"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, 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)


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:

As of October 29, 2012
(updated weekly)

Ryan's Notes Average:

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?).


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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