"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Friday, February 22, 2013

Gold & Commodity Nose Dive, GMO Resilient; The Colonel's Metal Prices for Next Week



Latest Nevada Gas Prices (click this link)

My latest Kitco commentary: Oil, Copper & Gold – Don’t Worry (02/25/2013)

Friday's morning prices...

Below are the prices used for this morning's analysis:

COMEX Gold price = $1,574.3/oz (April contract most active)

COMEX Silver = $28.515/oz (March)
COMEX Copper = $3.5420/lb (March)
NYMEX WTI crude = $92.78/bbl (March)
ICE Brent crude = $114.05/bbl (March)
Eureka Miner’s Gold Value Index© (GVI) = 92.98 (gold value is still elevated but falling with respect to key commodities oil & copper)
Value Adjusted Gold Price© (VAGP) = $1,414.7/oz
COMEX - VAGP = $1159.6.0/oz; gold is trading at a falling premium to key commodities.



Morning Miners!

This week started out just fine with Chinese traders providing needed support to last week's falling gold prices. Monday was a day off for U.S. markets so little damage was done on the home front. The broader markets were up Tuesday and  the S&P 500 made a new high for the year touching 1,530.94 during the day. General Moly (GMO) released a very positive press release the same day which confirms that the Hanlong loan is on track to support Mt. Hope mine construction this year:

General Moly Announces Continued Progress on Mt. Hope Project Financing and Development

GMO share price got a nice boost and closed at $3.36 for the day.

So far, so good.

On the dark side of that day, Comex gold was swept under the rug plummeting to a $1,558.0 per ounce low starting a broad-based liquidation in  precious metals. Wednesday, gold put in its low for the week at $1,554.1 per ounce - quite a fall from grace considering the high for February was $1,686.1, a jaw-dropping $132 difference.

Like dominoes, the decline in gold prices were followed by sharp reversals in base metals and a sell-off in the broader markets. Comex copper prices are still in decline this morning currently trading at $3.5420 per pound compared to their high earlier this month of $3.7924. Silver has dropped below $29 per ounce trading at $28.15 compared to its February watermark of $32.12. Ouch.

The S&P 500 is getting some relief today at 1,507.23 but dropped all the way down to 1,497.29 yesterday from its Tuesday feelgood 1,530.94. Ouch-ouch.

General Moly made its low earlier this morning at $3.142 but has recovered nicely to $3.22 , 14 cents below Tuesday's bump up.

What's going on? As I discuss in my weekly gold report (see Kitco Gold Survey below), one major clunker was a fear that the Federal Reserve may end quantitative easing sooner than expected as suggested by some hawkish debate coming from its ranks. This has moderated some with clarifications from the Fed today but the damage has been done - easy money won't be forever.

Another factor has been worsening conditions again in Europe as it enters a second year of contracted growth and political volatility. The euro dropped to a 6-week low boosting the U.S. dollar index to a 3-month high. Dollar-denominated commodities suffered precipitating significant liquidations in risk assets including metals.

There are some technical indications that the worst may be over for now (see below) but the coming weeks could bring further pressure on the metals & miners.

Last week we used the 300-day share price average as a yardstick for gauging the relative performance of steel producers and moly miners.  Here is an update of where they are this morning, the percent change in parentheses is last week's number:

POSCO (PKX) $82.58 (300 dma) $82.68 (this morning) up 0.1% (+0.9%)
ArcelorMittal (MT) $16.9 (300 dma) $15.25 (this morning) down 9.8% (-4.3%)
Thompson Creek (TC) $4.69 (300 dma) $3.92 (this morning) down 23.9% (-16.4%)
General Moly (GMO) $3.31 (300 dma) $3.27 (this morning) down 2.7% (-1.2%)

All are down more than last week but South Korean steel producer POSCO and General Moly have fared far better than global steel producer ArcelorMittal and moly benchmark producer Thompson Creek. For comparison, the S&P 500 is 9% above its 300-day average (10% last Friday). Barrick Gold (ABX) is more than 22% (20% last Friday)  below the same average with falling gold prices and rising costs.

Molybdenum Prices

This week, I had an informative moly price discussion with General Moly's Director of Investor Relations Scott Kozak. Spot prices are still below $12 per pound level. Here are the latest numbers:

Metals Week Weekly Average:
US$11.27

As of February 18, 2013
(updated weekly)

Ryan's Notes Average:
US$11.30

As of February 19, 2013
(updated twice weekly)

The London Metal Exchange (LME) futures contracts also remains below $12, but the 3-month contact is now aligned with spot prices and the longer term contract got a small move up.

