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My latest Kitco commentary: Copper & Gold – Fast Eddie’s Lucky Run


This morning's...
COMEX Gold price = $1,651.3/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 98.18 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,405.3/oz
COMEX - VAGP = $246.0/oz; gold is trading at a  premium to key commodities.

Morning Miners!

Today is the first day of the 14th b'ak'tun of the Mayan Calendar and I guess the world didn't come to an end after all. Thirty three months ago this report predicted the DOW Industrial Average would break 12,901 before the apocalypse - that did happen.

DOW 12,901 by the End of the World? (Eureka Miner's Market Report, 4/01/2010)

This February the DOW broke that level and even with all the woe surrounding the present fiscal cliff negotiations, the mighty average is presently trading at 13,140.79 down 170.93 points from yesterday's close.

In the long run markets are robust even under the harrowing circumstances of the last several years. It's easy (and understandable) to be a pessimist but the market is up over 20% from April Fool's 2010 and that sure beats the return from a bank CD, pardner. I will pass to the next reality an eternal optimist but apparently that won't occur today unless something comes from the heavens this afternoon.

Here's some other fun comparisons from that morning in April to today:

COMEX gold  $1,123.4/oz (4/1/2010) $1,651.3/oz (today) up 47.0%
COMEX silver  $17.940/oz (4/1/2010) $30.010/oz (today) up 67.2%
COMEX copper $3.5960/lb (4/1/2010) $3.5450/lb (today) down 1.4%

Precious metals have been a better bet than the broader markets; not so, copper.

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 and Mariana wish you all a very Merry Christmas and thank you for following the Report!

The Colonel's Gold, Silver & Copper Prices for Next Week

Here is my input to the Kitco Weekly Gold Survey:

12/21/2012 (10:50 CT)

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Up, $1,675 per ounce target.

Q. Why?

A. The dimming prospects for a successful avoidance of the U.S. fiscal cliff are casting a long shadow on global markets. This has caused the rather unusual circumstance of multi-month downtrends in both the U.S. dollar and gold. The yellow metal has also lost value to key commodities oil and copper as well as the broader markets. My sense is that the yellow metal is now oversold and should benefit next week from a relief rally albeit not to the highs of mid-December. My target is therefore a negative bias below the mean of December’s highs and lows ($1,725.0 and $1,636.0 per ounce, respectively).

Less the fiscal cliff, the underpinnings for gold and base metals remain supportive given worldwide accommodative monetary policies, indications the Chinese economy has bottomed and some signs of stabilization in Europe.

For $1,675 per ounce gold we can expect to see silver in a range of $29.7-$32.8 per ounce; and copper in a range of $3.30-$3.69 per pound. Both silver and copper are expected to have a negative bias in price below their respective means.

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 98.18, staying below the key-100 level at and 1-month moving average of 99.14 (bearish gold trend). The 2012 high was 103.73 on Nov. 13.

The ratio of gold-to-the S&P 500 (AUSP) has dropped precipitously to mid-August levels. It is now 8.7% below its 2012 high (1.2710, Nov.15) at 1.1604. The latest price action indicates gold has lost considerable value relative to the broader markets but may be near a bottom.

Background Notes:

1. My target price of $1,675 per ounce is a negative bias below the geometric mean of the given highs and lows for December.
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©). A similar technique was used to predict the price range for copper since its 3-month correlation with gold is still positive (although the 1-month is negative).
3. My Gold Value Index© (GVI) equals 98.18 or 5.3% below the 2012 high of 103.73. Today gold value is below its 1-month moving average of 99.14; 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 465.81 pounds per ounce and below its 3-month moving average of 478.08 and 6-year trend of 483.58; falling below the long-term trend line is a bullish indication for the red metal; trending above 500 pounds per ounce, bearish (Ref 3).  The 1-month gold-to-copper ratio stability is 2.78%. The 1-month rolling correlation is -0.12; 3-month is +0.53. 3-month relative volatility is 1.60X gold and price sensitivity (beta) is +0.86
5. The gold-to-silver ratio (GSR) is above its historical norm at 55.025; the 3-month rolling correlation is +0.87, relative volatility is 1.89X gold and price sensitivity (beta) is +1.65. The GSR is above its 3-month average of 52.54; the 1-month gold-to-silver ratio stability is 2.45%.

Ref 1: Gold Versus Copper, Oil and Silver: The Value Trend Is Your Friend (Kitco News, 7/23/2012)

Ref 2: Copper and Gold - In the Eye of the Storm (Kitco News, 10/30/2012)

Ref 3: Copper and Gold - The Bank Shot (Kitco News, 11/19/2012)

Ref 4: Copper & Gold – Fast Eddie’s Lucky Run (Kitco News, 12/03/2012)
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