"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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, September 28, 2012

Flying through the Fog; The Colonel's Gold, Silver & Copper Prices for Next Week

Remembering Jon Young Eureka, Nevada

Latest Nevada Gas Prices (click this link)


NEW WEEKLY SCHEDULE

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: $1,900 Gold - Though the Looking Glass (10/01/2012)

This morning's...
COMEX Gold price = $1,776.1/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 98.79 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,502.2/oz
COMEX - VAGP = $273.9/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio has stalled above its 3-month average; the gold-to-silver ratio continues to bullishly compress below its average


Morning Miners!

Alas, the quarter comes to an end on a so-so market day following a lot of fireworks in September. COMEX gold made a six-month high last Friday touching $1,790.0 per ounce but not quite breaching the $1,800-level. Not to be outdone, COMEX silver broke above $35 per ounce that same day making $35.26. The broader markets surged with the S&P 500 returning to late-2007 altitudes just below the 1,475 clouds by mid-month. The red metal rocked the party too, bouncing to $3.8395 per ounce two days before gold and silver reached their tops.

As the Report pointed out last week, a lot of this market exuberance has come the Federal Reserve's third phase of quantitative easing (QE3) together with other monetary accomodations in Europe, China and Japan. Initial response was positive for precious and base metals but now many cross-currents are developing. With the major industrial nations all racing to debase their currencies it is not clear how this race will end. The U.S. dollar fell on the QE3 announcement only to enjoy a rally as Spanish woes weighed on the euro. This created a drag on US dollar-denominated commodities including gold, silver and copper that have all retreated some from their earlier highs.

My input the the Kitco Weekly Gold Survey (below) compares navigating today's markets to flying through a dense fog created by central banks. The outcome is not all bad, especially for future gold prices, but we must believe what the instruments are telling us and rely less on the seat of our pants.


Metals and mining stocks remain surprisingly resilient. Here's how Barrick (ABX), McEwing Mining (MUX, formerly US Gold) and Timberline Resources (TLR) compare to last Friday's share prices

ABX $42.73 (9/21) to $41.56 (today) down  2.7%
MUX $4.70 (9/21) to $4.67 (today) down 0.6%
TLR $0.400 (9/21) to $0.410 (today) up 2.5%


COMEX gold is presently $1,776.1 per ounce only 0.8% from its 6-month high. COMEX silver is trading at $34.665 per ounce or 1.7% below it's high last Friday and COMEX copper is at a $3.7555 per pound or 2.2% down from its top.

Moly prices fell a bit more this week on the spot market but held firm on the futures. Western moly slipped to $11.35-$11.55 per pound from last week's $11.65-$11.85 spread. The LME moly 3-month seller's contract is below the $11-level but steady at $10.89 per pound ($24,000 per metric ton).

General Moly (GMO) is $3.22 per share, unchanged from last Friday.


Where do gold, silver and copper prices go from here? Checkout my latest Kitco News article, $1,900 Gold - Though the Looking Glass, and today's input to the Kitco weekly gold survey below.

Enjoy another cup of Raine's delicious Red Label TGIF 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, $1,785 per ounce target.

Q. Why?

A. The markets are currently flying through a fog created by the Federal Reserve’s new QE3 program and recent monetary easing policies in Europe, China and Japan. As the efficacy of these programs becomes clearer, the tug-of-war between major reserve currencies and mixed forecasts of global demand will stabilize.

Like a good pilot, market participants should rely on instruments and less on news headlines flying past the windscreen. For gold, the readings are notably good. The yellow metal is gaining value with respect to global commodities oil and copper, companion metal silver and the broader markets. Although off its 6-month high, gold is in a good position to move higher.

My target of $1,785 per ounce for next week is a neutral bias with respect to historical trajectory BM-1 which suggests only $1,784 per ounce by next Friday (Ref 5)

For $1,785 per ounce gold we can expect to see silver in a range of $33.6-$36.1 per ounce (with a neutral bias with respect to the the range mean); and copper in a range of $3.62-$3.85 per pound (with a positive bias above the range mean).

Oil markets have proved a harbinger for market direction and gold price since early May (Ref 1 ). The recent gold highs confirm my ongoing oil/gold volatility thesis:

In the last five years, six-out-of-six oil/gold volatility super-spikes have coincided with the start of rallies that resulted in gold multi-month highs or new all-time records (Ref 5).

Presently below its recent 6-month high, gold is poised to score a new highs in the next 3 months. The present 3-month relative price volatility oil with respect to gold has declined to parity from a super-spike of 4.50X on July 13. If this decline reverses the gold highs may be in for the year. This morning the relative volatility is 1.02X and stabilizing; a gold bullish indication.

We are now past the anticipated central bank announcements and actions for September. Expectations of monetary easing in the U.S, China and Europe 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 the next leg up to new highs.

The Brent-WTI spread in crude oil futures remains alarmingly elevated at $20.7 per barrel and on a percentage basis tops the peak of Aug. 13 (22.6% premium vs. 22.2%). The persistent troubles in the Middle East and North Africa has pushed this spread to $20+ per barrel levels even though the threat of an Israeli strike on Iran has presumably moved to 2013.

