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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: The $2,000 Holy Grail - Is Gold on Track? (08/06/2012)
This morning's...
COMEX Gold price = $1,595.9/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 98.73 (gold value is trending higher with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,350.7/oz
COMEX - VAGP = $245.2/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio is bearishly above its 3-month average
It's always good to start a month with a better-than-expected U.S. jobs report. The Labor Department reported nonfarm payrolls increased by a seasonally adjusted 163,000 jobs in July; economists' expected an addition of only 95,000 workers. Unfortunately, with fewer folks actively looking for a job, the unemployment rate ticked up from 8.2% in May to 8.3% in July (note 1). If that seems confusing, here's a good link to explain the difference:
Why Did Unemployment Rate Increase? (Phil Izzo, WSJ Blogs, 8/3/2012)
Nonetheless, the report was enough to spark most markets in a week otherwise filled with disappointments. The DOW is up a blistering 240 points at 13,119; the S&P 500 bounced more than 2% presently at 1,392.71. There were hopes that the Federal Reserve and the European Central Bank would take decisive actions this week to improve a flagging economy at home and worsening conditions in Europe. Neither occurred but ECB President Mario Draghi provided some hope for Spain (see my input to the Kitco Gold Survey below).
Gold remains trapped in a narrowing trading range but the gold miners continue to show gusto. Barrick Gold (ABX) recovered from a disappointing quarterly report to move 6% up from its July low; presently trading at $32.76 per share. The Eureka Miner pointed to the steady rise of Timberline Resources (TLR) last Friday and its rally continues, up a full 56% from the July doldrums ($0.36 vs. $0.23 per share). McEwing Mining (MUX) is also up 14.6% from its July 24 low of $2.73 to $3.13 this morning.
Two observations: 1) gold in a compressing trading band is likely to break out with conviction to the upside or downside and, 2) the recent mining stock rally indicates investors are betting on the upside. The ole Colonel is too with multi-month highs or even a new record in the cross-hairs over the next six months (Kitco Gold Survey comments).
Fortunes have been a little bumpier for the copper and moly miners. Mining bellwether and copper giant Freeport-McMoran (FCX) has held above the key $31-level with a gap-down in copper prices this week. FCX is presently up 2.42% for the day at $33.48 per share. With moly oxide spot and futures prices below $12 per pound (see Copper & Molybdenum Report below), General Moly (GMO) is sub-$3 again trading up 2.95% this morning at $2.79. Benchmark moly miner Thompson Creek (TC) is unchanged at a dismal $2.58.
Have a rewarding cup of Raine's delicious Red Label TGIF and enjoy your weekend!
Here is 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, $1,615 per ounce target. However, a surprise gap-up to higher prices is possible.
Q. Why?
A. In the short-term, gold will likely remain in a narrowing range between July’s highs and lows ($1,633.3 and $1,559.5 per ounce, Dec. contract) with a bias above the psychologically important $1,600-level and support at the low-end of the range.
However, a material ECB response to a Spanish request for help could spike gold above the current trading band. A multi-month high or new record is expected in the next one to six months (Ref 1 & Ref 2).
Both the Federal Reserve and European Central Bank disappointed markets this week that expected sooner-than-later quantitative easing. However, the ECB did lay the groundwork for an affirmative response to deteriorating conditions in Spain (gold supportive).
U.S. dollar-denominated gold price is still looking for a catalyst to break out of a compressing range: lackluster physical demand and the summer doldrums have capped gold’s gains. Aggressive monetary actions could provide the first impetus; 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.
Gold value relative to oil, copper and silver continues to trend up from July’s low. The 3-month correlations of both oil and copper are now negative with respect to gold (bearish indications for commodities).
For $1,620 per ounce gold we can expect to see silver in a range of $27.4-$28.0 per ounce; and copper in a range of $3.29-$3.43 per pound
Background Notes:
- My $1,615 per ounce target is biased above the geometric mean ($1,596.0) of the July 27 intraday high ($1,633.3, Dec. contract) and the July 12 low ($1,559.5, Dec. contract).
