"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, October 26, 2012

Gold Steady, Watch Copper; The Colonel's Gold, Silver & Copper Prices for Next Week

Those Who Lived Here Before, Ely, White Pine County, 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 - At the Crossroads (10/15/2012)


This morning's...
COMEX Gold price = $1,714.5/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 101.47 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,411.8/oz
COMEX - VAGP = $302.7/oz; gold is trading at a  premium to key commodities.


Morning Miners!

It has been a rough week for gold. Last Friday the ole Colonel warned that closing below $1,720 per ounce could start a fall down the mineshaft for the yellow metal. Wednesday, intraday prices dipped below the $1,700-level briefly plumbing $1,698.7 per ounce before rebounding northward. In the wee hours today there was another attempt to break below the key-psychological level but the bears failed at $1,701.4 per ounce.

I submitted my input to the Kitco Weekly Gold Survey yesterday evening and felt that $1,700 per ounce should hold as detailed below in the report. Presently COMEX gold is trading up $1.5 at $1,714.5 per ounce - let's hope we're forming a bottom.

Gold is struggling to find reasons for resuming its rally. Although Indian gold demand is on the mend with the upcoming Diwali festival season, cross-currents caused by the coming U.S. election and fiscal cliff, European recession and concerns that the Chinese economy may have more downside have left gold traders and investors perplexed.

Copper is on its way to having its biggest weekly fall since early June closing yesterday at $7,815 per tonne ($3.5448 per pound) on the London Metal Exchange (LME). COMEX copper is presently trading at $3.5500 per pound. The Colonel believes there should be some upside from these levels if the Chinese economy has indeed bottomed and their large infrastructure projects start rolling. There is presently a high price correlation between the the red and yellow metal (> +0.9 1-month & 3-month rolling correlations) - as gold goes so goes copper. I have a hunch that future copper price action may shed some light on gold's next move and am working on a Kitco commentary for next week to explain why. Stay tuned.

Gold mining stocks are still hanging tough on a weekly basis given the downward pressures on gold price. Here's how Barrick (ABX), McEwing Mining (MUX, formerly US Gold) and Timberline Resources (TLR) compare to last Friday's closing prices:

ABX $38.78 (10/19) to $39.46 (today, AM) up 1.8%
MUX $4.61 (10/19) to  $4.57 (today, AM) down 0.9%
TLR $0.44 (10/19) to  $0.43 (today, AM) down 2.3%

General Moly (GMO) share price has fallen into a range of $3.50 to $3.69 this week following the Oct. 17 moonshot to $4.14. GMO is presently trading at $3.53 per share only down 1.4% from last Friday's closing price of $3.58. I'm betting the Record of Decision announcement and securing the next tranche of financing will take GMO higher from these levels, something north of $4 per share.

Moly prices have moved mostly sideways this week on the spot market and remain unchanged in the LME futures market. Western moly prices ranged $10.975-$11.05 per pound compared to last week's $10.90-$11.00 spread. The LME moly 3-month seller's contract is $11.34 per pound ($25,000 per metric ton). Presently spot and futures prices are bullishly hovering the $11-level. Like gold, moly is looking for a reason to move higher.

The mining sector overall is still showing technical signs for heading lower after its early August rally to mid-September high marks.

Where do gold, silver and copper prices go from here? Checkout my latest Kitco News article, $1,900 Gold - At the Crossroads, 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 input to the Kitco Weekly Gold Survey:

10/25/2012 (Thursday night, closing numbers)

1.      Where do you see gold’s price headed next week, up, down or unchanged?

Down, $1,700 per ounce target.

2.      Why?

Although the U.S. dollar denominated price of gold has fallen, this week witnessed a rise in gold value relative to key commodities and recovery relative to the broader markets. I believe it will hold its ground at the psychologically important $1,700-level.

Gold needs a new catalyst to move higher. The oil driven yellow metal rally that began in July reached exhaustion Oct.15 with an affirmative reversal of the relative volatility of oil price to gold price. Before then, a super-spike in oil/gold volatility on July 13 had brought gold from $1,592.0 per ounce to the eight-month high of $1,798.1 on Oct. 5 (Ref 1 & Ref 8). There are early signs that copper may be the next harbinger of market direction for gold.

My target price of $1,700 per ounce for next week is a negative bias below the mean of the Oct. 24 intraday low ($1,698.7) and this week’s intraday high (1,718.9, Oct. 25).
For $1,700 per ounce gold we can expect to see silver in a range of $31.1-$33.4 per ounce; and copper in a range of $3.51-$3.62 per pound.