Gold value relative to oil, copper and silver is near the key-100-level and above the 6-year trend line (bullish for new gold highs, Ref 2 ). Gold value relative to the S&P 500 is moving higher; up 8% since mid-August, another bullish sign for the yellow metal.

Background Notes:

  1. My $1,785 per ounce target is a projection based on historical trajectories following gold/oil supper-spikes, the most recent occurring July 13. The Sept. 26 intraday low becomes price support at $1,738.30 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 now greater than 0.5 so a similar technique is used to predict the price range for copper.
  3. My Gold Value Index© (GVI) equals 98.79 this morning which is 10.2% below the Oct. 4 high of 109.97 and 3.8% below the peak of 102.74 set on June 1. Today gold value is above its 1-month moving average of 96.91; 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 472.93 pounds per ounce and slightly above its 3-month moving average of 471.67; trending below this average towards the 400 pounds per ounce level would be a bullish indication for the red metal (Ref 6).  The 1-month gold-to-copper ratio stability is low at 1.50%. (1-month rolling correlation is +0.96; 3-month is +0.91). 3-month relative volatility is 0.99X gold and price sensitivity (beta) is +0.90
  5. The gold-to-silver ratio (GSR) is only slightly above its historical norm at 51.236; the 3-month rolling correlation is +0.99, relative volatility is 2.31X gold and price sensitivity (beta) is +2.29. The GSR has bullishly dropped below its 3-month average of 55.65. The 1-month gold-to-silver ratio stability has dropped to 1.74% (<3 convergence="convergence" indicating="indicating" ratio="ratio" span="span">
Ref 3: The $2,000 Holy Grail - Is Gold on Track? (Kitco News, 8/06/2012)
Ref 5: Glad of His Gold Gifts, Six-for-Six (Kitco News, 9/4/2012)
Ref 6: Copper and Gold - The QE3 Gordian Knot (Kitco News, 9/17/2012)


Friday's Market Roundup


Mining Report

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

Barrick (ABX) $41.56 down 0.72%
Newmont (NEM) $55.99 down 0.97%
McEwen Mining (MUX) $4.67 down 1.68%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.22 down 0.31%
Thompson Creek (TC) $2.90 down 1.02%
Freeport-McMoRan (FCX) $39.36 down 1.87% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.41 unchanged

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

ArcelorMittal (MT) $14.43 down 3.67% - global steel producer
POSCO (PKX) $81.52 down 1.51% - 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 above-par at 157.46, down from last week's 212.43 and slightly below the 1-month moving average of 157.59. The 1-month average remains bullishly above the key 100-level.


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 $4.4/oz at $1,776.1/oz (December contract, most active)

COMEX silver is down $0.011/oz at $34.665/oz (December contract, most active)

The gold-to-silver-ratio (Au:Ag) is 51.236 oz/oz

Silver 1-month CRS© is 1.74% (convergent); strong stability divergence has reversed (Ag overall bullish, stable with gold)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 98.79, up from last week's 97.96 and above its 1-month average of 96.91. 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 $1,502.2/oz which is $273.9/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 $0.0115/lb at $3.7555/lb (December contract, most active)

The gold-to-copper ratio is 472.93 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 471.67 (Cu bullish after monetary easing announcements; remains in a bearish Price Domain B)

Copper 1-month CRS© is 1.50% (bullish stability level); ratio stability convergence (Cu overall indicators are bullish)

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

Metals Week Average:
US$11.35

As of October 1, 2012
(updated weekly)

Ryan's Notes Average:
US$11.55

As of September 25, 2012
(updated twice weekly)


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

US$10.89/lb (US$24,000/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). Things are heating up again in MENA, this time with wide-spread anti-American demonstrations and acts of violence. Brent is above $110/bbl 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 $91.53
ICE North Sea Brent crude $112.2
Spread (ICE- NYMEX) = $20.67 (last report, $17.69)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $92.32
ICE North Sea Brent crude $110.69
Spread (ICE- NYMEX) = $18.37 (last report, $15.94)

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

The gold-to-WTI is 19.405 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 4.11% (bearish stability level); stability divergence (Brent-WTI spread steadily widened through July; it has widened again from the Aug. 13 peak on a percentage basis)

Defying supply/demand fundamentals, prices for 2012 are on the rise again; we have $110+ Brent and $90+ NYMEX in December signalling higher oil prices late fall and winter. A front-month spread between Brent and WTI >$20/bbl is a trouble sign; the present spread is above that warning 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 61.3, up from last Friday's 54.3. A level above 200 is time for serious concern - we are still 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 56.29 points to 13,429.68; the S&P 500 is down 6.32 points at 1,440.83

The Eureka Miner's Grubstake Portfolio is down 1.04% at $1,410,816.18  (what's this?).

