive but low so an alternative method was used to establish a range for copper price.
- My Gold Value Index© (GVI) equals 96.58 this morning which is 12.2% below the Oct. 4 high of 109.97 and 6.0% below the peak of 102.74 set on June 1. Today gold value is below its 1-month moving average of 96.97; 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 485.19 pounds per ounce and above its 3-month moving average of 472.47; remaining above this average and the 400 pounds per ounce level is a bearish indication for the red metal. The 1-month gold-to-copper ratio stability remains extremely low at 0.86%. (1-month rolling correlation is +0.86; 3-month is +0.42). 3-month relative volatility is 1.00X gold and price sensitivity (beta) is +0.43
- The gold-to-silver ratio (GSR) is above its historical norm at 53.56; the 3-month rolling correlation is +0.92, relative volatility is 2.36X gold and price sensitivity (beta) is +2.18. The GSR has bullishly dropped below its 3-month average of 57.31. The 1-month gold-to-silver ratio stability has elevated to 3.12%
Ref 1: Does Recent Oil Volatility Portend the Next Gold Record? (Kitco News, 7/09/2012)
Mining Report
This morning's mining stocks with % price change from yesterday's close:
Barrick (ABX) $37.82 up 1.97%
Newmont (NEM) $49.79 up 2.55%
McEwen Mining (MUX) $3.81 up 2.70%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.68 up 0.75%
Thompson Creek (TC) $2.71 up 7.97%
Freeport-McMoRan (FCX) $35.43 down 2.13% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.34 unchanged
The Steels (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $14.73 up 1.66% - global steel producer
POSCO (PKX) $81.39 up 1.23% - South Korean integrated steel producer
The Eureka Miner's Index© (EMI) was re-calibrated 8/09 to reflect current 200-day moving averages for benchmark miners.
The EMI is below-par at 87.83, down from last week's 99.05 and above the 1-month moving average of 80.11. The 1-month average is below the key 100-level (bearish condition, look for a bullish reversal to the upside)
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 $15.1/oz at $1,672.2/oz (December contract, most active)
COMEX silver is up $0.774 at $31.220/oz (December contract, most active)
The gold-to-silver-ratio (Au:Ag) is 53.562 oz/oz
Silver 1-month CRS© is 3.12% (neutral stability level); emerging stability divergence (Ag overall bullish)
The Eureka Miner’s Gold Value Index© (GVI) is below-par at 96.58, up from last week's 96.50 and below its 1-month average of 96.97. Gold value is elevated with respect to 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 $1,446.8/oz which is $225.4/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 $0.0005/lb at $3.4465/lb (December contract, most active)
The gold-to-copper ratio is 485.19 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 472.47 (a Cu bearish indication; remains in a bearish Price Domain B)
Copper 1-month CRS© is 0.86% (bullish stability level); ratio stability weak convergence (Cu overall indicators are neutral to bearish)
The latest western molybdenum oxide spot prices (courtesy of Thompson Creek Metals):
Metals Week Average:
US$11.75
As of September 3, 2012
(updated weekly)
Ryan's Notes Average:
US$11.625
As of August 28, 2012
(updated twice weekly)
European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday): [not available today]
London metal Exchange (LME) molybdenum 3-month seller's contract:
US$12.25/lb (US$27,000/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 $95.85
ICE North Sea Brent crude $113.57
Spread (ICE- NYMEX) = $17.72 (last report, $18.17 )
Here are the December contracts* with a narrower spread:
NYMEX light sweet crude $96.48
ICE North Sea Brent crude $112.76
Spread (ICE- NYMEX) = $16.28 (last report, $16.18 )
* NYMEX futures contracts have rolled forward, we now show October and December
The gold-to-WTI is 17.446 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil
NYMEX WTI 1-month CRS© is 1.95% (bullish stability level); weakstability convergence (Brent-WTI spread steadily widened through July; it has since peaked on Aug. 13)
Prices for 2012 have headed north again, we have $110+ Brent and $95+ NYMEX in December signalling higher oil prices this fall and early winter. A front-month spread between Brent and WTI >$20/bbl is a trouble sign; the present spread is falling further away from that level.
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 64.7, up from last Friday's 58.80. 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 89.59 points to 13,090.30; the S&P 500 is up 7.03 points at 1,406.51
The Eureka Miner's Grubstake Portfolio is up 1.65% at $1,277,630.03 (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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