This week, the value of gold relative to global commodities copper and oil and companion metal silver rose above the key 100-level and 6-year trend as measured by the Eureka Miner’s Gold Value Index (GVI, Ref 2).

The ratio of gold to the S&P 500 (AUSP) has also recovered from last Friday’s retreat. The AUSP is less than 2% below its peak on Oct. 12 (1.2130 versus 1.2328) and nearly 7% above its mid-August low (1.2130 versus 1.1374).

Gold price is looking for a new reason to stop its trend lower and move higher. Negative market anticipation of the U.S. “fiscal cliff” or conflict escalation in Middle East could deliver a reversal to the upside. The near- and long-term prospects for gold remain bullish.

The Brent-WTI spread in crude oil futures remains elevated at $22.44 per barrel and a 26.1% premium. Troubles in the Middle East and North Africa pushed the spread to $20+ per barrel levels but now a portion of that spread can be attributed to over-supply in North America.

Background Notes:

  1. My target price of $1,700 per ounce for next week is a negative bias below the geometric mean of the Oct. 24 intraday low ($1,698.7) and this week’s intraday high (1,718.9, Oct. 25).
  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 101.29 at Thursday’s close which is 7.9% below the Oct. 4 high of 109.97 and 2.2% below the peak of 103.61 set on June 25. Today gold value is above its 1-month moving average of 99.28; 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 480.56 pounds per ounce and above its 3-month moving average of 475.03; 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 remains exceptionally low at 0.76%. (1-month rolling correlation is +0.94; 3-month is +0.97). 3-month relative volatility is 1.17X gold and price sensitivity (beta) is +1.14
  5. The gold-to-silver ratio (GSR) is above its historical norm at 53.326; the 3-month rolling correlation is +0.99, relative volatility is 2.18X gold and price sensitivity (beta) is +2.16. The GSR is close to its 3-month average of 53.831. The 1-month gold-to-silver ratio stability is a low 1.75%.
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)
Ref 7: $1,900 Gold - Though the Looking Glass (Kitco News, 10/1/2012)
Ref 8: $1,900 Gold - At the Crossroads (Kitco News, 10/15/2012)

Friday's Market Roundup


Mining Report

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

Barrick (ABX) $39.46 down 0.08%
Newmont (NEM) $53.41 down 0.28%
McEwen Mining (MUX) $4.57 unchanged; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.53 down 1.40%
Thompson Creek (TC) $2.66 down 0.75%
Freeport-McMoRan (FCX) $39.03 down 0.38% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.43 unchanged

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

ArcelorMittal (MT) $15.56 up 0.13% - global steel producer
POSCO (PKX) $78.31 down 0.01% - 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 109.20, down from last week's 122.26 and below the 1-month moving average of 135.48. The 1-month average remains bullishly above the key 100-level but trending bearish.

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 $1.5/oz at $1,714.5/oz (December contract, most active)

COMEX silver is down $0.132/oz at $32.210/oz (December contract, most active)

The gold-to-silver-ratio (Au:Ag) is 53.229 oz/oz

Silver 1-month CRS© is 1.78% (convergent); stability divergence has reversed (Ag stable with gold)

The Eureka Miner’s Gold Value Index© (GVI) is above-par at 101.47, up from last week's 99.24 and above its 1-month average of 99.39. 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 103.61 set on June 25, 2012.

The Value Adjusted Gold Price© (VAGP) is $1,411.8/oz which is $302.7/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 down $0.0005/lb at $3.5500/lb (December contract, most active)

The gold-to-copper ratio is 482.96 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 475.20 (Cu neutral-bullish after monetary easing announcements; remains in a bearish Price Domain B)

Copper 1-month CRS© is 0.86% (bullish stability level); ratio stability convergence (Cu overall indicators are neutral-bullish)

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

Metals Week Average:
US$11.05

As of October 29, 2012
(updated weekly)

Ryan's Notes Average:
US$10.975

As of October 23, 2012
(updated twice weekly)

The LME futures 3-month seller's contract:

US$11.34/lb (US$25,000/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 stabilizing some in MENA, as anti-American demonstrations and acts of violence subside; the Iran standoff on nuclear weapon capability continues. Brent is thankfully below $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 $86.03
ICE North Sea Brent crude $109.26
Spread (ICE- NYMEX) = $23.23 (last report, $19.83 )

Here are the February contracts* with a narrower spread:

NYMEX light sweet crude $87.17
ICE North Sea Brent crude $107.54
Spread (ICE- NYMEX) = $20.37 (last report, $18.17)

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

The gold-to-WTI is 19.924 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 1.89% (bullish stability level); stability slowly divergent (bearish)

Returning to supply/demand fundamentals, prices for 2012 are falling on concerns about global demand; we have $105+ Brent and $85+ NYMEX in February signalling moderating oil prices for 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, however, some of this can be attributed to over-supply condition in North America.


