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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 - In the Eye of the Storm (10/30/2012)
*** 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-$1,680 per ounce level to $1,676.4 per ounce at 12:55 PM (EDT) before recovering slightly to $1,677.7. The conclusions of my report below remain unchanged if we can close above $1,680 today; if not, this is another watch-out-below Friday!
COMEX Gold price = $1,695.1/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 101.25 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,398.9/oz
COMEX - VAGP = $296.2/oz; gold is trading at a premium to key commodities.
This is another Friday where the ole Colonel can't type fast enough to catch falling gold prices. I started my morning analysis right after the monthly U.S. jobs report. The report was better-than-expected which boosted the U.S. dollar and took $20 per ounce off the yellow metal. By 9:55 AM (PDT), COMEX gold was trading down $40 at $1,677.7 after briefly plumbing $1,676.4. My input to the Weekly Kitco Gold Survey set a target price of $1,680 per ounce for next week (see below). If COMEX gold closes below this level there could be considerably more downside next week.
The Labor Department reported that U.S. payrolls increased by a seasonally adjusted 171,000 jobs for October and the unemployment rate rose one-tenth of a percentage point to 7.9% (the unemployment rate is obtained by a separate survey of U.S. households). Economists had expected a gain of 125,000 in payrolls and guessed the 7.9% jobless rate right on the nose.
In a welcome sign of stronger growth, September payrolls were revised to a gain of 148,000 from an initially reported 114,000, and August to 192,000 from 142,000. Job growth has picked up quite a bit since this spring. Private companies accounted for all of the gains in the October numbers, adding 184,000 jobs.
The market physics are pretty simple as explained by Frank Lesh, futures analyst and broker at FuturePath Trading:
Currency markets continue to be the main influence for gold prices, so it should be no surprise that gold is at a seven-week low with the dollar index at a seven-week high. Better-than-expected economic data has put a bid in the dollar. Sell stops set below $1,700 are being hit and long liquidation continues, and today there is also margin liquidation pressure. Potential support levels are in the $1,660’s and the $1,620’s. This market looks lower. (Debbie Carlson, Weekly Kitco Gold Survey, Nov. 2, 20120)
Although physical demand is expected to improve as India enters its festival season there isn't much else to bring prices higher in the short-term as explained in my survey input below.
It has been a horrible week for most gold mining stocks given the downward pressures on gold - McEwing Mining has been the exception. Here's how Barrick Gold(ABX), McEwing Mining (MUX, formerly US Gold) and Timberline Resources (TLR) compare to last Friday's closing prices:
ABX $39.18 (10/26) to $35.95 (today, AM) down 8.2%
MUX $4.48 (10/26) to $4.57 (today, AM) up 2.0%
TLR $0.415 (10/26) to $0.36 (today, AM) down 13.3%
Barrick Gold had an especially bad week as reported today by Toronto's Globe and Mail, "The Andean gold project that is key to driving future growth at Barrick Gold Corp. just got more expensive to build, and the company still isn't done looking at costs. The Toronto-based mining company said the Pascua-Lama project, set in the mountains between Chile and Argentina, will now cost as much as US$8.5 billion to develop. That is higher than the shocking US$8 billion price tag Barrick issued for the project in July, and more than double a CD$3 billion forecast when a construction decision was reached in 2009."
You may remember the Pascua-Lama fiasco is the suspected reason for the ouster of former CEO Aaron Regent earlier this year. The Globe and Mail states that once built the mine will produce 850,000 ounces of gold a year - "But the road to Pascua-Lama has hardly been paved in gold."
General Moly (GMO) has done much better than the gold miners this week. Share price this morning is $3.61 up 3.1% from last Friday. GMO is continuing to line up financing for the anticipated start of Mt.Hope mine construction next year:
General Moly Signs $125 Million Subordinated Debt Facility (Press release, Oct. 29, 2012)
Moly prices continue to move sideways and ticked down slightly in the LME futures market. Western moly prices ranged $10.90-$11.05 per pound compared to last week's $10.975-$11.05 spread. The LME moly 3-month seller's contract is $11.11 per pound ($24,500 per metric ton). Presently spot and futures prices are stubbornly hovering the $11-level.
