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My latest Kitco commentary: Copper and Gold - The Bank Shot (11/19/2012)
Morning Miners!
This is a short report today for a short holiday trading Friday - the ole Colonel hopes you had a terrific Thanksgiving Day!
Scott Raine sent the report some great photos from his days in Honduras with the Peace Corps. The headline shot is Scott roasting coffee beans the old fashioned way - early days of Raine's famous Red Label brew.
COMEX gold got a nice bounce mid-morning to the$1,750 per ounce level. You can read about what is expected to happen next week in my the input to the Kitco Weekly Gold Survey (below) and latest commentary, Copper and Gold - The Bank Shot.
Thanks again to Scott, enjoy another cup of his delicious Red Label 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:
11/23/2012
(11:03 CT)
Q. Where do you see gold’s price headed next
week, up, down or unchanged?
A. Sideways, $1,750 per
ounce target.
Q. Why?
A. The
price of gold has been 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. However, the Israel-Hamas
cease fire and new signs that the Chinese economy has indeed
bottomed (e.g., HSBC PMI
over the key-50 level for the first time is 13 months) has given a
mid-morning holiday boost to gold to the $1,750 per ounce level. This
may mark a high point when higher volume returns next week.
U.S.
dollar strength has been a headwind for gold prices but has weakened more that
1% from last Friday. The yellow metal continues to show strength relative to
key commodities and the broader markets but has weakened some from last Friday.
U.S.
dollar-denominated
gold price is expected to remain range bound for the
short-term with a bullish trend for the near- and long-term. Until a new
catlyst appears, my target of $1,750 per ounce may be the top of a new
range with early-November support above $1,700 ($1,739.4 high, Nov.
11; $1,703 low, Nov. 7).
For $1,750 per
ounce gold we can expect to see silver in a range of $32.3-$34.1 per ounce; and
copper in a range of $3.45-$3.60 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 remains near its high for
2012 (103.73, Nov. 13) at 101.19 but has fallen below its 1-month moving
average of 102.08 (potentially bullish commodities).
The
ratio of gold to the S&P 500 (AUSP) is also near its 2012 high (1.2752,
June 4) at 1.2376 but showing signs of weakening. The latest price action indicates
gold is maintaining value relative to the broader markets.
My
Oct. 30 Kitco commentary (Ref 3) posits that
copper may 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. Two weeks ago an ounce of gold bought more
than 500 pounds of copper, decidedly bearish; the trend higher has stalled – a short-term
bullish sign for the red metal (my latest commentary, Ref 4).
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 $23.20 per barrel
and a 26.5% 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 +0.2 and the 1-month is +0.5. A regional conflagration
could cause a sharp rise in both crude oil prices and the WTI/Brent spread.
Background
Notes:
- My target price of $1,750 per ounce may define the top of a new 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 different technique was used to predict the price range for copper since its 1-month correlation with gold is near-zero.
- My Gold Value Index© (GVI) equals 101.48 just below a high for 2012 of 103.73. Today gold value is below its 1-month moving average of 102.08; 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 494.4 pounds per ounce and above its 3-month moving average of 480.0; trending below this average towards the 400 pounds per ounce level would be 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 1.44% (1-month rolling correlation is +0.08; 3-month is +0.87. 3-month relative volatility is 1.89X gold and price sensitivity (beta) is +1.64
- The gold-to-silver ratio (GSR) is near its historical norm at 52.794; the 3-month rolling correlation is +0.96, relative volatility is 1.94X gold and price sensitivity (beta) is +1.85. The GSR is below its 3-month average of 52.57; The 1-month gold-to-silver ratio stability is a low 1.29%.
Ref 4: Copper and Gold -
The Bank Shot (Kitco News, 11/19/2012)
Cheers,
Colonel Possum
Headline photograph by Scott Raine
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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