Cheers,

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

Friday, September 21, 2012

QE3 - Up, Up & Away; The Colonel's Gold, Silver & Copper Prices for Next Week

Command Post Eureka, Nevada

Latest Nevada Gas Prices (click this link)


NEW WEEKLY SCHEDULE

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: Copper and Gold - The QE3 Gordian Knot (09/17/2012)

This morning's...
COMEX Gold price = $1,784.3/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 97.78 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,524.8/oz
COMEX - VAGP = $259.5/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio has stalled its 3-month average; the gold-to-silver ratio continues to bullishly compress below its average


Morning Miners!

Up and away for gold and the markets! Never underestimate the power of the press, especially the U.S. dollar printing press.

Last week's introduction of the third phase of quantitative easing (QE3) by the Federal Reserve has lifted nearly every asset; stock markets, gold, silver, copper - you name it. Oh, except the U.S. dollar - it has fallen 2.3% since Fed Chairman Bernanke's first definitive hints of further easing at the Jackson Hole meeting in late August and a full 6% from its July 24 high (for perspective, 1% moves in currency markets are notable events).

Take heart. Given the next turn in the European debt drama, the euro will fall and the dollar will rise again. Of course if Congress doesn't resolve the impending "fiscal cliff," the dollar could fall a lot further and gold could move a lot higher. My Kitco gold survey report covers a lot of the details but it looks like $2,000 per ounce gold may not be that far away.

What is an investor to do? Don't fight the Fed - the ole Colonel bought gold (SPDR Gold Trust, GLD), the S&P 500 (iShares IVV) and the U.S. Dollar Index (Powershares, UUP), that way at least one or more of the three should be in the green every market day no matter what happens! Please do your own research, markets have a funny way of whacking you on the noggin when you think you've got it figured.

Gold mining stocks continue to be on a tear and that's good for Barrick (ABX) and locals McEwing Mining (MUX, formerly US Gold) and Timberline Resources (TLR). Here's a comparison of mining stocks when the U.S. dollar was so strong in late-July versus today's prices:

ABX $33.11 (7/24) to $42.73 (today) up 30.6%
MUX $2.74 (7/24) to $4.70 (today) up 71.5%
TLR $0.289 (7/24) to $0.400 (today) up 38.4%

If you are worried about a weakening U.S dollar, gold mining stocks have been a better hedge than gold itself:

GLD $153.52 (7/24) to $172.15 (today) up 12.1%

Don't worry, be happy. All those old dollars will make good kindling for the wood stove - the power of the press, pardner.

Seriously, we may be in the third bubble of a secular bear market so watch your back. The first was the internet bubble at the turn of the new century followed by the housing bubble preceding the 2008-2009 financial crisis and now the commodity bubble. The S&P 500 eerily reached about the same peak level for the last two bubbles:

Internet bubble (3/24/2000) intraday high 1,553.11
Housing bubble (10/11/2007) intraday high 1,576.09

The S&P 500 is presently trading at 1,464.79 on a QE3-fueled uptrend; only 85 points to the 1,550-level. Maybe this time it's different...hmm.


Let's enjoy the upside while it lasts. COMEX silver remains above $35 per ounce at $35.1. It should go a lot higher if gold keeps its mojo. COMEX copper is trading at a respectable $3.7845 per pound.

Moly prices fell a bit this week on the spot and futures markets. Western moly slipped to $11.65-$11.85 per pound from last week's $11.75-12.05 spread. The LME moly 3-month seller's contract has again fallen below the $11-level last week to $10.89 per pound ($24,000 per metric ton).

General Moly (GMO) is up 1.90% today at $3.22 per share.

Here's the Plan

Where do gold, silver and copper prices go from here? Checkout my latest Kitco News article, Copper & Gold - The QE3 Gordian Knot , and today's input to the Kitco weekly gold survey below.

Enjoy another cup of Raine's delicious Red Label TGIF 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, $1,800 per ounce target.

Q.Why?

A. The broader markets and gold continue to get a boost from the Federal Reserve’s new QE3 program and recent monetary easing policies in Europe, China and now Japan.

Two measures are noteworthy. The S&P Volatility Index or “VIX” reversed the day of Fed Chairman Ben Bernanke’s speech in Jackson Hole Aug. 31 and has trended down to levels not seen since mid-2007. This indicates that the combined actions of central banks have reduced the “fear level” in equity markets. Secondly, the gold-to-S&P 500 ratio was rising before the Bernanke Speech and has since stabilized in the 1.21 to 1.22 range - gold was gaining relative value and is now running neck and neck with the broader market.

The expectation is therefore for the VIX to remain at low levels and the broader markets and gold to trend higher -  S&P 500 is likely to test the Oct. 2007 highs; and gold, to challenge the $2,000 per ounce-level.

My target of $1,800 per ounce for next week is a positive bias above historical trajectory BM-1 which suggests only $1,764 per ounce by next Friday (Ref 5)

For $1,800 per ounce gold we can expect to see silver in a range of $31.9-$35.6 per ounce (with a positive bias above the range mean); and copper in a range of $3.69-$3.92 per pound.

