"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 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

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