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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)
COMEX Gold price = $1,710.7/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 102.19 (gold value is elevated with respect to key commodities oil, copper and silver & near the 2012 high)
Value Adjusted Gold Price© (VAGP) = $1,398.8/oz
COMEX - VAGP = $311.9/oz; gold is trading at a premium to key commodities.
There is an old saying that markets don't like uncertainty and there is certainly enough around to explain the dramatic downdrafts since post-election; both the DOW and the S&P 500 have dropped more than 6% on an intraday basis. The biggest booger bear is the anticipated outcome of the U.S. fiscal cliff negotiations although Europe’s sovereign debt crisis, China’s change in leadership and an escalating crisis in the Middle East given the recent Israel/Hamas conflict are all pretty scary bears in the global forest.
My input to the Weekly Kitco Gold Survey (below) explains how this backdrop has affected gold and copper prices. The survey was completed 8:34 AM (PT) before the President and Congressional leaders concluded their first high-level meeting on the fiscal cliff. Relatively positive comments from both sides after the meeting have pushed the broader markets into the green and lifted gold and copper a tad ($1,710.7 per ounce and $3.4420 per pound respectively). This bounce does not materially change my outlook in the survey or the analysis below. I continue to be fairly positive about the broader and metal markets if some of the headline fear abates by years end.
It has been a bad week for our gold mining stocks given the conflicting pressures on gold - McEwing Mining was mauled by the bears and Timberline escaped with only a few scratches. Here's how Barrick Gold(ABX), McEwing Mining (MUX, formerly US Gold) and Timberline Resources (TLR) compare today, after the President's meeting, to last Friday's closing prices:
ABX $36.07 (11/09) to $33.34 (today AM) down 7.6%
MUX $4.43 (11/09) to $3.44 (today AM) down 22.3%
TLR $0.32 (11/09) to $0.31 (today AM) down 3.1%
General Moly (GMO) has been more resilient than most gold miners. Share price this morning post-meeting is $3.39 down only 2.9% from last Friday.
Moly prices continue to move mostly sideways with some optimism shown in the LME futures market. Western moly prices ranged $10.85-$10.925 per pound; the LME moly 3-month seller's contract is $11.34 per pound ($25,000 per metric ton). Presently spot and futures prices are stubbornly straddling 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 but ticked back up a bit after the President's meeting. Concerns about demand from top consumer China and the strong dollar rally are headwinds to higher prices. I continue to believe that future copper price action may shed some light on gold's next moves as expalined in my Kitco commentary, Copper and Gold - In the Eye of the Storm.
The Colonel's Gold, Silver & Copper Prices for Next Week
Here is my input to the Kitco Weekly Gold Survey:
- My target price of $1,725 per ounce is above a range mean of $1,705.6 for the noted levels and dates (above).
- 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 as it bearishly departs from gold.
- My Gold Value Index© (GVI) equals 102.19 just below a high for 2012 of 103.73. Today gold value is above its 1-month moving average of 101.78; 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 497.01 pounds per ounce and above its 3-month moving average of 479.08; 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 remains low at 2.01% but is re-converging (1-month rolling correlation is +0.38; 3-month is +0.88. 3-month relative volatility is 1.68X gold and price sensitivity (beta) is +1.47
- The gold-to-silver ratio (GSR) is above its historical norm at 52.84; the 3-month rolling correlation is +0.97, relative volatility is 1.94X gold and price sensitivity (beta) is +1.88. The GSR is close to its 3-month average of 52.73. The 1-month gold-to-silver ratio stability is a low 0.85%.
Friday's Market Roundup
This morning's mining stocks with % price change from yesterday's close:
Barrick (ABX) $33.34 up 0.21%
Newmont (NEM) $45.48 down 0.11%
McEwen Mining (MUX) $3.44 up 0.88%; (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.39 up 2.11%
Thompson Creek (TC) $2.91 iup 1.04%
Freeport-McMoRan (FCX) $36.90 down 0.99% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.31 down 6.06%
The Steels (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $14.78 up 0.14% - global steel producer
POSCO (PKX) $72.33 down 0.71% - 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 96.11, down from last week's 103.98 and below the 1-month moving average of 110.72. The 1-month average remains bullishly above the key 100-level but daily price action is 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
This morning's (pre-meeting) ...
COMEX gold is down $3.1/oz at $1,710.7/oz (December contract, most active)
COMEX silver is down $0.299/oz at $32.375/oz (December contract, most active)
The gold-to-silver-ratio (Au:Ag) is 52.840 oz/oz
The Eureka Miner’s Gold Value Index© (GVI) is above-par at 102.19, below last week's 103.36 and above its 1-month average of 101.78. 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 103.73 set on Nov. 13, 2012.
The Value Adjusted Gold Price© (VAGP) is $1,398.8/oz which is $311.9/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
COMEX copper is down $0.0205/lb at $3.4420/lb (December contract, most active)
The gold-to-copper ratio is 497.01 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 479.08 (Cu neutral post-election; remains in a bearish Price Domain B)
The latest western molybdenum oxide spot prices (courtesy of Thompson Creek Metals):
Metals Week Average:
As of November 19, 2012
Ryan's Notes Average:
As of November 13, 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 heating up again in MENA, with the latest Israeli/Hamas conflict. 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 $86.35
ICE North Sea Brent crude $108.71
Spread (ICE- NYMEX) = $22.42 (last report, $21.96 )
Here are the February contracts* with a narrower spread:
NYMEX light sweet crude $87.29
ICE North Sea Brent crude $108.00
Spread (ICE- NYMEX) = $20.71 (last report, $19.38)
* NYMEX futures contracts have rolled forward, we now show December and February
The gold-to-WTI is 19.811 bbl/oz; ratios above 18.0 bbl/oz are considered bearish for oil
Prices for 2012 are see-sawing on concerns about global demand coupled with domestic over-supply and recurrent problems in MENA; 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 71.2, down from last Friday's 74.2. 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 35.18 points to 12,577.56; the S&P 500 is up 4.38 points at 1,357.71
The Eureka Miner's Grubstake Portfolio is up 0.01% at $1,283,926.45 (what's this?).
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market