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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 = $1,581.8/oz (April contract most active)
COMEX Silver = $28.600/oz (May)
COMEX Copper = $3.4910/lb (May)
NYMEX WTI crude = $90.72/bbl (April)
ICE Brent crude = $110.00/bbl (April)
Eureka Miner’s Gold Value Index© (GVI) = 94.66 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,396.3/oz
COMEX - VAGP = $185.5/oz; gold is trading at a rising premium to key commodities.
Morning Miners!
This has been another topsy-turvy week for the metals and miners. Gold is trading presently at $1,581.8 per ounce this morning, up a bit compared to last Friday's close of $1,572.8 - the ole Colonel had set $1575 for a target. Pretty mild price action until you look at what happened during the week; the gold high was $1,619.7 Tuesday and the low was $1,564.0 early this morning - a greater than $55 per ounce spread.
As I explain in the Kitco weekly survey input below, gold price is being pulled by opposing forces, up and down. For the red metal it's mostly down with copper hitting new lows for the year this morning at $3.472 per pound, recovering a bit to trade at $3.4910. The impending sequester today and a downbeat economic assessment coming from China aren't helping expectations for base metals. A pretty dramatic pullback when you consider copper was in the $3.80 neighborhood prior to Chinese Lunar New Year.
General Moly (GMO) stock got a bruising this week too. This news came across the wire Tuesday causing a nearly 10% downdraft to share price:
08:44 AM EST, 02/26/2013 (MidnightTrader) -- Shares of General Moly (GMO:$2.99,00$-0.12,00-3.86%) are down 10% at $2.80 in pre-market, after the company disclosed in an SEC filing today that on February 15, 2013, Great Basin Resource Watch and the Western Shoshone Defense Project filed a Complaint against the Bureau of Land Management (BLM) in the U.S. District Court, District of Nevada, seeking relief under National Environmental Policy Act and other federal laws challenging the BLM's issuance of the Record of Decision (ROD) for the company's Mt. Hope project. The company has not been named as a defendant in the suit but will closely monitor the litigation and at the appropriate time will seek to intervene in the suit. The company says it cannot reasonably predict the final outcome of this complaint, and an unfavorable outcome could result in additional conditions on operations that could have a material adverse effect on the company's financial position or results of operations. Price: 2.80, Change: -0.31, Percent Change: -9.97%
I plan to do a little digging on this one next week and there has been no official press release to date from General Moly to address the filing further. Besides this bump in the road, GMO is feeling the pressures all miners share given the emerging realities of 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 facing high unemployment and daunting fiscal challenges. General Moly is getting a little relief today up 0.7% at $2.94 but is still below the $3-level.
For several weeks, this report has used the 300-day share price average as a yardstick for gauging the relative performance of steel producers and moly miners. Here is the latest update of where they are this morning, the percent change in parentheses is last week's number:
POSCO (PKX) $82.53 (300 dma) $80.44 (this morning) -2.5% (+0.1%)
ArcelorMittal (MT) $16.86 (300 dma) $14.56 (this morning) -13.6% (-9.8%)
Thompson Creek (TC) $4.58 (300 dma) $3.31 (this morning) -27.7% (-23.9%)
General Moly (GMO) $3.30 (300 dma) $2.94 (this morning) -10.9% (-2.7%)
All are down more than last week but South Korean steel producer POSCO and General Moly have fared better than global steel producer ArcelorMittal and moly benchmark producer Thompson Creek but the difference is narrowing. For comparison, the S&P 500 is 9.1% above its 300-day average (9% last Friday). Barrick Gold (ABX) dipped below $30 per share this morning presently at $29.51 and nearly 25% (22% last Friday) below the same average. Miners are a hurting lot lately.
Molybdenum Prices
Spot moly oxide prices are still below $12 per pound level and changed only pennies from last week. Here are the latest numbers:
Metals Week Weekly Average:
US$11.225
As of February 25, 2013
(updated weekly)
Ryan's Notes Average:
US$11.25
As of February 26, 2013
(updated twice weekly)
The London Metal Exchange (LME) futures contracts also remains below $12, but the 3-month contact is remains aligned with spot prices. Both the short and the long term contract got a small move down.