Oil markets have proved a harbinger for market direction and gold price since early May (Ref 1 ). The recent gold highs confirm my ongoing oil/gold volatility thesis:

In the last five years, six-out-of-six oil/gold volatility super-spikes have coincided with the start of rallies that resulted in gold multi-month highs or new all-time records (Ref 5).
Presently at a 6-month high, gold is still likely to score a new gold record in the next 3 months. The present 3-month relative price volatility oil with respect to gold is presently in decline from a super-spike of 4.50X on July 13. If this decline reverses the gold highs may be in for the year; if it approaches parity (i.e. 1.0X or oil and gold price volatility are equal), a new record is likely. This morning the relative volatility is 1.40X and falling; a gold record-bullish indication.

We are now past the anticipated central bank announcements and actions for September. Expectations of monetary easing in the U.S, China and Europe 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 the next leg up to new record levels.

The Brent-WTI spread in crude oil futures remains high at $17.7 per barrel with a peak of $20.8 on Aug. 13. The wide spread reflects the current tensions in the Middle East and looser monetary policies. The present conflagration in the Middle East and North Africa could cause this spread to return to $20+ per barrel levels in the coming weeks.

Gold value relative to oil, copper and silver is heading back toward the key-100-level (bullish for new gold records, Ref 2 ). Gold value relative to the S&P 500 is steady and up 7% since mid-August, a bullish sign for the yellow metal.

Background Notes:

  1. My $1,800 per ounce target is biased above a projection based on historical trajectories following gold/oil supper-spikes, the most recent occurring July 13. The Sept. 13 intraday low becomes price support at $1,720.0 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 now greater than 0.5 so a similar technique is used to predict the price range for copper.
  3. My Gold Value Index© (GVI) equals 97.78 this morning which is 11.1% below the Oct. 4 high of 109.97 and 4.8% below the peak of 102.74 set on June 1. Today gold value is above its 1-month moving average of 96.32; 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 471.48 pounds per ounce and slightly above its 3-month moving average of 471.20; trending below this average towards the 400 pounds per ounce level would be a bullish indication for the red metal (Ref 6).  The 1-month gold-to-copper ratio stability is low at 1.57%. (1-month rolling correlation is +0.96; 3-month is +0.88). 3-month relative volatility is 0.99X gold and price sensitivity (beta) is +0.87
  5. The gold-to-silver ratio (GSR) is only slightly below its historical norm at 50.835; the 3-month rolling correlation is +0.99, relative volatility is 2.35X gold and price sensitivity (beta) is +2.33. The GSR has bullishly dropped below its 3-month average of 56.17. The 1-month gold-to-silver ratio stability has dropped to 2.77% (<3 convergence="convergence" indicating="indicating" ratio="ratio" span="span">
Ref 3: The $2,000 Holy Grail - Is Gold on Track? (Kitco News, 8/06/2012)

Ref 5: Glad of His Gold Gifts, Six-for-Six (Kitco News, 9/4/2012)
Ref 6: Copper and Gold - The QE3 Gordian Knot (Kitco News, 9/17/2012)


Friday's Market Roundup


Mining Report

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

Barrick (ABX) $42.73 up 0.64%
Newmont (NEM) $56.71 up 0.16%
McEwen Mining (MUX) $4.70 down 0.42%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.22 up 1.58%
Thompson Creek (TC) $3.48 up 1.16%
Freeport-McMoRan (FCX) $40.86 down 0.17% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.40 unchanged

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

ArcelorMittal (MT) $16.04 down 0.56% - global steel producer
POSCO (PKX) $84.99 up 0.71% - 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 above-par at 215.63, down from last week's 221.36 and above the 1-month moving average of 141.86. The 1-month average is now bullishly above the key 100-level.


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 $14.1/oz at $1,784.3/oz (December contract, most active)

COMEX silver is up $0.418 at $35.100/oz (December contract, most active)

The gold-to-silver-ratio (Au:Ag) is 50.835 oz/oz

Silver 1-month CRS© is 2.77% (convergent); strong stability divergence has reversed (Ag overall bullish, gaining on gold)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 97.78, up from last week's 94.72 and above its 1-month average of 96.32. 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 $1,524.8/oz which is $259.5/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 $0.0255/lb at $3.7845/lb (December contract, most active)

The gold-to-copper ratio is 471.48 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 471.20 (Cu bullish after monetary easing announcements; remains in a bearish Price Domain B)

Copper 1-month CRS© is 1.57% (bullish stability level); ratio stability weak divergence (Cu overall indicators are bullish)

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

Metals Week Average:
US$11.65

As of September 24, 2012
(updated weekly)

Ryan's Notes Average:
US$11.85

As of September 18, 2012
(updated twice weekly)
European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday): [not available]

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

US$10.89/lb (US$24,000/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). Things are heating up again in MENA, this time with wide-spread anti-American demonstrations and acts of violence. Brent is above $110/bbl 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 $93.62
ICE North Sea Brent crude $111.31
Spread (ICE- NYMEX) = $17.69 (last report, $17.53)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $93.93
ICE North Sea Brent crude $109.87
Spread (ICE- NYMEX) = $15.94 (last report, $16.38)