Daily Debt Crisis Watch

July 26, 2011 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 76.4, up from last Friday's 68.9. 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 34.13 points to 13,069.55; the S&P 500 is down 6.09 points at 1,406.88

The Eureka Miner's Grubstake Portfolio is down 0.15% at $1,386,724.79  (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, October 19, 2012

Gold Takes a Plunge; The Colonel's Gold, Silver & Copper Prices for Next Week

View from Devil's Gate, 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 - At the Crossroads (10/15/2012)

*** SPECIAL NOTE***

COMEX gold prices took another leg down after I submitted today's report to Kitco News, Montreal and calculated the numbers presented below. COMEX dipped below the key-$1,720.0 per ounce level to $1,716.0 per ounce at 11:55 AM (EDT) before recovering to $1,720.1. The conclusions of my report below remain unchanged if we can close above $1,720 today; if not, watch out below! My $1,730 per ounce target price for next week is now an "up" as opposed to "down" prediction.

This morning's...
COMEX Gold price = $1,735.9/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 97.94 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,480.9/oz
COMEX - VAGP = $255.0/oz; gold is trading at a  premium to key commodities.



Morning Miners!

Some Fridays you can't type fast enough to keep abreast of the markets - this morning is one of those times. As mentioned in the above "Special Note," gold prices were at one level when I did all my calculations for the week and then tripped further down the shaft. So far, we've worked our way back up to the $1,720 level but the nose dive to $1,716 per ounce mid-day market time was scary.

I've just rerun the mining stock numbers (9:43 AM PDT)  and it's a pretty ugly day overall for equities as well as the metals & miners. The DOW has shaved 162 points to 13,386.60 and the S&P is down 1.3% to 1,438.41 - ouch!

The broad stock-market decline comes with growing worries about earnings and Europe among investors. Lackluster earnings of large multinational companies like General Electric (GE) and McDonalds (MCD) are the result of a global story that turns more pessimistic. An ambiguous end to yet another European Union Summit together with Spain's reluctance to ask for help drove the euro down to the 1.30-level.

Why do we care? As the euro goes, so goes gold - the yellow metal's correlation with that currency for many months. A falling euro and rising U.S. dollar also weaken dollar-denominated commodities such as oil and copper. I have contended that gold's peculiar relation to global commodity oil has been the underlying force behind the gold rally since mid-July (see my input to Kitco News below). That relation went up in flames this Monday removing an important support for current gold price and hopes for higher-highs (at least in the short-term).

There were some bright spots this week as General Moly (GMO) spiked to $4.14 per share on an intraday basis Wednesday, the third day of a price rally that saw volumes above 500,000 shares for each day. More than a few folks are putting their money down that Mt. Hope mine construction will indeed begin next spring. The ole Colonel picked up a few more shares too - please do your own homework, pardner.

GMO is presently trading at $3.61 per share up 10.4% from last Friday's closing price of $3.27, not bad for a lousy day in the stock market!.

Moly prices halted their downward trend this week on the spot market and moved up further in the LME futures market. Western moly rose to $10.90-$11.00 per pound from last week's $10.850-$10.90 spread. The LME moly 3-month seller's contract rose up to $11.34 per pound ($25,000 per metric ton). Presently spot and futures prices are bullishly hovering the $11-level.

Gold mining stocks are doing amazingly well on a weekly basis given the downdraft in gold price. Here's how Barrick (ABX), McEwing Mining (MUX, formerly US Gold) and Timberline Resources (TLR) compare to last Friday's closing prices

ABX $39.02 (10/12) to $38.42 (today, AM) down 1.5%
MUX $4.52 (10/12) to  $4.53 (today, AM) up 0.2%
TLR $0.460 (10/12) to  $0.440 (today, AM) down 4.3%

The mining sector overall is still showing technical signs for heading lower after its early August rally to mid-September high marks.

Copper has ominously slipped below $8,000 per metric ton ($3.63 per pound) on the London Metal Exchange (LME) today. I predict it will recover to a price range of $3.64 to $3.72 per pound if gold can crawl its way back to $1,730 per ounce. There is presently a high price correlation between the the red and yellow metal (>0.8).


Where do gold, silver and copper prices go from here? Checkout my latest Kitco News article, $1,900 Gold - At the Crossroads, 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. Down, $1,730 per ounce target [now "up", see special note above].

