"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 21, 2012

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

Command Post Eureka, Nevada

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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

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