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

The gold-to-WTI is 19.059 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 3.35% (neutral stability level); stability divergence (Brent-WTI spread steadily widened through July; it peaked on Aug. 13 and may widen again)

Prices for 2012 have fallen this week but could rise again, we have $110+ Brent and $90+ NYMEX in December still signalling higher oil prices late fall and winter. A front-month spread between Brent and WTI >$20/bbl is a trouble sign; the present spread is 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 56.1, down from last Friday's 60.0. 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 34.75 points to 13,631.68; the S&P 500 is up 4.53 points at 1,464.79

The Eureka Miner's Grubstake Portfolio is up 0.13% at $1,446,246.75  (what's this?).

Cheers,

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

Friday, September 14, 2012

Gold $1,780 on QE3; Markets, Metals & Miners Soar; The Colonel's Metal Prices for Next Week

In Her Garden by Mariana Titus, Eureka, Nevada

Latest Nevada Gas Prices (click this link)


NEW WEEKLY SCHEDULE

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: Copper and Gold - The QE3 Gordian Knot (09/17/2012)

This morning's...
COMEX Gold price = $1,774.8/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 94.62 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,567.2/oz
COMEX - VAGP = $207.6/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio is trending bullishly below its 3-month average; the gold-to-silver ratio continues to bullishly compress below its average


Morning Miners!

Nothing like a little easy money to boost precious and base metal prices. And the miners? They are on a tear, pardner.

We are now past all of the anticipated central bank announcements for September. The European Central Bank unvieled a new bond-buying plan last week stabilizing Spanish interest rates and yesterday, after their 2-day meeting, the U.S. Federal Reserve rolled out a whopper of a program. Although further monetary easing was expected, few predicted the scope of the third phase of quantitative easing commonly referred to as "QE3."

Christopher Vecchio, a currency analyst at DailyFX, put it all together for us:

In an unprecedented move, never before seen, the Fed announced an open-ended quantitative easing program, in which $40 billion of agency mortgage backed securities (MBS) will be purchased each month until the labor market recovers...

and,

...given the underlying trends in the labor market – structural weakness in manufacturing due to declining competitiveness…as well as the lowest participation rate in the labor force in over three-decades--it’s clear that the conditions that the Fed would need to rescind its end-all be-all QE program are not going to be coming anytime soon: a 'stronger economy that can cause the improvement to be sustained.' (Allen Sykora, Kitco Market Nugget, 9/14/2012)

The U.S. dollar cratered, the embattled euro bounced to a 4-month high and COMEX gold briefly touched $1,780.2 per ounce. U.S. dollar-denominated commodities also got an impressive lift; COMEX copper bounced to $3.8380 per pound, currently trading at a lofty $3.8310. The S&P 500 shot up to 1,474.51 by mid -morning and the DOW hit 13,653 - levels not seen for either index since late 2007!

One can't help but feel good about precious and base metal prices. However, anti-American conflagration is spreading like wildfire in the Middle-East and North Africa taking some of the fun out of central bank largesse. My concern is that QE3 -> "Arab Fall" -> Fiscal Cliff -> second US credit downgrade might well be the remake of QE2 -> "Arab Spring" -> Debt Ceiling Debate -> first US credit downgrade.

You may remember then how QE2-fueled copper prices soared only to crash violently in the fall of 2011. Gold set an all-time high last September as the U.S. and European debt dramas intensified. The broader markets followed with a nose-dive in October. Scary times indeed.

Oh well, let's enjoy the upside while it lasts. COMEX silver continues its stampede almost breaking $35 per ounce as gold and copper reached their peaks. All three metals have pulled back some (see below) but we're still in the midst of a strong Friday rally.

Moly prices stabilized this week on the spot and futures markets. Western moly slipped a bit to $11.75-12.05 per pound from last week's $12.05-12.15 spread. The LME moly 3-month seller's contract which had fallen below the $11-level last week is back up to $11.11 per pound ($24,000 per metric ton).

General Moly announced a number of promotions today and hired a Mt. Hope Mine Manager;

General Moly Announces Executive Appointments (Press release, 9/14/2012)

General Moly (GMO) is up 4.23% today at $3.20 per share.

Finally, gold miners continue ripping. Gold giant Barrick (ABX) is up 2.02% at $42.47 per share; McEwing Mining (MUX, formerly US Gold) is up 3.04% at 4.74 and Timberline resources (TLR) is up 6.03% for the day but unchanged for the week at $0.34.

Where do gold, silver and copper prices go from here? Checkout my latest Kitco News article, Glad of His Gold Gifts, Six-for-Six, and today's input to the weekly Kitco gold survey below.

Have a cup of Raine's delicious Red Label TGIF 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, $1,800 per ounce target.

Q. Why?

A. Yesterday’s more generous-than-expected Q3 rollout by the Federal Reserve has lit a fire under precious and base metal prices. Although there may be some consolidation early next week, there is a good chance that gold will touch the psychologically important $1,800 per ounce level (and high for 2012, $1,800.9). If base metal prices such as copper outpace the yellow metal, the $1,800-level may prove difficult to surpass.