Q. Why?

A. For the short-term gold is in a very precarious position technically. It is critical for the yellow metal to stay above the Sept. 13 COMEX intraday low of $1,720.0 per ounce or there could be considerably more downside. From my view, the oil driven rally that began in July reached exhaustion Monday with a declarative reversal of the relative volatility of oil price to gold price. Before then a super-spike in oil/gold volatility on July 13 had brought gold from $1,592.0 per ounce to the eight-month high of $1,798.1 on Oct. 5 (Ref 1 & Ref 8).

My target price of $1,730 per ounce for next week is a negative bias below the trading range mean defined by the Sept. 13 intraday low ($1,720.0) and this week’s intraday high (1,755.0, Oct. 17).

For $1,730 per ounce gold we can expect to see silver in a range of $32.1-$33.9 per ounce; and copper in a range of $3.64-$3.72 per pound.

This week, the value of gold relative to the broader markets as well as global commodities copper and oil also fell. The ratio of gold to the S&P 500 (AUSP) has retreated to where it was when Fed Chairman Ben Bernanke gave his speech in Jackson Hole on Aug. 31 (1.1980 versus 1.1975). The AUSP peaked nearly 3% higher last Friday (1.2318).

Gold value relative to oil, copper and silver is still near the key-100-level but has bearishly fallen below its 1-month moving average and the 6-year trend line (Ref 2). U.S. dollar denominated price has also fallen below its 1-month average.

Gold price is looking for a new reason to stop its decline and move higher. Negative market anticipation of the U.S. “fiscal cliff” or conflict escalation in Middle East could deliver a reversal to the upside. The near- and long-term prospects for gold remain bullish.

The Brent-WTI spread in crude oil futures remains elevated at $19.83 per barrel and a 21.4% premium but is off its peaks when troubles in the Middle East and North Africa pushed the spread to $20+ per barrel levels. Both the the 1-month and 3-month correlations of oil and gold price are near zero (-0.12 & +0.04)

Background Notes:
  1. My target price of $1,730 per ounce for next week is a negative bias below the geometric mean defined by the Sept. 13 intraday low ($1,720.0) and this week’s intraday high (1,755.0, Oct. 17).
  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 97.94 this morning which is 10.9% below the Oct. 4 high of 109.97 and 4.7% below the peak of 102.74 set on June 1. Today gold value is below its 1-month moving average of 98.79; 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 471.07 pounds per ounce and below its 3-month moving average of 474.59; 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 an exceptionally low at 0.51%. (1-month rolling correlation is +0.84; 3-month is +0.98). 3-month relative volatility is 1.15X gold and price sensitivity (beta) is +1.12
  5. The gold-to-silver ratio (GSR) is above its historical norm at 53.412; the 3-month rolling correlation is +0.99, relative volatility is 2.23X gold and price sensitivity (beta) is +2.21. The GSR is remains below its 3-month average of 54.161. The 1-month gold-to-silver ratio stability is a low 1.34%.

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)
Ref 7: $1,900 Gold - Though the Looking Glass (Kitco News, 10/1/2012)
Ref 8: $1,900 Gold - At the Crossroads (Kitco News, 10/15/2012)

Friday's Market Roundup


Mining Report

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

Barrick (ABX) $38.42 down 1.28%
Newmont (NEM) $54.35 down 1.13%
McEwen Mining (MUX) $4.53 down 3.00%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.61 down 2.70%
Thompson Creek (TC) $2.83 down 5.03%
Freeport-McMoRan (FCX) $41.29 down 2.69% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.44 down 4.35%

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

ArcelorMittal (MT) $16.32 down 1.39% - global steel producer
POSCO (PKX) $79.99 down 1.36% - 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 143.39, up from last week's 125.97 and below the 1-month moving average of 153.34. 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...[see SPECIAL NOTE above, these are early morning prices]

COMEX gold is down $8.8/oz at $1,735.9/oz (December contract, most active)

COMEX silver is down $0.368/oz at $32.500/oz (December contract, most active)

The gold-to-silver-ratio (Au:Ag) is 53.412 oz/oz

Silver 1-month CRS© is 1.34% (convergent); stability divergence has reversed (Ag stable with gold)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 97.94, down from last week's 98.82 and below its 1-month average of 98.79. 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 $1,480.9/oz which is $255.0/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 down $0.0255/lb at $3.7260/lb (December contract, most active) - [see SPECIAL NOTE above, this is an early morning price, presently $3.6390 per pound]

The gold-to-copper ratio is 471.07 lb/oz; ratios in excess of 400 lb/oz are indicative of a bearish price domain; the ratio is below its 3-month moving average of 474.59 (Cu neutral-bullish after monetary easing announcements; remains in a bearish Price Domain B)

