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


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) 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, April 19, 2013

Gold, Miners Up (Slightly) after Big Down; The Colonel's Metal Prices for Next Week

Car Crash, Eureka, Nevada


This week General Moly posted a very detailed briefing for investors on the status of Mt. Hope molybdenum project:

General Moly Investor Presentation

See earlier March 22 and March 29 reports for a full chronology of the $665 million Hanlong loan suspension.

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:  Copper & Gold – Is April the Cruelest Month? (04/22/2013)

Paintings by Mariana Titus, The Three Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday's morning prices...

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

COMEX Gold price = $1,404.5/oz (June contract most active)

COMEX Silver = $23.365/oz (May)
COMEX Copper = $3.1200/lb (May)
NYMEX WTI crude = $88.02 (May)
ICE Brent crude = $99.43/bbl (May)

Eureka Miner’s Gold Value Index© (GVI) = 93.61 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,253.6/oz
COMEX - VAGP = $150.9/oz; gold is still trading at a premium to key commodities.

Good Morning Miners!

I must admit the developments in Boston have the ole Colonel pinned to the television this morning - a horrific week from Boston to Texas with carnage in the commodity markets too. Gold plumbed a low of $1,321.6 per ounce and copper nearly broke $3 per pound at $3.0600 per pound. Thankfully both have recovered some this morning along with the miners:

Barrick Gold (ABX) $18.39 up 2.28%
Newmont (NEM) $32.94 up 0.52%
General Moly $1.87 up 2.75%

Today's commentary is taken from an e-mail I sent yesterday to a good friend who made me aware of General Moly's recent investor presentation (link below headline photo):

Very confusing commodity world - I delayed my usual bi-weekly Kitco commentary on Oil, Copper & Gold until next Monday.

The key issue to me is if we are seeing a breakdown in gold valuation relative to global commodities oil & copper (=> "is the gold bull run over?" and "is the commodity super-cycle over?" are interrelated questions in my view) . Tom McClellan (McClellan oscillator has been checking my [gold ratio stability] work and asking good questions). My colleague in Mumbai has been giving me interesting inputs on physical buying there. I won't have a new opinion on these three commodities until Monday.

Nonetheless, I have just trimmed and not exited my [Freeport McMoRan] FCX position and, of course, still hanging in there with [General Moly] GMO. As bad as this week has been, the fact that everything is going down together actually gives me some hope. 3,000+ tonnes of SIC PIG [Spain Italy, Cyprus, Portugal, Ireland, Greece] central bank gold is the scariest number for me if there is some panic liquidation in Europe. Large inventories of copper and increased supply should find balance unless China rolls over. GDP falling from 8.0% to 7.7% is still growth, the Germans are still building cars and Americans are building houses again.

Not the good ole days for sure but not the end of the world either.

I'm actually more worried about Barrick than General Moly, GMO presentation [link below headline photo] was encouraging.


(Colonel's e-mail, 4:53 PM PDT, April 18, 2013)

Please do your own analysis, pardner. The Colonel has been dead wrong in the past and markets can turn on you faster than a feral cat.

Keep the faith - we've been through worse.

Molybdenum Prices

Spot moly oxide prices broke above the key-$11 per pound which is great news. Here are the latest numbers compliments of moly benchmark miner  Thompson Creek (TC):

Metals Week Weekly Average: US$11.00 As of April 15, 2013 (updated weekly)

Ryan's Notes Average: US$11.20 As of April 16, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are holding above $11 per pound this week which remains encouraging. Remember that this is a thinly traded futures market and contract prices reflect developments in Europe probably more than the global spot price averages above.

3-month seller's contract $24,500 per metric ton ($11.11 per pound)

15-month seller's contract $25,200 per metric ton ($11.43 per pound)

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

Here is my weekly input to the Kitco Gold Survey :

04/19/2013 (10:39 AM CT)

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

Up, $1,425 per ounce target.

2.      Why?

Another challenging week for gold and commodities started with a bout of panic selling Monday. Global commodities oil and copper and companion metal silver are highly correlated with gold on both a short-term (1-month>+0.85) and mid-term (3-month >0.8) basis. Although all went together, gold has recovered value relative to all three by this Friday morning’s trading.

Different from last week, the S&P 500 is now trending down instead of posting new record highs. In this light, gold is also recovering value relative to equities after very bearishly breaking to the downside Monday as illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

Since mid-November, the ratio has been in a descending channel with rotation of money away from gold assets into the U.S. stock market with gold losing more than 20% of value relative to equities from the November peak (AUSP=1.2710). Monday trading broke below the channel to score a low of 0.8768. This morning the AUSP has moved up to 0.9438 signaling some stabilization.

The new dichotomy for gold is a strong pickup in physical buying in Asia balanced by continued outflows in gold exchange traded funds. This will probably limit the upside for the yellow metal against a backdrop of bearish influences including fear of gold liquidation by central banks in the troubled southern countries of the euro-zone and the eventual unwind of the Federal Reserve from its present generously accommodative policies. Gold will probably recover some next week but find resistance at today’s intraday high ($1,424.7 per ounce).

My target is therefore at the former level of support at $1,425 per ounce – above the mean of the Feb. 15 high ($1,495.0) and this week’s low ($1,321.5).

For $1,550 per ounce gold we can expect to see silver in a range of $23.4-$25.8 per ounce; and copper in a range of $3.88-$3.33 per pound. Silver is expected to have a negative bias with respect a range mean of $24.590 per ounce; copper, a neutral bias with respect to a mean of $3.1053 per pound.

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 5)

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 93.61, below the key-100 level and the 1-month moving average of 94.09. The 2012 high was 103.73 on Nov. 13.

Background Notes:
  1. My gold target price of $1,425 per ounce is at today’s intraday high of 1,424.7
  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 93.61 or 9.8% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 94.09; 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 450.16 pounds per ounce and close to its 3-month moving average of 451.34 and below its 6-1/2 year trend of 492.1. The 1-month gold-to-copper ratio stability is on the rise at 3.58%. The 1-month rolling correlation is +0.88; 3-month is +0.85. 3-month relative volatility is 1.00X gold and price sensitivity (beta) is +10.847.
  5. The gold-to-silver ratio (GSR) is above its historical norm at 60.110; the 3-month rolling correlation is +0.97, relative volatility is 1.67X gold and price sensitivity (beta) is +1.62. The GSR is above its 3-month average of 55.18; the 1-month gold-to-silver ratio stability is a low 2.37%.
  6. Although gold has lost considerable value relative to oil and copper since early November, the uptrend in gold value relative to these global commodities has remained 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 have remained quite stable* unlike the early-October 2011 commodity debacle following the U.S. debt downgrade (Ref 4). There are, however, signs this week that divergent ratios are possible:
    1. Au:WTI -1.15 sigma below 6-1/2 year trend line; Au:Cu -0.67 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 3.3% (3.2% 10/6/11); Au:Cu 3.6% (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, 01/22/2013)
Ref 3: Oil, Copper & Gold – Beware the Snake? (Kitco News, 02/11/2013)
Ref 4: Oil, Copper & Gold – Don’t Worry (Kitco News, 02/25/2013)
Ref 5: The Emperor of Metals Heeds a Warning from Copper (Kitco News, 03/11/2013)


Colonel Possum

Inset painting and headline photo by Mariana Titus

Please checkout bayoutales.com for books and book orders

Paintings by Mariana Titus, The Three Anas, are presently at Lafitte Guest House & Gallery, New Orleans

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

No comments:

Post a Comment