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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: Copper and Gold - The Bank Shot (11/19/2012)
This morning's...
COMEX Gold price = $1,726.8/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 98.88 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1459.2/oz
COMEX - VAGP = $267.6/oz; gold is trading at a premium to key commodities.
A bumpy week for gold but there are emerging signs that December may see a bounce in the markets. Besides all the back-and-forth on the U.S. fiscal cliff, the recovery of China's economy under new leadership has cast much uncertainty on the metals & miners - is there a ray of light from South Korea?
Monitoring China's Shanghai Composite Index hasn't been too encouraging. It has lost more than 20% since early March - the technical definition of bear country for their stock market. However, there have lately been economic indicators that show a bottom may be in for the dragon. I prefer to track what is happening next door in South Korea because their markets are more transparent and China remains a major customer.
The South Korean stock market,or KOSPI, is on the mend and so is its steel producer POSCO (PKX). The latter is important to Eureka because POSCO owns a 20% share of the Mt. Hope molybdenum project and will be sending General Moly a chunk of funding in the next several weeks now that the permitting process is complete.
The KOSPI has bounced off its lows and fares a lot better than the Shanghai. Amazingly the South Korean iShares exchange traded fund EWY, which tracks major companies , is nearly at its 52-week high (59.73 vs 61.57). POSCO was near the lows of 2011 on Nov.21 and is now confidently marching higher (74.66 today, up 5% from the lows earlier this month). I'm betting the the Chinese economy will turn around and the South Koreans are seeing something we are missing.
Molybdenum spot and futures prices are also above the key $11 per pound mark - another positive sign (see moly report below). General Moly (GMO) share price is up 3.3% for the week at $3.75.
It has been a less stellar week for most gold mining stocks given the recent downward pressures on gold. Here's how Barrick Gold(ABX), McEwing Mining (MUX, formerly US Gold) and Timberline Resources (TLR) compare to last Friday's closing prices:
ABX $35.53 (11/23) to $34.52 (today, AM) down 2.8%
MUX $3.82 (11/23) to $3.65 (today, AM) down 4.5%
TLR $0.315 (11/23) to $0.30 (today, AM) down 4.8%
The mining sector overall is showing technical signs of forming a bottom. The Eureka Miner's Index© (EMI) is on the rise at 136.4 above the key 100-level and the 1-month moving average of 110.8.
Copper is up today $0.0315 per pound at $3.6370 showing considerable strength compared to gold. I continue to believe that future copper price action will shed light on gold's next move as explained in my Kitco commentary, Copper and Gold - The Bank Shot.
Where do gold, silver and copper prices go from here? Checkout my today's input to the Weekly Kitco 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:
11/30/2012
(10:43 AM CT)
Q. Where do you see gold’s price headed next week, up, down or unchanged?
A. Down,
$1,715 per ounce target.
Q. Why?
A. There
were numerous bearish indications for gold this week. The yellow metal lost
value to key commodities copper and oil, and the broader markets. As the month
draws to a close, gold was the weakest gainer in the precious metal complex.
The
price of gold remains range bound against a backdrop of compound uncertainties:
the impending U.S. fiscal cliff, Europe’s sovereign debt crisis, China’s change
in leadership and conflicts in the Middle East.
U.S.
dollar strength had been a headwind for gold prices but has weakened nearly 2% in
the past two weeks. Nonetheless, U.S. dollar-denominated gold price is expected
to remain range bound for the short-term. Until a new catalyst appears, my
target of $1,715 per ounce is the range mean between the November highs and
lows (Feb. contract: $1,757.1 high, Nov. 23; $1,674.4 low, Nov. 5).
For
$1,715 per ounce gold we can expect to see silver in a range of $31.5-$34.6 per
ounce; and copper in a range of $3.46-$3.68 per pound.
As
measured by the Eureka Miner’s Gold Value Index (GVI, Ref 1), the value of gold
relative to global commodities copper and oil and companion metal silver is
98.88, falling below the key-100 level at and 1-month moving average of 101.86
(potentially bullish commodities). The 2012 high was 103.73 on Nov. 13.
The
ratio of gold to the S&P 500 (AUSP) has dropped 2% this week and is 4%
below its 2012 high (1.2710, Nov.15) at 1.2188. The latest price action
indicates gold is losing value relative to the broader markets.
My
Oct. 30 Kitco commentary (Ref 3) posits
that copper will be the next harbinger for metal prices and the broader
markets. At that time the ratio of gold-to-copper had undergone a dramatic mean
reversion - expansion of the daily ratio from that state would be bearish
copper; compression would be a bullish. Three weeks ago an ounce of gold
bought more than 500 pounds of copper, decidedly bearish; the trend higher has now
reversed – a short-term bullish sign for the red metal (my latest commentary, Ref 4). Significantly, the gold-to-copper ratio
is now below its 3-month average and 6-year trend at 474.8 pounds per ounce.