Copper 1-month CRS© is 51% (bullish stability level); ratio stability convergence (Cu overall indicators are neutral-bearish)

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

Metals Week Average:
US$10.90

As of October 15, 2012
(updated weekly)

Ryan's Notes Average:
US$11.00

As of October 16, 2012
(updated twice weekly)
The LME futures 3-month seller's contract:

US$11.34/lb (US$25,000/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 $92.86
ICE North Sea Brent crude $112.69
Spread (ICE- NYMEX) = $19.83 (last report, $21.81 )

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $93.79
ICE North Sea Brent crude $111.96
Spread (ICE- NYMEX) = $18.17 (last report, $19.52)

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

The gold-to-WTI is 18.694 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 1.76% (bullish stability level); stability improving (Brent-WTI spread is narrowing again below $20 per barrel)

Defying supply/demand fundamentals, prices for 2012 are on the rise again; we have $110+ Brent and $90+ NYMEX in January signalling higher oil prices for late fall and winter. A front-month spread between Brent and WTI >$20/bbl is a trouble sign; the present spread is below that warning level.

Daily Debt Crisis Watch

July 26, 2011 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, down from last Friday's 61.6. 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 162.34 points to 13,386.60; the S&P 500 is down 18.93 points at 1,438.41

The Eureka Miner's Grubstake Portfolio is down 2.29% at $1,404,424.79  (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, October 12, 2012

Mt. Hope Inches Closer; The Colonel's Gold, Silver & Copper Prices for Next Week

Faces 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: $1,900 Gold - At the Crossroads (10/15/2012)

This morning's...
COMEX Gold price = $1,767.7/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 98.68 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,496.8/oz
COMEX - VAGP = $270.9/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio is above its 3-month average; the gold-to-silver ratio continues to bullishly compress below its average


Morning Miners!

Mt Hope is inching closer. No, it's not plate tectonic shift although the slow pace of the Mt. Hope molybdenum mine permitting process may remind some of geological time. The real motion is in calendar time of only a few months before General Moly is expected to start mine construction.

A faithful follower of this report e-mailed me a link that shows the process is truly drawing to a close. Here is the long awaited posting to the Federal Register:

Notice of Availability of the Final Environmental Impact Statement for the Mount Hope Project, Eureka County, NE (Federal Register, Oct. 12, 2012)

General Moly issued a press release Monday in anticipation of today's posting:

General Moly Announces That the Notice of Availability for the Mt. Hope Final Environmental Impact Statement Has Been Processed and is Scheduled for Publication in the Federal Register
(Press Release, Oct.8, 2012)

Bruce D. Hansen, Chief Executive Officer of General Moly, said, "We are pleased to announce this next important step in the Mt. Hope permitting process and appreciate the diligence of the BLM in finalizing the EIS and processing the NOA. We continue to expect receipt of a favorable Record of Decision (RoD) as well as completion of the remaining major Nevada State permits by the end of 2012, and to commence construction shortly thereafter." 

Start your engines drivers! 

General Moly (GMO) is one of the few mining stocks in the green today at $3.28 per share although 2.4% down from last Friday.

Moly prices continued their slow trend lower this week on the spot market but moved up in the LME futures market. Western moly slipped to $10.850-10.90 per pound from last week's $11.025-$11.20 spread. The LME moly 3-month seller's contract nudged back up to $10.89 per pound ($24,000 per metric ton). Presently spot and futures are all bearishly below the $11-level.


Gold mining stocks have softened as gold finds itself trapped in a trading range below $1,800 per ounce (see my input to the weekly Kitco Gold report below). Here's how Barrick (ABX), McEwing Mining (MUX, formerly US Gold) and Timberline Resources (TLR) compare to last Friday's share prices

ABX $41.90 (10/5) to $39.36 (today) down 6.0%
MUX $4.78 (10/5) to  $4.58 (today) down 4.2%
TLR $0.450 (10/5) to  $0.440 (today) down 2.2%

The mining sector overall is showing technical signs for heading lower after its early August rally to mid-September high marks.


COMEX gold is presently $1,767.7 per ounce down 0.7% from last Friday's close. COMEX silver is trading at $33.820 per ounce or down 2.2% for the week; COMEX copper is $3.7260 per pound, down 1.1% .


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!

Media Coverage of Northern Nevada Gold Mining

If you missed it last week...

Eric Pastorino sent me a terrific link to a series of stories, photos and video on Barrick and the Nevada mining industry that appeared in the Las Vegas Review-Journal Sept. 23. It has been described as by its compilers as "...the most detailed media coverage of the industry ever published in Nevada":

Media Coverage of Northern Nevada Gold Mining
 
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, $1,775 per ounce target.