My target for next week is a positive bias above historical trajectory BM-1 which suggests only $1,744 per ounce by next Friday (Ref 5)

Oil markets have proved a harbinger for market direction and gold price since early May (Ref 1 ). The recent gold highs confirm my ongoing oil/gold volatility thesis:

In the last five years, six-out-of-six oil/gold volatility super-spikes have coincided with the start of rallies that resulted in gold multi-month highs or new all-time records (Ref 5).

Presently at a 6-month high, gold is still likely to score a new gold record in the next 5 months. The present 3-month relative price volatility oil with respect to gold is presently in decline from a super-spike of 4.50X on July 13. If this decline reverses the gold highs may be in for the year; if it approaches parity (i.e. 1.0X or oil and gold price volatility are equal), a new record is likely. This morning the relative volatility is 1.94X and falling; a gold record-bullish indication.

We are now past the anticipated central bank announcements and actions for September. Expectations of monetary easing in the U.S, China and Europe 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 the next leg up to new record levels.

The Brent-WTI spread in crude oil futures remains high at $17.5 per barrel with a peak of $20.8 on Aug. 13. The wide spread reflects the current tensions in the Middle East and looser monetary policies. The present conflagration in the Middle East and North Africa could cause this spread to return to $20+ per barrel levels in the coming weeks.

Gold value relative to oil, copper and silver is trending below the key-100-level (bearish for new gold records, Ref 2 ). However, gold value relative to the S&P 500 is steady and up 6% since mid-August, a bullish sign for the yellow metal.

For $1,800 per ounce gold we can expect to see silver in a range of $30.0-$35.4 per ounce (with a positive bias above the range mean); and copper in a range of $3.68-$3.88 per pound

Background Notes:

  1. My $1,800 per ounce target is biased above a historical trajectory following gold/oil supper-spikes, the most recent occurring July 13. The Sept. 13 intraday low becomes price support at $1,720.0 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 now greater than 0.5 so a similar technique is used to predict the price range for copper.
  3. My Gold Value Index© (GVI) equals 94.62 this morning which is 13.4% below the Oct. 4 high of 109.97 and 7.9% below the peak of 102.74 set on June 1. Today gold value is below its 1-month moving average of 96.23; 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 463.27 pounds per ounce and below its 3-month moving average of 471.79; trending below this average towards the 400 pounds per ounce level is a bullish indication for the red metal.  The 1-month gold-to-copper ratio stability is low at 1.32%. (1-month rolling correlation is +0.94; 3-month is +0.81). 3-month relative volatility is 0.96X gold and price sensitivity (beta) is +0.78
  5. The gold-to-silver ratio (GSR) is only slightly above its historical norm at 51.265; the 3-month rolling correlation is +0.98, relative volatility is 2.41X gold and price sensitivity (beta) is +2.37. The GSR has bullishly dropped below its 3-month average of 56.71. The 1-month gold-to-silver ratio stability has elevated to 4.11% indicating strong ratio divergence
Ref 3: The $2,000 Holy Grail - Is Gold on Track? (Kitco News, 8/06/2012)
Ref 5: Glad of His Gold Gifts, Six-for-Six (Kitco News, 9/4/2012)


Friday's Market Roundup


Mining Report

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

Barrick (ABX) $42.47 up 2.02%
Newmont (NEM) $56.99 up 2.78%
McEwen Mining (MUX) $4.74 up 3.04%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.20 up 4.23%
Thompson Creek (TC) $3.87 up 9.94%
Freeport-McMoRan (FCX) $43.27 up 3.54% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.34 up 3.03%

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

ArcelorMittal (MT) $17.51 up 6.83% - global steel producer
POSCO (PKX) $85.57 up 1.93% - 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 above-par at 235.08, up from last week's 166.17 and above the 1-month moving average of 112.91. The 1-month average is now bullishly above the key 100-level.


(a larger, more readable chart can be found at the bottom of this blog page)


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 $2.7/oz at $1,774.8/oz (December contract, most active)

COMEX silver is down $0.158 at $34.620/oz (December contract, most active)

The gold-to-silver-ratio (Au:Ag) is 51.265 oz/oz

Silver 1-month CRS© is 4.11% (divergent); strong stability divergence (Ag overall bullish, gaining on gold)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 94.62, down from last week's 96.44 and below its 1-month average of 96.23. 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 $1,567.2/oz which is $207.6/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 $0.1210/lb at $3.8310/lb (December contract, most active)

The gold-to-copper ratio is 463.27 lb/oz; ratios in excess of 400 lb/oz are indicative of a bearish price domain; the ratio is bullishly below its 3-month moving average of 471.79 (Cu bullish after monetary easing announcements; remains in a bearish Price Domain B)

Copper 1-month CRS© is 1.32% (bullish stability level); ratio stability weak divergence (Cu overall indicators are bullish)