Any
positive movement in the current headline issues (e.g., progress on resolving
the U.S. fiscal cliff) would be constructive for the red metal. This could
blunt future gold rallies and be bullish for base metals and the broader
markets for the remainder of 2012.
Finally,
the Brent-WTI spread in crude oil futures remains elevated at $22.56 per barrel
and a 25.5% premium. Continuing troubles in the Middle East keep the spread at
$20+ per barrel levels although a portion of that can be attributed to
over-supply in North America. This is less a driver for gold now as the 3-month
oil/gold correlation is +0.5, and the 1-month is +0.6. A regional conflagration
could cause a sharp rise in both crude oil prices and the WTI/Brent spread.
- My target price of $1,715 per ounce is the geometric mean of the given trading range.
- 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©). A similar technique was used to predict the price range for copper since its correlation with gold is again positive.
- My Gold Value Index© (GVI) equals 98.88 or 4.7% below the 2012 high of 103.73. Today gold value is below its 1-month moving average of 101.9; a value of 100 represents a historically high-value of gold relative to key commodities oil, copper and silver.
- The gold-to-copper ratio today is 474.8 pounds per ounce and below its 3-month moving average of 480.5 and 6-year trend of 481.3; trending below this trend line is a bullish indication for the red metal; trending above 500 pounds per ounce would be decidedly bearish (Ref 3). The 1-month gold-to-copper ratio stability is a very low 1.51%. The 1-month rolling correlation is +0.35; 3-month is +0.85. 3-month relative volatility is 2.10X gold and price sensitivity (beta) is +1.78
- The gold-to-silver ratio (GSR) is below its historical norm at 50.39; the 3-month rolling correlation is +0.91, relative volatility is 2.06X gold and price sensitivity (beta) is +1.87. The GSR is below its 3-month average of 52.34; The 1-month gold-to-silver ratio stability is a low 2.31%.
Friday's Market Roundup
Mining Report
This morning's mining stocks with % price change from yesterday's close:
Barrick (ABX) $34.27 down 1.81%
Newmont (NEM) $46.60 down 0.96%
McEwen Mining (MUX) $3.67 down 0.54%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.73 down 1.32%
Thompson Creek (TC) $2.92 up 1.32%
Freeport-McMoRan (FCX) $38.99 down 0.69% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.30 down 6.25%
The Steels (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $15.29 down 0.26% - global steel producer
POSCO (PKX) $74.67 up 0.61% - 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 136.4, up from last week's 120.26 and above the 1-month moving average of 110.75. The 1-month average remains above the key 100-level and trending bullish.
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 $2.7/oz at $1,726.8/oz (February contract, most active)
COMEX silver is down $0.161/oz at $34.270/oz (March contract, most active)
The gold-to-silver-ratio (Au:Ag) is 50.388 oz/oz
The Eureka Miner’s Gold Value Index© (GVI) is above-par at 98.88, down from last week's 101.65 and above its 1-month average of 101.86. 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 $1,459.2/oz which is $267.6/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
COMEX copper is up $0.0315/lb at $3.6370/lb (March contract, most active)
The gold-to-copper ratio is 474.79 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 480.50 (Cu bullish short-term; remains in a bearish Price Domain B)
The latest western molybdenum oxide spot prices (courtesy of Thompson Creek Metals):
Metals Week Average:
US$11.15
As of December 3, 2012
(updated weekly)
Ryan's Notes Average:
US$11.10
As of November 27, 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)
Here are the key front-month contracts this morning:
NYMEX light sweet crude $88.46
ICE North Sea Brent crude $111.02
Spread (ICE- NYMEX) = $22.56 (last report, $21.96 )
Here are the March contracts* with a narrower spread:
NYMEX light sweet crude $89.61
ICE North Sea Brent crude $109.41
Spread (ICE- NYMEX) = $19.80 (last report, $19.38)
* NYMEX futures contracts have rolled forward, we now show January and March
The gold-to-WTI is 19.521 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil
Prices for 2012 have risen again; we have $105+ Brent and $85+ NYMEX in March signalling stubbornly high oil prices for winter and early-spring. 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 the 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 56.5, down from last Friday's 62.1. 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 5.36 points to 13,016.46; the S&P 500 is down 1.06 points at 1,414.89
The Eureka Miner's Grubstake Portfolio is down 1.11% at $1,338,552.50 (what's this?).
Cheers,
Colonel Possum
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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