The mining sector overall is still showing technical signs for heading lower after its early August rally to mid-September high marks.
Copper fell this morning , on track for the fourth weekly drop, pressured by concerns about demand from top consumer China and the strong dollar bounce following the better-than-expected jobs report. I continue to believe that future copper price action may shed some light on gold's next move as expalined in this week's Kitco commentary, Copper and Gold - In the Eye of the Storm.
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:
- My target price of $1,680 per ounce for next week is a negative bias below the geometric mean of the Aug. 27 intraday low ($1,679.3) and this week’s intraday high (1,727.5, Nov. 1).
- 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.
- My Gold Value Index© (GVI) equals 101.25 which is 7.9% below the Oct. 4, 2011 high of 109.97 and 2.2% below the 2012 peak of 103.61 set on June 25. Today gold value is above its 1-month moving average of 100.09; 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 484.11 pounds per ounce and above its 3-month moving average of 476.05; trending below this average towards the 400 pounds per ounce level would be a bullish indication for the red metal; trending towards 500 pounds per ounce would be decidedly bearish (Ref 3). The 1-month gold-to-copper ratio stability remains low at 1.34%. (1-month rolling correlation is +0. 93; 3-month is +0.96. 3-month relative volatility is 1.24X gold and price sensitivity (beta) is +1.19
- The gold-to-silver ratio (GSR) is above its historical norm at 53.439; the 3-month rolling correlation is +0.99, relative volatility is 2.13X gold and price sensitivity (beta) is +2.09. The GSR is close to its 3-month average of 53.375. The 1-month gold-to-silver ratio stability is a low 1.47%.
Friday's Market Roundup
This morning's mining stocks with % price change from yesterday's close:
Barrick (ABX) $35.95 down 2.04%
Newmont (NEM) $49.93 down 6.18%
McEwen Mining (MUX) $4.57 down 4.39%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.61 down 1.37%
Thompson Creek (TC) $2.82 down 2.42%
Freeport-McMoRan (FCX) $39.90 down 1.48% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.36 down 5.26%
The Steels (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $15.26 up 0.26% - global steel producer
POSCO (PKX) $77.61 down 1.12% - 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 118.62, up from last week's 109.94 and below the 1-month moving average of 127.03. 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
COMEX gold is down $20.4/oz at $1,695.4/oz (December contract, most active)
COMEX silver is down $0.528/oz at $32.720/oz (December contract, most active)
The gold-to-silver-ratio (Au:Ag) is 53.439 oz/oz
Silver 1-month CRS© is 1.47% (convergent); stability divergence has reversed (Ag stable with gold)
The Eureka Miner’s Gold Value Index© (GVI) is above-par at 101.25, close to last week's 101.30 and above its 1-month average of 100.09. 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 $1,398.9/oz which is $296.2/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 down $0.0505/lb at $3.5015/lb (December contract, most active)
The gold-to-copper ratio is 484.11 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 476.05 (Cu neutral-bullish after monetary easing announcements; remains in a bearish Price Domain B)
Copper 1-month CRS© is 1.34% (bullish stability level); ratio stability convergence (Cu overall indicators are neutral)
The latest western molybdenum oxide spot prices (courtesy of Thompson Creek Metals):
Metals Week Average:
As of October 29, 2012
Ryan's Notes Average:
As of October 30, 2012
(updated twice weekly)
The LME futures 3-month seller's contract:
US$11.11/lb (US$24,500/metric ton)
Weekly Oil Watch
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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 $85.83
ICE North Sea Brent crude $107.79
Spread (ICE- NYMEX) = $21.96 (last report, $23.23 )
Here are the February contracts* with a narrower spread:
NYMEX light sweet crude $86.92
ICE North Sea Brent crude $106.30
Spread (ICE- NYMEX) = $19.38 (last report, $20.37)
* 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 and domestic over-supply; 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 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 68.2, down from last Friday's 70.1. 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 54.39 points to 13,178.23; the S&P 500 is down 3.64 points at 1,423.95
The Eureka Miner's Grubstake Portfolio is down 2.58% at $1,369,061.07 (what's this?).
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market