"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, 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)


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:
As of September 10, 2012
(updated weekly)

Ryan's Notes Average:
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?).


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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