3-month seller's contract $25,000 per metric ton ($11.33 per pound)

15-month seller's contract $25,710 per metric ton ($11.66 per pound)

General Moly maintains subscriptions to Metals Week and Ryan’s Notes which report the above weekly worldwide averages. Scott maintains they are a better proxy on pricing than the LME. He and I agreed that the LME is a thinly traded futures market and I suspect, more sensitive to moly prices in Europe.

I asked Scott about the status of China with regards to imports and exports of molybdenum. He replied that China was a marginal net exporter of moly in 2012, well under 10 million pounds in a roughly 530 million pound primary use market. He reminded me that not that many years ago, China was a significant net exporter on the order of 65 million pounds just prior to the Great Recession. China transitioned to being a sizable (approximately 35 million pound) net importer when moly prices dipped below $10 per pound. As prices recovered, this trend reversed and now China maintains a small and declining export of the metal. Scott expects China to again become an importer of moly as their demand for steel increases and they move up the value chain producing higher quality moly-based steels. In time, China could potentially become a significant importer of moly.


This report thanks Scott for his insight into an importnat fundamental behind today's moly price.



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




Here is my weekly input to Kitco Gold Survey:
 
02/22/2013 (10:51AM CT)

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

A. Unchanged, $1,575 per ounce target.

Q. Why?

A. Although the return of Chinese traders from their Lunar New Year break lent some support to gold price early in the week, commodity liquidations followed doing serious damage to gold, oil and copper prices. Concern that Federal Reserve quantitative easing may end sooner than expected and still shaky global recovery began the slide in prices. The primary benefactor has been the U.S. dollar index which is at 3-month highs; Comex gold slipped to an 8-1/2 month low at $1,554.1 per ounce on Thursday.

My target of $1,575 per ounce is a negative bias below the mean of this week’s high ($1,618.8) and the May 1, 2012 low of $1,538.7, representing a “sideways” expectation given this morning’s prices.

The yellow metal has lost value relative to key commodities as well as the broader markets but has regained some ground from value lows last Friday for oil and copper, and its value low Tuesday compared to the S&P 500.

Technically, negative 1-month rolling correlations between gold and global commodities oil and copper have turned positive this week although the 3-month correlations remain negative. This may indicate that the worst may soon be over for oil and the red metal. Although gold has lost considerable value to both key commodities, the 6-1/2 uptrend in gold value is still on solid footing (note 6, also Ref 3).

For $1,575 per ounce gold we can expect to see silver in a range of $28.2-$30.0 per ounce; and copper in a range of $3.38-$3.57 per pound. Silver is expected to have a negative bias below its range mean ($29.116); copper, a positive bias above its mean ($3.4759). The Dec. 20, 2012 low was $3.5323 offering a level of support.

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 92.98, below the key-100 level but just above the 1-month moving average of 92.47. The 2012 high was 103.73 on Nov. 13.

The ratio of gold-to-the S&P 500 (AUSP) is now 17.8% below its 2012 high (1.2710, Nov.15) at 1.04450. The latest price action indicates gold has lost considerable value relative to the broader market but off its Feb. 20 low of 1.03844.

Background Notes:
  1. My gold target price of $1,575 per ounce is a negative bias below the geometric mean of $1,578.2 per ounce given the stated range highs and lows
  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©). The same technique was used to predict the price range for copper.
  3. My Gold Value Index© (GVI) equals 92.98 or 10.4% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 92.47; 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 444.47 pounds per ounce and below its 3-month moving average of 458.34 and 6-1/2 year trend of 487.33. Falling below the long-term trend line is a bullish indication for the red metal (Ref 2).  The 1-month gold-to-copper ratio stability is a very low 1.42%. The 1-month rolling correlation is +0.73; 3-month is -0.17. 3-month relative volatility is 0.91X gold and price sensitivity (beta) is -0.16
  5. The gold-to-silver ratio (GSR) is above its historical norm at 55.210; the 3-month rolling correlation is +0.99, relative volatility is 2.08X gold and price sensitivity (beta) is +2.08. The GSR is above its 3-month average of 53.19; the 1-month gold-to-silver ratio stability is a low 1.59%.
  6. On a positive note, it is interesting that although gold has lost considerable value relative to oil and copper since early November, the uptrend in gold value relative to these global commodities remains on solid footing (mid-2006 to the present). If this relation gives way, gold is probably in a world of hurt. Also, 1-month gold ratios relative to WTI & Cu remain quite stable* unlike the early-October 2011 commodity debacle following the U.S. debt downgrade:
    1. Au:WTI -0.74 sigma below 6-1/2 year trend line; Au:Cu -0.68 sigma below trend (charts attached) - I consider > 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 1.7% (3.2% 10/6/11); Au:Cu 1.6% (5.7% 10/3/11) - I consider ratio stability > 3% to be divergent & worrisome
(* stability defined as the standard deviation of the gold ratio normalized by its mean over 1-month)

