"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 10, 2012

POSCO, Freeport Lead the Charge; The Colonel's Gold, Silver & Copper Prices for Next Week

Alaskite Horizon, Devils' Gate, Eureka, Nevada


Yubanet (major fire activity map, news)

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 $2,000 Holy Grail - Is Gold on Track? (08/06/2012)

This morning's...
COMEX Gold price = $1,620.1/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 98.31 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,377.0/oz
COMEX - VAGP = $243.1/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!

Whoa! For the dog days of summer, there are certainly some interesting wiggles in the market data today. Following the release of lousy China data, copper giant Freeport-McMoran (FCX) and south Korean Steelmaker (PKX) are on a roll (see gold survey below). Also, the price spread between global benchmark Brent crude and Texas light sweet crude (WTI) has arrived at the front porch of scary levels this morning ($19.7/bbl vs $20/bbl threshold). And the Friday farm report says the corn yield will even be worse than was expected which already worse than many feared as drought-plagued corn prices soar.

The first chunk of news is supportive of base metals and possibly molybdenum going forward. Although import & export numbers from China are dismal, their program to stimulate the economy with infrastructure projects may put a floor under metal prices. POSCO, 20% owner of the Mt. Hope molybdenum project, had a "gap-up" in share prices yesterday with a rally continuing today while other steel producers sing the blues. POSCO has an Asian market focus and is less influenced by recessions in Europe. Watch for molybdenum futures to bottom and break above the $12 per pound doldrums this September (see Copper & Molybdenum Report below).

The growing price difference between global and domestically produced benchmarks for crude oil have been a fairly reliable barometer for tensions in the Middle East (see Weekly Oil Watch). Nearing and possibly exceeding the $20/bbl level should prove supportive of gold which remains trapped in a narrowing trading range looking for a catalyst to break-out.

Finally, the drought in the U.S., hot summer in Russia and excessive rain in Brazil are straining the global food chain and pushing up prices around the world. Although this is a potential disaster ahead for 2013, the cold calculus of gold markets suggests this may also push yellow metal prices higher. Gold is the classic hedge against inflation expectations.

Hats off again to all the Eureka folks that were on the line earlier this week fighting the Fraiser Fire (click this link for a Special Report).

Have a cup of Raine's delicious Red Label TGIF and enjoy your 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, $1,625 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.

A multi-month high or new record is expected in the next one to six months (Ref 3).

With the European and U.S. Congress holiday season in full swing, the markets are looking ahead to central banks for direction starting in September with the FOMC meeting. Aggressive 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 is fast approaching scary levels (i.e. greater than $20 per barrel) reflecting some of the Iran-Syria concerns. The oil market has been an early 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 and above the 6-year trend line (bullish for gold, Ref 2 ). The 3-month correlations of both oil and copper are now negative with respect to gold (bearish indications for commodities).

The poor economic data from China today is offset some by the recent gap-up and rally of South Korean steel producer POSCO (PKX) and a 6-market day rally of copper giant Freeport-McMoRan (FCX). This may be an early indication that stimulative infrastructure projects are putting a floor under metal prices.

For $1,625 per ounce gold we can expect to see silver in a range of $27.4-$28.1 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 now negative so an alternative method was used to establish a range for copper price.
  3. My Gold Value Index© (GVI) equals 98.31 this morning which is 10.6% below the Oct. 4 high of 109.97 and 4.3% below the peak of 102.74 set on June 1. Today gold value is above its 1-month moving average of 97.87; 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 479.06 pounds per ounce and above its 3-month moving average of 468.03; 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 2.01%. (1-month rolling correlation is -0.08; 3-month is also -0.08). 3-month relative volatility is 1.32X gold and price sensitivity (beta) is -0.11.
  5. The gold-to-silver ratio is above its historical norm at 58.361; the 3-month rolling correlation is +0.54, relative volatility is 1.66X gold and price sensitivity (beta) is +0.92. Similar to copper, silver remains bearishly above its 3-month average of 57.40. The 1-month gold-to-silver ratio stability is exceptionally low at 0.66%.
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) $34.50 up 1.05%
Newmont (NEM) $47.56 up 0.76%
McEwen Mining (MUX) $3.34 down 6.70%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.87 down 1.03%
Thompson Creek (TC) $2.60 down 4.41%
Freeport-McMoRan (FCX) $36.40 up 1.11% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.31 unchanged

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

ArcelorMittal (MT) $15.83 down 0.81% - global steel producer
POSCO (PKX) $84.88 up 0.70% - 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 84.68, up from last week's 53.85 and above the 1-month moving average of 56.07. 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 $0.1/oz at $1,620.1/oz (December contract, most active)

COMEX silver is down $0.337/oz at $27.760/oz (September contract, most active)

The gold-to-silver-ratio (Au:Ag) is 58.361 oz/oz

Silver 1-month CRS© is 0.66% (bullish stability level); stability convergence (Ag overall indicators improving)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 98.31, up only slightly from last week's 98.06 and above its 1-month average of 97.87. 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 $1,377.0/oz which is $243.1/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 $0.0495/lb at $3.3375/lb (September contract, most active)

The gold-to-copper ratio is 479.06 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 468.03 (a Cu bearish indication; remains in a bearish Price Domain B)

Copper 1-month CRS© is 2.01% (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 6, 2012
(updated weekly)

Ryan's Notes Average:

As of August 7, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday): US$11.10/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)

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 $92.35
ICE North Sea Brent crude $112.01
Spread (ICE- NYMEX) = $19.66 (last report, $18.09 )

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $92.88
ICE North Sea Brent crude $109.78
Spread (ICE- NYMEX) = $16.90 (last report, $15.12 )

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

The gold-to-WTI is 17.543 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 2.08% (bullish stability level); 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 fall. A front-month spread between Brent and WTI >$20/bbl is a trouble sign; the present spread is only pennies below 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 57.0, up from last Friday's 56.4. 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 down 29.21 points to 13,135.99; the S&P 500 is down 3.38 points at 1,399.42

The Eureka Miner's Grubstake Portfolio is down 0.70% at $1,249,880.22 (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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