Q. Why?

A. The gold rally that began in July is taking a pause as gold price looks for a new reason to move higher. Monetary easing in the U.S, China and Europe provided the initial impetus for the recent 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.

My target of $1,775 per ounce for next week is a small positive bias above the trading range mean defined by the Sept. 26 intraday low ($1,738.3) and the Oct. intraday high (1,798.1).

The beneficial relation gold has enjoyed with oil since the oil/gold volatility super-spike of July 13 may be running out of steam as the tracking error with historical trajectory BM-1 (Ref 5) starts to diverge. The RMS tracking error with respect to this trajectory is still an acceptable 1.88% but the recent stall in gold price is producing higher error.  If the tracking error exceeds 3%, all bets are off.

For $1,775 per ounce gold we can expect to see silver in a range of $33.4-$34.5 per ounce; and copper in a range of $3.70-$3.81 per pound (both with a neutral bias above their range means).

Oil markets have proved a harbinger for market direction and gold price since early May (Ref 1 ). The early October gold high confirmed my 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 7).

The present 3-month relative price volatility oil with respect to gold has declined below parity from a super-spike of 4.50X on July 13. The decline has slowed significantly; if it reverses the gold highs may be in for the year. This morning the relative volatility is 0.74X. A new impetus for higher prices could put the yellow metal back on track to reach $1,900 per ounce by mid-November (Ref 7).

The Brent-WTI spread in crude oil futures remains alarmingly elevated at $21.8 per barrel and a 23.6% premium. 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 up 8.1% since mid-August, another bullish sign for the yellow metal.

3.      If we write a story on gold’s price outlook may we use your commentary? (We will contact you prior to any publication for verification)

Yes.

Background Notes:

  1. My $1,775 per ounce target is a positive bias above the geometric mean of the Sept. 26 intraday low at $1,738.30 per ounce and the Oct. 4 intraday high of $1,798.1. Primary resistance is the 2012 high of $1,800.90 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 98.68 this morning which is 10.3% below the Oct. 4 high of 109.97 and 4.0% below the peak of 102.74 set on June 1. Today gold value is above its 1-month moving average of 98.20; 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 474.42 pounds per ounce and slightly above its 3-month moving average of 473.78; 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 an exceptionally low at 0.72%. (1-month rolling correlation is +0.66; 3-month is +0.95). 3-month relative volatility is 1.06X gold and price sensitivity (beta) is +1.01
  5. The gold-to-silver ratio (GSR) is above its historical norm at 52.268; the 3-month rolling correlation is +0.99, relative volatility is 2.22X gold and price sensitivity (beta) is +2.20. The GSR is bullishly below its 3-month average of 54.6. The 1-month gold-to-silver ratio stability has dropped an exceptionally low 0.81% indicating ratio convergence.
Ref 3: The $2,000 Holy Grail - Is Gold on Track? (Kitco News, 8/06/2012)
Ref 4: The Next Gold Record - The Quiet before the Storm (Kitco News, 8/20/2012)
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)
Ref 7: $1,900 Gold - Though the Looking Glass (Kitco News, 10/1/2012)

Friday's Market Roundup


Mining Report

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

Barrick (ABX) $39.36 down 1.38%
Newmont (NEM) $55.35 unchanged
McEwen Mining (MUX) $4.58 down 1.29%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.28 up 0.61%
Thompson Creek (TC) $2.71 down 3.21%
Freeport-McMoRan (FCX) $40.30 down 1.10% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.44 down 6.38%

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

ArcelorMittal (MT) $14.80 down 1.20% - global steel producer
POSCO (PKX) $79.62 down 0.40% - 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 147.35, down from last week's 159.21 and below the 1-month moving average of 169.02. 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 $2.9/oz at $1,767.7/oz (December contract, most active)

COMEX silver is down $0.262/oz at $33.820/oz (December contract, most active)

The gold-to-silver-ratio (Au:Ag) is 52.268 oz/oz

Silver 1-month CRS© is 0.81% (convergent); stability divergence has reversed (Ag overall bullish, stable with gold)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 98.68, down from last week's 99.78 and above its 1-month average of 98.20. 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 $1,496.8/oz which is $270.9/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 down $0.0255/lb at $3.7260/lb (December contract, most active)

The gold-to-copper ratio is 474.42 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 473.78 (Cu neutral-bullish after monetary easing announcements; remains in a bearish Price Domain B)

Copper 1-month CRS© is 0.72% (bullish stability level); ratio stability convergence (Cu overall indicators are neutral-to-bullish)

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

Metals Week Average:
US$10.90

As of October 15, 2012
(updated weekly)