Ref 2: Oil, Copper & Gold – All in the Family (Kitco News, 01/22/2012)
Ref 3: Oil, Copper & Gold – Beware the Snake? (Kitco News, 02/11/2012)


Cheers,

Colonel Possum


Headline photograph by Mariana Titus

Please checkout bayoutales.com for books and book orders

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Friday, February 15, 2013

Bad Week for Gold & GMO, but...; The Colonel's Metal Prices for Next Week



Latest Nevada Gas Prices (click this link)

UPDATE (02/19/2013):
 
General Moly Announces Continued Progress on Mt. Hope Project Financing and Development

My latest Kitco commentary: Oil, Copper & Gold – Beware the Snake? (02/11/2013)

Friday's morning prices...

Below are the prices used for this morning's analysis. Since then Comex gold plumbed $1,596.7 per ounce (10:35AM ET) but has since recovered to $1,607.2 

COMEX Gold price = $1,610.5/oz (April contract most active)

COMEX Silver = $29.965/oz (March)
COMEX Copper = $3.7360/lb (March)
NYMEX WTI crude = $95.54/bbl (March)
ICE Brent crude = $116.52/bbl (March)
Eureka Miner’s Gold Value Index© (GVI) = 91.08 (gold value is still elevated but falling rapidly with respect to key commodities oil & copper)
Value Adjusted Gold Price© (VAGP) = $1,477.5/oz
COMEX - VAGP = $133.0/oz; gold is trading at a falling premium to key commodities.



Morning Miners!

A  very tough week for gold prices and General Moly (GMO) stock. There are reasons for both declines; the fall in the yellow metal is troubling but GMO's dip may represent a buying opportunity. This morning, Comex gold ominously fell below the key-$1,600 per ounce before recovering some for reasons discussed in my weekly gold report (see Kitco Gold Survey below).

When the world's second largest economy takes a one week vacation there is bound to be some market turmoil. Chinese Lunar New Year began last Sunday and Chinese commodity traders won't return to their desks until Monday (markets in the U.S. will be closed Monday). On a thinly traded week, General Moly stock has been under considerable of pressure; last Friday it closed at $3.45 above its 300-day moving average ($3.31), this morning it fell below and is presently trading at $3.27. This is in stark contrast to early January when the stock had enjoyed $4+ performance.

Lately, the 300-day average is important to watch for steel producers as well as moly miners. This average covers a little more than 1-year's data (there are 252 trading days in a year for U.S. markets). If you think things are getting better for producers and miners on a recovering global economy, it is reasonable to expect their equity prices to be above the average. Here is a sample of where they are this morning:

POSCO (PKX) $82.63 (300 dma) $83.336 (this morning) up 0.9%
ArcelorMittal (MT) $16.94 (300 dma) $16.22 (this morning) down 4.3%
Thompson Creek (TC) $4.69 (300 dma) $3.92 (this morning) down 16.4%
General Moly (GMO) $3.31 (300 dma) $3.27 (this morning) down 1.2%

Not particularly stellar performance considering broader markets have been making highs on nearly a daily basis at levels not seen since 2007. For comparison, the S&P 500 is nearly 10% above its 300-day average and up 6.6% for 2013. To feel a little better about steel producers and moly miners, consider that Barrick Gold (ABX) is more than 20% below the same average with falling gold prices and rising costs.

Of course, the overhang for the steels is a Europe in contraction, China which is growing but at a slower pace than more than a decade and the U.S., while showing new signs of life, still faces high unemployment and some daunting fiscal challenges.