3-month seller's contract $24,700 per metric ton ($11.20 per pound)
15-month seller's contract $25,390 per metric ton ($11.52 per pound)
The Colonel's Gold, Silver & Copper Prices for Next Week
Here is my weekly input to Kitco Gold Survey:
03/01/2013
(10:47 AM CT)
Q. Where do you see gold’s price headed next week, up, down or unchanged?
A. Unchanged,
$1,590 per ounce target.
Q. Why?
A. Gold
price has experienced a number of opposing forces lately. On the downside, there
have been money flows from gold accounts to equities as the broader markets
reach highs not seen since October, 2007. Also the U.S. dollar has strengthened
against the euro with worsening conditions in Europe exacerbated by a confused
Italian election outcome and record high unemployment. This morning, the U.S.
dollar index made a 6-month high.
On
the other hand, gold is regaining value relative to global commodities oil and
copper on downbeat assessments of China’s true economic strength. China PMI
today was just above contraction at 50.1 versus an expected 50.5 and a January
50.4. There are also indications that domestic as well as foreign demand may be
falling pushing copper prices to levels not seen since last November.
Reassurances from the U.S. Federal Reserve this week that low interest rates
and accommodative policy will be in place for a long time also gave a boost to
gold prices.
My
target of $1,590 per ounce is a positive bias above the mean of February’s high
($1,619.7, Feb. 26) and low ($1,554.3, Feb. 21) representing a slight
improvement from this morning’s prices.
Since November, the
yellow metal has lost considerable value relative to global commodities oil and
copper. Recently, gold has recovered some ground from mid-February value lows.
If the long-term gold
value uptrend relative to oil and copper remains intact, the longer term
prospects for gold priced in dollars are good. The data suggest that this is
still the case (Note 6, Ref 4)
For
$1,590 per ounce gold we can expect to see silver in a range of $28.3-$30.6 per
ounce; and copper in a range of $3.44-$3.60 per pound. Silver and copper are
expected to have a negative bias below their range means of $29.459 per ounce
and $3.5236 per pound 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 94.66, below the key-100 level but above the 1-month
moving average of 92.55. The 2012 high was 103.73 on Nov. 13.
The
ratio of gold-to-the S&P 500 (AUSP) is now 17.2% below its 2012 high (1.2710,
Nov.15) at 1.0525. The latest price action indicates gold is regaining some
value relative to the broader market, up 1.4% from its Feb. 20 low of 1.0384.
Background
Notes:
- My gold target price of $1,590 per ounce is a slight positive bias above the geometric mean of $1,586.7 per ounce given the stated range highs and lows
- 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.
- My Gold Value Index© (GVI) equals 94.66 or 8.7% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 92.55; 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 453.11 pounds per ounce and below its 3-month moving average of 454.83 and 6-1/2 year trend of 487.74. The 1-month gold-to-copper ratio stability is a very low 1.14%. The 1-month rolling correlation is +0.91; 3-month is +0.38. 3-month relative volatility is 0.86X gold and price sensitivity (beta) is +0.3220
- The gold-to-silver ratio (GSR) is above its historical norm at 55.308; the 3-month rolling correlation is +0.99, relative volatility is 1.80X gold and price sensitivity (beta) is +1.82. The GSR is above its 3-month average of 53.51; the 1-month gold-to-silver ratio stability is a low 2.00%.
- 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 (Ref 4):
- Au:WTI -0.58 sigma below 6-1/2 year trend line; Au:Cu -0.55 sigma below trend (charts attached) - I consider > 2-sigma indicative of a potential breakdown
- Au:WTI 1-month stability* 1.6% (3.2% 10/6/11); Au:Cu 1.1% (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)
Cheers,
Colonel Possum
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