Ryan's Notes Average:
US$10.825

As of October 9, 2012
(updated twice weekly)

The LME futures 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 $92.45
ICE North Sea Brent crude $114.26
Spread (ICE- NYMEX) = $21.81 (last report, $21.44 )

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $93.38
ICE North Sea Brent crude $112.90
Spread (ICE- NYMEX) = $19.52 (last report, $18.88)

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

The gold-to-WTI is 19.121 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 3.34% (bearish stability level); stability improving (Brent-WTI spread steadily widened through July; it has widened again and tops the Aug. 13 peak on a percentage and level basis)

Defying supply/demand fundamentals, prices for 2012 are on the rise again; we have $110+ Brent and $90+ NYMEX in January signalling higher oil prices for 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 26, 2011 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 57.1, up from last Friday's 56.2. 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 7.44 points to 13,318.95; the S&P 500 is down 5.04 points at 1,427.80

The Eureka Miner's Grubstake Portfolio is down 0.73% at $1,396,123.42  (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, October 5, 2012

Good Jobs Report, Gold Dips; The Colonel's Gold, Silver & Copper prices for Next Week

The Sage is Always Greener on the Other Side of the Fence, 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 = $1,785.4/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 99.09 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,505.5/oz
COMEX - VAGP = $279.9/oz; gold is trading at a high premium to key commodities; the gold-to-copper ratio at its 3-month average; the gold-to-silver ratio continues to bullishly compress below its average


Morning Miners!

A surprisingly upbeat U.S. Labor Report started my early morning hours today. The unemployment rate in September fell to its lowest level since January 2009: 7.8% for last month compared to 8.1% in August. 

The Labor Department said payrolls, obtained in a separate survey of employers, increased by a seasonally adjusted 114,000 jobs last month. Economists expected 8.1% jobless rate to remain unchanged. Last time, changes in the rate  reflected people dropping out of the work force. That wasn't the case for September.

Another positive was that August and July payroll numbers were revised up; 142,000 in August compared with the initially reported 96,000, and 181,000 versus an earlier estimate of 141,000 for July. 

 COMEX gold prices made a new intraday record in yesterday's late hours of electronic trading at $1,798.1 per ounce - nearly breaking the $1,800-level.  Within 15 minutes after the jobs numbers, COMEX gold fell down the mineshaft to $1,774.5 only to rebound to $1,785.4/oz. Last week, the ole Colonel stated that gold needed to stay on track at $1,785 per ounce to keep its rally intact; so far, so good. On its current course, I believe we could see $1,900 per ounce by mid-November as explained in my response to the Kitco Weekly Gold Survey below.

Metals and mining stocks are hanging tough even with today's dip in gold. Here's how Barrick (ABX), McEwing Mining (MUX, formerly US Gold) and Timberline Resources (TLR) compare to last Friday's share prices

ABX $41.56 (9/28) to $41.90 (today) up 0.8%
MUX $4.67 (9/28) to $4.78 (today) up 2.3%
TLR $0.410 (9/28) to $0.450 (today) up 9.8%


COMEX silver is trading at $34.885 per ounce or up 0.9% above last Friday's close and COMEX copper is $3.8020 per pound or 1.2% up from its close.

Moly prices continued their slow trend lower this week on the spot  and futures markets. Western moly slipped to $11.025-$11.20 per pound from last week's $11.35-$11.55 spread. The LME moly 3-month seller's contract remains below the $11-level sliding to $10.66 per pound ($23,500 per metric ton).

General Moly (GMO) is $3.36 per share, up 4.3% from last Friday.

On another positive note, General Moly is inching ever closer to Mt. Hope mine construction starting early next year:

General Moly Announces Continued Permitting Progress for the Mt. Hope Project
(Press release, 10/1/2012)


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!

Media Coverage of Northern Nevada Gold Mining

Eric Pastorino sent me a terrific link to a series of stories, photos and video on Barrick and the Nevada mining industry that appeared in the Las Vegas Review-Journal Sept. 23. It has been described as by its compilers as "...the most detailed media coverage of the industry ever published in Nevada":

Media Coverage of Northern Nevada Gold Mining
 
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, $1,805 per ounce target.

Q. Why?

A. A better-than-expected U.S. labor report today caused gold to retreat from its COMEX intraday high of $1,798.1 per ounce set very late yesterday. This consolidation will be short-lived and the price of the yellow metal is expected to continue its steady climb higher next week. Encouragingly, after dipping all the way to $1,774.5 15 minutes after the announcement, COMEX gold is presently trading near my last Friday’s prediction of $1,785 per ounce.