Yesterday morning, Feb. 14, was a good example of the volatility steel producers face daily. South Korean steel producer POSCO broke above its 300-day with a nice 1% move and the South Korean stock exchange,or KOSPI, has been heading north again even with nukes going off in their neighbor's yard. By contrast, global steel producer ArcelorMittal, which presumably has much more European exposure than POSCO, was down 1.7% and below its 300-day. Japan had announced earlier that they were still in contraction (GDP=-0.4%, 4Q2012) but that's much better than 3Q at -3.2%. As a result the Nikkei got another bump up on its upward trend. On the same day, Germany announced its worse contraction since 2009 adding to Europe's woes and dismal outlook for steel producers there.

An "Asia on the mend with loose monetary policies (e.g. Japan)" should keep POSCO flying on a relative basis to MT given large exposure to China and Japan. I use a ratio of POSCO's share price to General Moly's (i.e. PKX/GMO) as a rough gauge of performance between the two. This week the ratio is way out of whack at 25 suggesting something besides macro-economics is at play with General Moly. Recent history indicates the ratio should be around 20-21 which would return GMO to around the $4-mark.

There haven't been any adverse General Moly press releases and all indications are that the Hanlong loan is on track to support Mt. Hope mine construction this spring. It is quite possible, however, that there has been some selling by one or more large holders of GMO stock in a thin Lunar Holiday market. The ole Colonel is inclined to believe the latter and picked up a few more shares of the General which should climb above $4 again as things get rolling later this year.

Please do your own research - I've been wrong before, pardner.

On a more sobering note, molybdenum spot prices are still below $12 per pound level. Here are the latest numbers compliments of Thompson Creek Metals (TC):

Metals Week Weekly Average:
US$11.365

As of February 8, 2013
(updated weekly)

Ryan's Notes Average:
US$11.35

As of February 12, 2013
(updated twice weekly)

The London Metal Exchange (LME) futures contracts also remains below $12, and the 3-month contact is now in backwardation relative to spot prices - rarely a positive sign for this market.

3-month seller's contract $24,800 per metric ton ($11.25 per pound)

15-month seller's contract $25,520 per metric ton ($11.58 per pound)

A Reader's Pros and Cons for Buying General Moly Now

A faithful reader of this report and longtime General Moly investor sent me his list of pros and cons for buying General Moly shares at last week's depressed prices. He tells the Eureka Miner that he is net positive when he considers the following list:

Pros for buying GMO

Share price is approximately the same price as before permitting
Price is the same price as before 100MM POSCO contribution
Close to final terms sheet from Hanlong
Price went down during Chinese New Year holiday break
IR is going to agressively promote GMO near the construction phase

Cons


Price of moly going lower
Potential for front running

No earnings for 2 years
Commodity prices in doldrums
Could be head fake on economy rebound
Europe economy very weak


Again, please create your own list of trade-offs - research is key, we are in some very treacherous markets.

Where do gold, silver and copper prices go next week? 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



02/15/2013 (10:49AM CT)

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

A. Down, $1,600 per ounce target.

Q. Why?

A. Gold has had a terrible week ending with a sharp Friday morning sell-off plumbing a Comex intraday low of $1,596.70. There have been two primary drivers - a World Gold Council report that 2012 gold demand fell 4% compared to a year ago and U.S. SEC fourth-quarter filings that show a number of high-profile fund managers such as George Soros have reduced their holdings in gold exchange-traded products.

The yellow metal has lost significantly more value relative to oil and copper as well as the broader markets this week.

Technically, negative 1-month and 3-month rolling correlations between gold and global commodities oil and copper are all negative. This is a relatively rare event occurring less than 5% of the time since mid-2006 (Ref 3). With broader markets continuing their upswing, the likely explanation is that gold is rapidly losing the premium it has accumulated over the last 6-1/2 years as gold-to-oil and gold-to-copper ratios move closer to historical norms.

Although this trend may take gold price much lower in the coming months, the return of Chinese traders next week should give gold some support at the key-$1,600 level.

For $1,600 per ounce gold we can expect to see silver in a range of $29.4-$30.3 per ounce; and copper in a range of $3.71-$3.79 per pound. Silver and copper are expected to have a negative bias below their range means ($29.876 & $3.7498 respectively).