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

Metals Week Average:
US$12.05
As of September 10, 2012
(updated weekly)

Ryan's Notes Average:
US$11.75
As of September 14, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday): [not available]

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

US$11.11/lb (US$24,500/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). Things are heating up again in MENA, this time with wide-spread anti-American demonstrations and acts of violence. Brent is above $115/bbl 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 $99.65
ICE North Sea Brent crude $117.18
Spread (ICE- NYMEX) = $17.53 (last report, $17.94)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $100.26
ICE North Sea Brent crude $116.64
Spread (ICE- NYMEX) = $16.38 (last report, $16.42)

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

The gold-to-WTI is 17.810 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 2.24% (bullish stability level); stability divergence (Brent-WTI spread steadily widened through July; it peaked on Aug. 13 and may widen again)

Prices for 2012 have headed north again, we have $115+ Brent and $100+ 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 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 54.9, up from last Friday's 53.8. 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 60.32 points to 13,600.18; the S&P 500 is up 9.22 points at 1,469.21

The Eureka Miner's Grubstake Portfolio is up 2.50% at $1,466,218.55  (what's this?).

Cheers,

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

Friday, September 7, 2012

Gold $1,745 on Lackluster Jobs Report; The Colonel's Metal Prices for Next Week

In a World Where the ALPI_E LODGE Looks Square and Nothing Else Does, Eureka, Nevada

Latest Nevada Gas Prices (click this link)


NEW WEEKLY SCHEDULE

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 = $1,731.1/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 97.13 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,489.1/oz
COMEX - VAGP = $242.0/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


Morning Miners!

It is all how you look at things. In Mariana's wide-angle headline photo of Main Street, the Alpi_e Lodge looks square and nothing else does. Eurekans and even casual tourists know the opposite is true - the former Alpine Lodge precariously tilts toward the Eureka Cafe; one heavy snow storm away from dropping over for dinner. Like the missing letter in its old sign, something is just not right about that teetering building.

The same can be said for markets that explode to the upside on news of deteriorating employment conditions in the United States. Nearly every global stock market that was open for trading went green after the monthly release of the U.S. employment report. U.S. job growth slowed in August, a sign of a stumbling recovery; only 96,000 nonfarm jobs added versus an expectation of 125,000. The unemployment rate, obtained by a separate survey of U.S. households, fell to 8.1% from 8.3%, but mainly because more people are dropping out of the work force.


This market exuberance is propelled by a lackluster jobs reports that is perceived to be the gateway for further monetary easing by the Federal Reserve. COMEX gold bounced to $1,745.4 per ounce (10:50AM EDT) – a nearly $50 pop from minutes preceding the report release early this morning. The S&P 500 briefly touched 1,437.39 (9:46AM EDT), levels not seen since May, 2008. Expectations of further monetary easing in the U.S, China and Europe have provided the impetus for the recent equity and gold rallies. The European Central Bank announced a new bond-buying plan Thursday; the FOMC will meet next week. China is expected to announce more programs to stimulate their flagging growth. Lots of easy money to support this teetering lodge of global economies - it is all how you look at things.

If gold is running, COMEX silver is in a full gallop touching $33.740 per ounce at the same time gold hit its intraday peak. The red metal joined the party too; COMEX copper reached a 4-month high at $3.6525 per pound about one hour after the precious metal tops. Copper price has balanced between falling global demand and supply restriction but easy money lifts all boats made of metal.

Moly prices made another move up this week on the spot market. The Western moly oxide price range trended up to $12.05-12.15 per pound from last week's $11.20-$11.75 spread. Troubling though is the LME moly 3-month seller's contract which has fallen all the way to a sub-$11 level  at $10.88 per pound ($24,000 per metric ton).

One step closer to mine construction, General Moly announced completion of their Preliminary Final Environmental Impact Statement (PFEIS) for the Mt. Hope project:

General Moly Announces Completion of Preliminary FEIS (Press release, 9/5/2012)

General Moly (GMO) is up 1.47% tody at $2.77 per share.

Finally, gold miners are on a tear. Gold giant Barrick (ABX) is up 3.38% at $40.32 per share; McEwing Mining (MUX, formerly US Gold) is up 4.15% at 4.27 and Timberline resources (TLR) is up 6.25% for the day but unchanged for the week at $0.34.

Where do gold, silver and copper prices go from here? Checkout my latest Kitco News article, Glad of His Gold Gifts, Six-for-Six, and input to the weekly Kitco gold survey below.

Have a cup of Raine's delicious Red Label TGIF 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. Down, $1,725 per ounce target.

Q.      Why?

The lackluster U.S. jobs report this morning was perceived as a gateway for further monetary easing by the Federal Reserve bouncing COMEX gold to $1,745.4 per ounce (10:50AM EDT) – a nearly $50 pop from minutes preceding the report release. This may prove too far, too fast and some consolidation is likely next week. Presently gold price is on historical trajectory BM-1 which suggests a $1,725 per ounce target by next Friday (Ref 5)

Oil markets have proved a harbinger for market direction and gold price since early May (Ref 1 ). The recent gold highs confirm my ongoing oil/gold volatility thesis:

In the last five years, six-out-of-six oil/gold volatility super-spikes have coincided with the start of rallies that resulted in gold multi-month highs or new all-time records (Ref 5).

