"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 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)


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:

As of October 1, 2012
(updated weekly)

Ryan's Notes Average:

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?).


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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