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 91.08, a multi-month low below the key-100 level and 1-month moving average of 92.98 (bearish gold trend). The 2012 high was 103.73 on Nov. 13.

The ratio of gold-to-the S&P 500 (AUSP) is now 16.8% below its 2012 high (1.2710, Nov.15) at 1.0571. The latest price action indicates gold has lost considerable value relative to the broader market.

Background Notes:
  1. My gold target price of $1,600 per ounce is a key psychological level.
  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 different technique was used to predict the price range for copper given the high negative correlation with gold.
  3. My Gold Value Index© (GVI) equals 91.08 or 12.2% below the 2012 high of 103.73. Today gold value is below its 1-month moving average of 92.98; 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 431.08 pounds per ounce and below its 3-month moving average of 461.72 and 6-1/2 year trend of 487.74. Falling below the long-term trend line is a bullish indication for the red metal (Ref 2).  The 1-month gold-to-copper ratio stability is a low 1.92%. The 1-month rolling correlation is -0.31; 3-month is -0.52. 3-month relative volatility is 1.24X gold and price sensitivity (beta) is -0.65
  5. The gold-to-silver ratio (GSR) is above its historical norm at 53.746; the 3-month rolling correlation is +0.89, relative volatility is 2.58X gold and price sensitivity (beta) is +2.09. The GSR is above its 3-month average of 53.04; the 1-month gold-to-silver ratio stability is an extremely low 0.72%.

Ref 2: Oil, Copper & Gold – All in the Family (Kitco News, 01/22/2012) 
Ref 3: Oil, Copper & Gold – Beware the Snake? (Kitco News, 02/11/2012)


Cheers,

Colonel Possum

Headline photograph by Mariana Titus

Please checkout bayoutales.com for books and book orders

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Friday, February 8, 2013

Year of the Snake; The Colonel's Gold, Silver & Copper prices for Next Week

Angel Light, Eureka, Nevada
 
Latest Nevada Gas Prices (click this link)

My latest Kitco commentary: Oil, Copper & Gold – Beware the Snake? (02/11/2013)

Friday's morning prices...

COMEX Gold price = $1,668.1/oz (April contract most active)

COMEX Silver = $31.445/oz (March)
COMEX Copper = $3.7565/lb (March)
NYMEX WTI crude = $96.31/bbl (March)
ICE Brent crude = $118.67/bbl (March)
Eureka Miner’s Gold Value Index© (GVI) = 92.74 (gold value is elevated but falling with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,502.9/oz
COMEX - VAGP = $165.2/oz; gold is trading at a decreasing premium to key commodities.



Morning Miners!

A mixed week for gold prices which are trading near the middle of their range while silver and copper get a boost this morning from some upbeat data from China (see Kitco Gold Survey below). China's exports surged 25% and imports climbed 29%, both well ahead of the previous month's increases. As we begin the Chinese Lunar New Year holiday next week, it is not expected that the metals will vary too much from current prices. We will see where the Year of the Snake takes us after Chinese traders return to the marketplace.

The broader markets continue to move skyward with the S&P 500 at new highs this morning presently posting 1,517.14. To give this some perspective, the S&P closing high of October 9, 2007 was 1,565.15 which then fell all the way down to a close at 676.53 on March 9, 2009 during the Great Recession. Markets are resilient, we've come a long way back, pardner.

The moly miners are struggling to regain ground lost to earlier highs this year. Moly benchmark miner Thompson Creek (TC) and General Moly (GMO) both made intraday highs on Jan. 7 but have fallen since:

Thompson Creek (TC) $4.55 (01/07) $4.02 (this morning) down 11.5%
General Moly (GMO) $4.25 (01/07) $3.52 (this morning) down 22.1%

Bellwether miner Freeport McMoran (FCX) which produces copper, gold and moly has fared much better:

Freeport McMoran (FCX) $31.10 (01/07) $35.69 (this morning) up 14.8%

One of the overhangs for pure play moly miners is the lackluster steel consumption outlook for Europe as reported by Steel Business Briefing February 5:

2013 prospects remain bleak, mild recovery in 2014, Eurofer
"European apparent steel consumption will fall again slightly in 2013, before improving in 2014, the European steel association Eurofer said on Tuesday.

In a new report it said activity in the main steel-using sectors is expected to register a further decline this year due to the continuation of difficult operating conditions in the EU, particularly in construction and automotive. A mild rebound is forecast for 2014, in line with the expected economic recovery in the EU."