My target of $1,805 per ounce for next week is similarly based - a neutral bias with respect to historical trajectory BM-1 (Ref 5). The RMS tracking error with respect to this trajectory is a low 1.77%. If the tracking error exceeds 3%, all bets are off.

For $1,805 per ounce gold we can expect to see silver in a range of $34.4-$35.4 per ounce; and copper in a range of $3.71-$3.85 per pound (both with a neutral bias above their range means).

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 7).

Presently, gold is on track to reach $1,900 per ounce by mid-November (Ref 7).

The present 3-month relative price volatility oil with respect to gold has declined below 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 0.83X and stabilizing; a gold bullish indication.

We are 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 $21.4 per barrel and on a percentage basis a 23.6% premium; both top the peaks of Aug. 13. 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 dropped slightly today but is still up 6.9% since mid-August, another bullish sign for the yellow metal.

Background Notes:

  1. My $1,805 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. Resistance is the 2012 high of $1,800.90 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 99.09 this morning which is 9.9% below the Oct. 4 high of 109.97 and 3.6% below the peak of 102.74 set on June 1. Today gold value is above its 1-month moving average of 97.44; 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 469.59 pounds per ounce and slightly below its 3-month moving average of 472.37; 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 an exceptionally low at 0.93%. (1-month rolling correlation is +0.91; 3-month is +0.93). 3-month relative volatility is 1.02X gold and price sensitivity (beta) is +0.95
  5. The gold-to-silver ratio (GSR) is only slightly above its historical norm at 51.180; the 3-month rolling correlation is +0.99, relative volatility is 2.25X gold and price sensitivity (beta) is +2.23. The GSR is bullishly below its 3-month average of 55.09. The 1-month gold-to-silver ratio stability has dropped an exceptionally low 0.72% indicating ratio convergence.
Ref 3: The $2,000 Holy Grail - Is Gold on Track? (Kitco News, 8/06/2012)
Ref 4: The Next Gold Record - The Quiet before the Storm (Kitco News, 8/20/2012)
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)
Ref 7: $1,900 Gold - Though the Looking Glass (Kitco News, 10/1/2012)


Friday's Market Roundup


Mining Report

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

Barrick (ABX) $41.90 down 0.69%
Newmont (NEM) $56.20 down 0.07%
McEwen Mining (MUX) $4.78 down 0.83%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.36 up 0.90%
Thompson Creek (TC) $2.69 down 0.37%
Freeport-McMoRan (FCX) $41.04 up 1.46% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.45 unchanged

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

ArcelorMittal (MT) $14.92 up 1.84% - global steel producer
POSCO (PKX) $82.44 unchanged - 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 171.24, up from last week's 157.21 and very close to the the 1-month moving average of 171.98. 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 $11.1/oz at $1,785.4/oz (December contract, most active)

COMEX silver is down $0.216/oz at $34.885/oz (December contract, most active)

The gold-to-silver-ratio (Au:Ag) is 51.180 oz/oz

Silver 1-month CRS© is 0.72% (convergent); stability divergence has reversed (Ag overall bullish, stable with gold)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 99.09, up from last week's 98.39 and above its 1-month average of 97.44. 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 $1,505.5/oz which is $279.9/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 $0.0160/lb at $3.8020/lb (December contract, most active)

The gold-to-copper ratio is 469.59 lb/oz; ratios in excess of 400 lb/oz are indicative of a bearish price domain; the ratio is below its 3-month moving average of 472.37 (Cu bullish after monetary easing announcements; remains in a bearish Price Domain B)

Copper 1-month CRS© is 0.93% (bullish stability level); ratio stability convergence (Cu overall indicators are neutral-to-bullish)

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

Metals Week Average:
US$11.025

As of October 8, 2012
(updated weekly)

Ryan's Notes Average:
US$11.20

As of October 2, 2012
(updated twice weekly)
London metal Exchange (LME) molybdenum 3-month seller's contract:

US$10.66/lb (US$23,500/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 $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 $90.77
ICE North Sea Brent crude $112.21
Spread (ICE- NYMEX) = $21.44 (last report, $20.67 )

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $91.59
ICE North Sea Brent crude $110.47
Spread (ICE- NYMEX) = $18.88 (last report, $18.37)

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

The gold-to-WTI is 19.669 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil

NYMEX WTI 1-month CRS© is 4.17% (bearish stability level); stability divergence (Brent-WTI spread steadily widened through July; it has widened again and tops the Aug. 13 peak on a percentage and level 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 26, 2011 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 53.9, up from last Friday's 58.0. 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 up 51.57 points to 13,626.93; the S&P 500 is up 6.25 points at 1,467.65

The Eureka Miner's Grubstake Portfolio is up 0.14% at $1,437,348.22  (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