"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 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

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