"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 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

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