- 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 now negative so an alternative method was used to establish a range for copper price.
- My Gold Value Index© (GVI) equals 98.73 this morning which is 10.2% below the Oct. 4 high of 109.97 and 3.9% below the peak of 102.74 set on June 1. Today gold value is above its 1-month moving average of 98.28; 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 477.53 pounds per ounce and above its 3-month moving average of 464.88; remaining above this average and the 400 pounds per ounce level are bearish indications for the red metal. The 1-month gold-to-copper ratio stability is exceptionally low at 1.84%. (1-month rolling correlation is +0.06; 3-month is -0.07). 3-month relative volatility is 1.91X gold and price sensitivity (beta) is -0.14
- The gold-to-silver ratio is above its historical norm at 58.383; the 3-month rolling correlation is +0.92, relative volatility is 1.91X gold and price sensitivity (beta) is +0.93. Similar to copper, silver remains bearishly above its 3-month average of 57.15. The 1-month gold-to-silver ratio stability is exceptionally low at 0.52%.
Friday's Market Roundup
Mining Report
This morning's mining stocks with % price change from yesterday's close:
Barrick (ABX) $32.76 up 1.93%%
Newmont (NEM) $44.07 up 1.05%
McEwen Mining (MUX) $3.13 up 8.30%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.79 up 2.95%
Thompson Creek (TC) $2.58 unchanged
Freeport-McMoRan (FCX) $33.48 up 2.42% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.36 up 2.86%
The Steels (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $15.08 up 7.03% - global steel producer
POSCO (PKX) $81.65 up 2.13% - 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 52.79, up from last week's 51.89 and below the 1-month moving average of 57.70. 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 $5.2/oz at $1,595.9/oz (December contract, most active)
COMEX silver is up $0.340/oz at $27.335/oz (September contract, most active)
The gold-to-silver-ratio (Au:Ag) is 58.383 oz/oz
Silver 1-month CRS© is 0.52% (bullish stability level); weak stability convergence (Ag overall indicators improving)
The Eureka Miner’s Gold Value Index© (GVI) is below-par at 98.73, up only slightly from last week's 98.72 and above its 1-month average of 98.28. Gold value is trending up 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 $1,350.7/oz which is $245.2/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
COMEX copper is up $0.0515/lb at $3.3420/lb (September contract, most active)
The gold-to-copper ratio is 477.53 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 464.88 (a Cu bearish indication; remains in a bearish Price Domain B)
Copper 1-month CRS© is 1.84% (bullish stability level); ratio stability weak divergence (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:
US$11.60
As of August 6, 2012
(updated weekly)
Ryan's Notes Average:
US$11.85
As of July 31, 2012
(updated twice weekly)
European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday): US$11.45/lb
London metal Exchange (LME) molybdenum 3-month seller's contract:
US$11.79/lb (US$26,000/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 $89.43
ICE North Sea Brent crude $107.52
Spread (ICE- NYMEX) = $18.09(last report, $16.30 )
Here are the November contracts* with a narrower spread:
NYMEX light sweet crude $90.00
ICE North Sea Brent crude $105.12
Spread (ICE- NYMEX) = $15.12 (last report, $13.91 )
* NYMEX futures contracts have rolled forward, we now show September and November
The gold-to-WTI is 17.845 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil
NYMEX WTI 1-month CRS© is 2.26% (bullish stability level); weak stability convergence (Brent-WTI spread has steadily widened through July )
Prices for 2012 have headed north again, we have $105+ Brent and $90+ 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 is in closing in on 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 57.6, down from last Friday's 58.5. 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 240.14 points to 13,1119.02 the S&P 500 is up 27.71 points at 1,392.71
The Eureka Miner's Grubstake Portfolio is up 2.72% at $1,202,016.30 (what's this?).
Cheers,
Colonel Possum
Note 1: 'Unemployment Rate' is the percentage of the total labor force that is unemployed but actively seeking employment and willing to work.
Read more: http://www.investopedia.com/terms/u/unemploymentrate.asp#ixzz22VS0ULvw
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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