"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 17, 2012

Is Gold Ready to Bounce? The Colonel's Gold, Silver & Copper Prices for Next Week

The Sandy T, 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 = $1,621.0/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 96.63 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,406.1/oz
COMEX - VAGP = $214.9/oz; gold is trading at a high premium to key commodities; gold-to-copper & gold-to-silver ratios remain bearishly above their 3-month average

Morning Miners!

Gold like a cat must have nine lives. Just when you think the Lustrous One has seen his last big high something happens to remind us why gold has been revered as a store of value for more than 5,000 years. You wouldn't sense that from the latest news or market data. We learned this week from the World Gold Council that India and China which account for a 45% of global consumer demand have been consuming a whole lot less. Jewelry demand which represents a large part has seen a 15% year-on-year decline.

Fortunately, this has been offset by central bank buying which keeps gold prices from falling down the mineshaft. Recently, large hedge fund players like John Paulson and George Soros have been adding a little glitter to their portfolios too. The result of lackluster physical demand, central bank hedging and some renewed investor interest has been a U.S. dollar price that has really gone nowhere in three months. In fact, the 3-month price variability of gold is approaching a 5-year low. This is a fancy way a saying that the day-to-day change in price compared to its average is uncommonly small - today the 3-month variability is less than 1.4%; the 5-year low is 1.2%. By contrast, when the all-time COMEX record was set last September at $1,923.7 per ounce, the price variability was five times higher at 7.4%.

From U.S."fiscal cliffs", rumors of a Chinese hard landing and wobbly economies in Europe, there are certainly enough scary stuff on the horizon to push gold prices higher (see my weekly input to the Kitco gold survey below). One thing that has started to worry the ole Colonel is how hot the rhetoric is getting between Israel and Iran. Here are two headline stories from Haaretz Israeli News Service that hit the wires this week:

Ahmadinejad: Israel's existence is 'an insult to all humanity'(Haaretz, By DPA and The Associated Press, Aug.17, 2012, 1:29 PM)

Ambassador Oren: Israel's clock on Iran 'ticking faster' than Obama's
(Haaretz, By Natasha Mozgovaya, Aug.14, 2012, 1:37 AM)

This may be more than a lot of rhetoric. The persistently wide price spread between Texas light sweet crude (WTI) and global benchmark Brent crude has been signalling a pending conflict in the Middle east for some time as we have reported in the Weekly Oil Report below.

The sleeping golden cat is about to add a new life for some reason, pardner - record low price variability doesn't last forever.

Have a cup of Raine's delicious Red Label TGIF and let's forget the news for the 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, $1,630 per ounce target. However, watch for a break-out to the upside in the coming weeks.

Q. Why?

A. In the short-term, gold will likely remain in a narrowing range between the June high and July low ($1,646.4 and $1,559.5 per ounce) with a bias above the psychologically important $1,600-level and solid support at the low-end of the range.

Three-month COMEX gold price variability is approaching 5-year lows (1.38% today versus a 5-year low of 1.21%); symptomatic of the compressing range and suggesting a price break-out is near. A multi-month high or new record is expected in the next one to six months (Ref 3)

Although the European and U.S. Congress holiday season continues, special meetings in Europe next week and Angela Merkel’s pledge to support the euro may give gold a boost. Aggressive central bank monetary actions could provide the first impetus for gold to breakout of its compressing trading range; negative market anticipation of the U.S. “fiscal cliff” or a conflict in the Middle East may deliver new highs or even a new record.

The Brent-WTI spread in crude oil futures remains high at $18.50 per barrel but may have peaked Monday. The wide spread reflects the current tensions in the Middle East exacerbated by new concerns for an Israeli strike on Iran’s nuclear facilities. 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 ).

The 1- and 3-month correlations of gold and copper are near zero suggesting a de-coupling of the yellow metal from base metals.
For $1,630 per ounce gold we can expect to see silver in a range of $27.8-$28.6 per ounce; and copper in a range of $3.29-$3.46 per pound

Background Notes:
  1. My $1,625 per ounce target is biased above the geometric mean ($1,602.4) of the June intraday high ($1,646.4) and the July low ($1,559.5).
  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 near zero so an alternative method was used to establish a range for copper price.
  3. My Gold Value Index© (GVI) equals 96.63 this morning which is 12.1% below the Oct. 4 high of 109.97 and 5.9% below the peak of 102.74 set on June 1. Today gold value is below its 1-month moving average of 97.76; 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 474.18 pounds per ounce and above its 3-month moving average of 470.25; 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 low at 1.57%. (1-month rolling correlation is -0.05; 3-month is 0.00). 3-month relative volatility is 1.37X gold and price sensitivity (beta) is 0.00 (quite amazing).
  5. The gold-to-silver ratio (GSR) is above its historical norm at 57.533; the 3-month rolling correlation is +0.61, relative volatility is 1.74X gold and price sensitivity (beta) is +1.05. The GSR is right at its 3-month average of 57.53. The 1-month gold-to-silver ratio stability is exceptionally low at 0.77%.
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) $35.72 down 0.97%
Newmont (NEM) $47.33 down 0.55%
McEwen Mining (MUX) $3.51 up 1.15%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.78 down 0.71%
Thompson Creek (TC) $2.44 up 0.83%
Freeport-McMoRan (FCX) $35.51 up 0.57% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.33 up 3.13%

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

ArcelorMittal (MT) $16.00 up 2.43% - global steel producer
POSCO (PKX) $84.96 down 0.13% - 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 85.95, down from last week's 86.71 and above the 1-month moving average of 61.06. 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 $1.9/oz at $1,621.0/oz (December contract, most active)

COMEX silver is down $0.037/oz at $28.175/oz (September contract, most active)

The gold-to-silver-ratio (Au:Ag) is 57.533 oz/oz

Silver 1-month CRS© is 0.77% (bullish stability level); stability convergence (Ag overall indicators improving)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 96.63, down from last week's 97.82 and below its 1-month average of 97.76. 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 $1,406.1/oz which is $214.9/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 up $0.0360/lb at $3.4185/lb (September contract, most active)

The gold-to-copper ratio is 474.18 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 470.5 (a Cu bearish indication; remains in a bearish Price Domain B)

Copper 1-month CRS© is 1.57% (bullish stability level); ratio stability weak convergence (Cu prospects for the second-half of the year should improve)

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

Metals Week Average:

As of August 20, 2012
(updated weekly)

Ryan's Notes Average:

As of August 14, 2012
(updated twice weekly)
European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday): US$10.90/lb

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

US$11.29/lb (US$24,900/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 $95.61
ICE North Sea Brent crude $114.13
Spread (ICE- NYMEX) = $18.52 (last report, $19.66 )

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $96.18
ICE North Sea Brent crude $113.40
Spread (ICE- NYMEX) = $17.22 (last report, $16.90 )

* NYMEX futures contracts have rolled forward, we now show September and November

The gold-to-WTI is 16.954 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 2.33% (bullish stability level); stability convergence (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 November signalling higher oil prices this summer and fall. A front-month spread between Brent and WTI >$20/bbl is a trouble sign; the present spread is 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 58.0, up from last Friday's 55.4. 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 13.96 points to 13,264.07; the S&P 500 is up 0.88 points at 1,416.39

The Eureka Miner's Grubstake Portfolio is up 0.29% at $1,254,131.20  (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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