A lot rests on the U.S., China and Japan to fill the gap in steel demand. South Korean steelmaker POSCO (PKX) and 20% owner of Mt. Hope is less sensitive to Europe but has also struggled since the begining of 2013:

POSCO (PKX) $86.8 (01/07) $81.58 (this morning) down 6.0%

Molybdenum spot prices have stabilized below $12 per pound level. Here are the latest numbers compliments of Thompson Creek Metals (TC):

Metals Week Weekly Average:
US$11.545

As of February 4, 2013
(updated weekly)

Ryan's Notes Average:
US$11.50

As of February 5, 2013
(updated twice weekly)

The London Metal Exchange (LME) futures contracts also remains below $12 per pound, slightly higher than spot prices.

3-month seller's contract $25,800 per metric ton ($11.70 per pound)

15-month seller's contract $26,280 per metric ton ($11.92 per pound)

Where do gold, silver and copper prices go next week? 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


Last week the ole Colonel was on the road. For the record this was this was the input to the Kitco Gold Survey last week:


For $1,665 per ounce gold we can expect to see silver in a range of $29.6-$31.8 per ounce; and copper in a range of $3.59-$3.77 per pound. Silver and copper are expected to have a positive bias above their range means ($30.704 & $3.6830 respectively) while gold remains in neutral position.


Here is my input to the Kitco Gold Survey this morning:

02/08/2013 (10:18AM CT)

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

A. Sideways, $1,670 per ounce target.

Q. Why?

A. Gold was whipsawed this week by comments of ECB president Mario Draghi especially his inference that the euro’s strength could hamper an economic recovery. Since then the euro has fallen below 1.34 after reaching a high last Friday of 1.3771 and gold has returned to its trading range mean. Upbeat China data this morning has boosted copper and silver but has had little material effect on the yellow metal. With next week’s break for China’s Lunar New Holiday, not much is on the horizon to move gold higher or lower. My target of $1,670 per ounce is therefore the range mean of the Jan. 31 high and Feb. 5 low ($1,687.0 and $1,653.2 per ounce).

Technically, negative 3-month rolling correlations between gold and global commodities oil and copper continue to be troubling exacerbated by weakening 1-month correlations (Ref 6). Oil, copper and gold do best as a group when gold behaves as a commodity (i.e. positive correlations).

For $1,670 per ounce gold we can expect to see silver in a range of $30.1-$31.8 per ounce; and copper in a range of $3.63-$3.86 per pound. Silver and copper are expected to have a positive bias above their range means ($30.970 & $3.7459 respectively) while gold remains in neutral position.

The yellow metal has recovered some value relative to oil and copper as well as the broader markets this week.

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 92.74, staying below the key-100 level and 1-month moving average of 93.77 (bearish gold trend). The 2012 high was 103.73 on Nov. 13.

The ratio of gold-to-the S&P 500 (AUSP) is now 13.5% below its 2012 high (1.2710, Nov.15) at 1.0997. The latest price action indicates gold has lost considerable value relative to the broader market but may be forming a bottom.

Background Notes:
  1. My gold target price of $1,670 per ounce is the geometric mean of the given highs and lows
  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.
  3. My Gold Value Index© (GVI) equals 91.76 or 11.5% below the 2012 high of 103.73. Today gold value is below its 1-month moving average of 93.77; 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 444.06 pounds per ounce and below its 3-month moving average of 466.51 and 6-1/2 year trend of 486.89. 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 a very low 1.56%. The 1-month rolling correlation is -0.12; 3-month is -0.54. 3-month relative volatility is 2.67X gold and price sensitivity (beta) is -0.81
  5. The gold-to-silver ratio (GSR) is above its historical norm at 53.031; the 3-month rolling correlation is +0.87, relative volatility is 2.28X gold and price sensitivity (beta) is +1.98. The GSR is near its 3-month average of 53.02; the 1-month gold-to-silver ratio stability is a very low 1.33%.
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)
Ref 5: The 2013 Copper & Gold Conundrum (Kitco News, 01/07/2012)
Ref 6: Oil, Copper & Gold – All in the Family (Kitco News, 01/22/2012)

Cheers,

Colonel Possum

Headline photograph by Mariana Titus

Please checkout bayoutales.com for books and book orders

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market