"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, August 24, 2012

Gold & Silver Up and Away, Moly Surprise; The Colonel's Metal Prices for Next Week

Another shade of gold, 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: The Next Gold Record - The Quiet before the Storm (08/20/2012)

This morning's...
COMEX Gold price = $1,669.2/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 96.37 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,447.3/oz
COMEX - VAGP = $221.9/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 is bullishly compressing below its average

Morning Miners!

Markets don't wait for events to occur, they anticipate. That was the story this week as investors piled into gold and silver unwilling to wait any longer for the sleeping dogs of summer to awake.

Let sleeping dogs lie? Apparently not; impending U.S. fiscal cliffs, a possible China hard landing, Middle East war drums and Europe's calamitous economic drama remind many that precious metals are still a pretty good bet when trouble comes knocking - buy now before the snoozing dogs bark at these unwanted guests. That seems to be the growing consensus as markets bet on more central bank actions to ease the pain.

Early in the week gold and silver broke away from their narrow trading range in a big way. COMEX silver led the pack Monday bouncing form a lazy $27-level to score an intraday high of $30.790 per ounce yesterday. On Tuesday COMEX gold gaped up from an intarday low of $1,620.8 per ounce to close at $1,642.9, just below the June high. The rally continued through Thursday to post an intraday high of $1,677.5 per ounce. Both metals have pulled back some with gold presently trading at $1,669.2 per ounce and silver, at $30.455.

COMEX copper had a pretty good week too - expectations of global monetary easing in response to contracting economies lifts all boats in the commodity harbor. The red metal moved from an intraday low of $3.354 per pound to a Thursday high of $3.512. Like its precious metal cousins, copper has retreated some too trading this morning at $3.4755 per pound. Much of this may be a short squeeze from traders who expected lower prices on declining global demand. Supply restriction and big miners like BHP Billiton stepping back from large mining developments will provide some floor to prices going forward.

Moly prices made some surprise moves this week too. European moly oxide moved up nearly 6% to 11.55 per pound.  The LME moly 3-month seller's contract moved up less to $11.34 per pound (see Copper & Molybdenum Report below) . September is typically the beginning of a price uptrend in less challenged years.

Finally, gold miners are faring well. Timberline (TLR) stock has rallied off its July 11 low of $0.23 to $0.34 today and a high of $0.38 on Aug. 6. McEwing Mining (formerly US Gold) has had a similar success hitting a high Aug. 23 of $4.22 from a low of $1.96 on May 23, presently trading at $3.88. Gold giant Barrick (ABX) has moved up from its July 23 intraday low of $31 to trade at $37.77 today

Where do 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, shove some glitter under your mattress and have a great 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, $1,690 per ounce target. However, there could be some consolidation following this week’s run-up

Q. Why?

A. This week, COMEX gold broke out of its narrow trading range with conviction and now the June price resistance becomes 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-2 which suggests a $1,690 per ounce target by next Friday. (Ref 3, Ref 4)

Although there's another week in August, evidence of further global weakness and uncertainty about the extent and effectiveness of monetary easing in the U.S., China and Europe have shaken complacency from the summer market. 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 $18.2 per barrel but may 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 more than 4% in the last 4-market days, another bullish sign for the yellow metal.

For $1,690 per ounce gold we can expect to see silver in a range of $28.6-$31.1 per ounce; and copper in a range of $3.45-$3.51 per pound

Background Notes:

  1. My $1,690 per ounce target is a projection based on historical trajectories following oil/gold super-spikes, the most recent occurring July 13. The June intraday peak becomes price support at $1,646.4 per ounce.
  2. 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.
  3. My Gold Value Index© (GVI) equals 96.37 this morning which is 12.4% below the Oct. 4 high of 109.97 and 6.2% below the peak of 102.74 set on June 1. Today gold value is below its 1-month moving average of 97.48; 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 480.28 pounds per ounce and above its 3-month moving average of 472.10; 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 is extremely low at 0.76%. (1-month rolling correlation is +0.83 as gold and copper re-correlate positively; 3-month is +0.26). 3-month relative volatility is 1.19X gold and price sensitivity (beta) is +0.31
  5. The gold-to-silver ratio (GSR) is above its historical norm at 54.809; the 3-month rolling correlation is +0.83, relative volatility is 1.96X gold and price sensitivity (beta) is +1.63. The GSR has bullishly dropped its 3-month average of 57.54. The 1-month gold-to-silver ratio stability is still low at 2.06%.
Ref 3: The $2,000 Holy Grail - Is Gold on Track? (Kitco News, 8/06/2012)

Friday's Market Roundup

Mining Report

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

Barrick (ABX) $37.77 down 0.71%
Newmont (NEM) $49.00 down 0.08%
McEwen Mining (MUX) $3.88 down 1.52%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.64 down 1.12%
Thompson Creek (TC) $2.64 down 0.38%
Freeport-McMoRan (FCX) $36.01 down 2.07% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.34 down 2.86%

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

ArcelorMittal (MT) $15.20 up 2.25% - global steel producer
POSCO (PKX) $81.75 down 1.85% - 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 92.49, up from last week's 61.21 and above the 1-month moving average of 71.45. 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 down $3.6/oz at $1,669.2/oz (December contract, most active)

COMEX silver is down $0.001/oz at $30.455/oz (September contract, most active)

The gold-to-silver-ratio (Au:Ag) is 54.809 oz/oz

Silver 1-month CRS© is 2.06% (bullish stability level); emerging stability divergence (Ag overall bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 96.37, down from last week's 96.23 and below its 1-month average of 97.48. 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 $1,447.3/oz which is $221.9/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 $0.0170/lb at $3.4755/lb (September contract, most active)

The gold-to-copper ratio is 480.28 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 472.10 (a Cu bearish indication; remains in a bearish Price Domain B)

Copper 1-month CRS© is 0.76% (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:

As of August 27, 2012
(updated weekly)

Ryan's Notes Average:

As of August 21, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday): US$11.55/lb

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

US$11.34/lb (US$25,000/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 $110/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 $96.51
ICE North Sea Brent crude $114.68
Spread (ICE- NYMEX) = $18.17 (last report, $18.52 )

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $97.20
ICE North Sea Brent crude $113.38
Spread (ICE- NYMEX) = $ 16.18 (last report, $17.22 )

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

The gold-to-WTI is 17.296 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 2.64% (bullish stability level); emerging stability divergence (Brent-WTI spread has steadily widened through July, it may have peaked 8/13 )

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 but still very close to 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 60.4, up from last Friday's 54.2. 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 2.01 points to 13,055.45; the S&P 500 is down 1.44 points at 1,400.64

The Eureka Miner's Grubstake Portfolio is down 1.02% at $1,281,503.02  (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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