A significant new high or gold record remains likely in the next 5 months. The 3-month relative price volatility oil with respect to gold is presently in decline from a super-spike of 4.50X on July 13. If this decline reverses the gold highs may be in for the year; if it approaches parity (i.e. 1.0X or oil and gold price volatility are equal), a new record is likely.

September is a super bowl of central bank announcements and actions. The European Central Bank announced of a fresh bond-buying plan Thursday; the FOMC will meet next week. 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 the next leg up to new record levels.

The Brent-WTI spread in crude oil futures remains high at $17.9 per barrel but appears to have peaked on Aug. 13. The wide spread reflects the current tensions in the Middle East and expectations of looser monetary policies

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 6% since mid-August, another bullish sign for the yellow metal.

For $1,725 per ounce gold we can expect to see silver in a range of $29.0-$34.0 per ounce; and copper in a range of $3.55-$3.69 per pound

Background Notes:

  1. My $1,725 per ounce target is a projection based on historical trajectories following gold/oil supper-spikes, the most recent occurring July 13. The August intraday peak becomes price support at $1,679.3 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 now greater than 0.5 so a similar technique is used to predict the price range for copper.
  3. My Gold Value Index© (GVI) equals 97.13 this morning which is 11.7% below the Oct. 4 high of 109.97 and 5.5% below the peak of 102.74 set on June 1. Today gold value is above its 1-month moving average of 96.70; 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 481.80 pounds per ounce and above its 3-month moving average of 472.94; remaining above this average and the 400 pounds per ounce level is a bearish indication for the red metal although prices will likely move higher with further global monetary easing.  The 1-month gold-to-copper ratio stability remains extremely low at 95%. (1-month rolling correlation is +0.91; 3-month is +0.56). 3-month relative volatility is 0.83X gold and price sensitivity (beta) is +0.47
  5. The gold-to-silver ratio (GSR) is only slightly above its historical norm at 51.868; the 3-month rolling correlation is +0.97, relative volatility is 2.48X gold and price sensitivity (beta) is +2.39. The GSR has bullishly dropped below its 3-month average of 57.03. The 1-month gold-to-silver ratio stability has elevated to 3.98% indicating ratio divergence
Ref 3: The $2,000 Holy Grail - Is Gold on Track? (Kitco News, 8/06/2012)
Ref 5: Glad of His Gold Gifts, Six-for-Six (Kitco News, 9/4/2012)

Friday's Market Roundup


Mining Report

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

Barrick (ABX) $40.32 up 3.38%
Newmont (NEM) $52.07 up 2.30%
McEwen Mining (MUX) $4.27 up 4.15%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.77 up 1.47%
Thompson Creek (TC) $3.19 up 9.62%
Freeport-McMoRan (FCX) $39.40 up 8.42% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.34 up 6.25%

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

ArcelorMittal (MT) $15.94 up 6.48% - global steel producer
POSCO (PKX) $81.80 up 1.98% - 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 above-par at 136.34, up from last week's 94.21 and above the 1-month moving average of 90.11. The 1-month average is below the key 100-level (bearish condition, we're witnessing 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 $25.5/oz at $1,731.1/oz (December contract, most active)

COMEX silver is up $0.701 at $33.375/oz (December contract, most active)

The gold-to-silver-ratio (Au:Ag) is 51.868 oz/oz

Silver 1-month CRS© is 3.98% (divergent); strong stability divergence (Ag overall bullish, gaining on gold)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 97.13, up from last week's 96.96 and above its 1-month average of 96.70. 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 $1,489.1/oz which is $242.0/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 $0.0765/lb at $3.5930/lb (December contract, most active)

The gold-to-copper ratio is 481.80 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 472.94 (a Cu bearish indication, prices rising on monetary easing expectations; remains in a bearish Price Domain B)

Copper 1-month CRS© is 0.95% (bullish stability level); ratio stability weak convergence (Cu overall indicators are neutral to bullish)

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

Metals Week Average:
US$12.05
As of September 10, 2012
(updated weekly)

Ryan's Notes Average:
US$12.15
As of September 4, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday): [not available]

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

US$10.88/lb (US$24,000/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 $95.23
ICE North Sea Brent crude $113.17
Spread (ICE- NYMEX) = $17.94 (last report, $17.72)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $95.91
ICE North Sea Brent crude $112.33
Spread (ICE- NYMEX) = $16.42 (last report, $16.28)

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

The gold-to-WTI is 18.178 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 1.95% (bullish stability level); weak stability divergence (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 56.4, down from last Friday's 64.30. 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 5.90 points to 13,286.10; the S&P 500 is up 4.46 points at 1,436.58

The Eureka Miner's Grubstake Portfolio is up 3.93% at $1,364,709.35  (what's this?).

Cheers,

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