"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.

Monday, February 28, 2011

Gold's Dramatic Drop in Value - Metals & Miners Weekly Roundup


Morning Miners!

It is 5:49 AM. Have a hot cup of get-back-to-work and let's do just that - things may be looking up (a bit)...

Oil & Metals Outlook

Oil producers Saudi Arabia and Kuwait appear ready to make up for crude supplies lost due to the unrest in Libya, stabilizing oil prices for the time being. COMEX copper continued its Friday rally to break $4.5/lb and then fell back a thin flat washer to $4.4875/lb. Gold and silver couldn't decide whether to be up or down as shown in these charts of morning trading in the London spot market:




The closely watched gold/silver ratio is at an exceptionally low 42.2 with COMEX gold trading at $1409.2/oz and silver, at $33.360/oz. The Report often reminds the reader that the gold/silver ratio was in a range of 50-56 before the collapse of Lehman Brothers and at the height of the financial crisis the ratio spiked above the 80s. The ratio is presently at decade lows.

No records yet today - here is the record book for our big three metals together with NYMEX and ICE Brent crude oil:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $34.330/oz 20:00:00 ET 02/21/2011, March contract most active
COMEX Copper $4.6375/lb 06:15:00 ET 02/04/2011, March contract most active
NYMEX WTI Crude $103.41/bbl 02:45:00 ET, 02/24/2011, April contract most active
ICE Brent crude $119.79/bbl 02:45:00 ET 02/24/2011, April contract most active

Gold's dramatic drop in value

The following may be useful to understand gold’s dramatic drop in value relative to oil, copper and silver over the last three months (Note: This comparison uses the NYMEX/COMEX mid-day prices for oil, gold, copper & silver for November 26th, 2010 and February 25th, 2011).

Around Thanksgiving time last year oil was in the low $80s per barrel and copper traded for less than $4 per pound. One could buy about 22 pounds of COMEX copper with one barrel of NYMEX light sweet crude.

In early February, copper set a new record trading above $4.6 per pound and last week we saw NYMEX oil break $100 per barrel. Surprisingly, one barrel of oil still fetches 22 pounds of copper. Both have retreated from their highs but oil remains in the high-$90s and copper has bounced to back to about $4.4/lb.

Although gold has risen again above $1400 per ounce it has lost considerable value with respect to both oil and copper over the last three months. Turkey time saw gold in the $1360s and one ounce of glitter bought a bit more than of 16 barrels of oil and 360 pounds of copper. Now an ounce of gold is only worth 14.5 barrels of oil and 320 pounds of the red metal.

Gold’s drop in value with respect to silver is also startling. For the same time period, an ounce of gold in mid-November could buy 51 ounces of silver; now only 43.
(CP Analytics, 2/25/2011)

Note: This morning's numbers don't change this 2/25 comparison by very much:

oil:copper 21.75 lbs/bbl
gold:oil 14.45 bbl/oz
gold:copper 314.2 lbs/oz
gold:silver 42.24 oz/oz

3-month statistics for these ratios are given later in this blog.

Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line is the EMI with a low interest cap of 3% on 10-year Treasurys (LIRC) and adjustments for gold and silver prices (i.e., Au:Ag ratio). A 1-month moving average is given by the blue line (a larger, more readable chart can be found near the bottom of the blog page):


This morning the Eureka Miner's Index(EMI) is above-par at 532.34, up from from Friday's close at 487.86 and just below the 1-month moving average of 547.97. The EMI continues to be down from the high set on January 4th but a trend reversal may again be in the works with a new 2011 low set February 24th.

The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa. It is still above $100/bbl with a large but narrowing spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the most active front-month contracts as of this morning:

NYMEX light sweet crude $97.53
ICE North Sea Brent crude $112.12
Spread (ICE- NYMEX) = $14.59 (Last Friday $14.33)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $99.91
ICE North Sea Brent crude $111.72
Spread (ICE- NYMEX) = $11.81 (Last Friday $11.65)

Although prices are off their crisis highs, we still have $100+ Brent in June favoring higher oil prices for the summer. My December prediction that we will see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners. With supply and demand fundamentals driving the commodity space again, diminishing correlations between key commodities are less alarming but trends should still be carefully monitored.

Here are the latest correlations given this morning's NYMEX/COMEX trading:

Oil/Au correlation +0.6258 (1-month) +0.3941 (3-month)
Cu/Au correlation -0.3356 (1-month) -0.3349 (3-month)
Cu/Oil correlation -0.6059 (1-month) +0.1798 (3-month)

Here are the numbers from the last roundup (2/12/2011):

Oil/Au correlation +0.1642 (1-month) +0.2414 (3-month)
Cu/Au correlation 0.4035 (1-month) -0.2320 (3-month)
Cu/Oil correlation -0.0654 (1-month) +0.5060 (3-month)

We now have as many negative as positive correlations. Oil and gold have strengthened in a positive direction; copper and gold have weakened into a solid inversion (i.e. both one-month & three-month value correlations are negative). Copper and oil are mixed. Typically this a bullish trend for oil and a bearish development for copper - the metals & miners tend to do best when all correlations are positive. However, gold's recent loss of value with respect to key commodities (see above) clouds this bull/bear argument. Stay tuned.

According to my February models: oil is presently overvalued with respect to gold by +3.02-standard deviations and copper is overvalued by 1.43-standard deviations. Copper is presently under-valued with respect to oil by -2.62-standard deviations. Copper is presently undervalued with respect to oil by a -2.62-standard deviations.

One way to visualize these correlations over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations (aka "rho") as shown below in a graph of oil versus gold and copper versus gold. The blue line indicates the correlation trajectory since October 1st; the magenta line is more recent data (ref: China to the Rescue?):




In the case of oil versus gold, we start out on 10/1/10 in the "+,-" or "yellow" quadrant and move upward until both are positively correlated (i.e. in the "+,+" or "green" quadrant). Copper correlated positively faster than oil last fall and has was initially in the green quadrant longer. Correlation data in this region is typically considered bullish. After a brief venture into the "-,+" quadrant, the return of oil vs gold to the "+,+" side is bullish; the movement of copper vs gold into the "-,-" inversion region is a bearish development.

Gold:Oil, Oil:Copper & Gold:Copper Ratios

The Report has been tracking the stability of the gold:oil, oil:copper & gold:copper ratios. Although they ended last year rock solid (<3% variation, 1-standard deviation/mean) the ratios diverged and now appear to be stabilizing. The period of divergence is what prompted my January 14th comment to Adella Harding, Elko Daily Free Press, "The recent divergence of our lustrous friend [gold] from copper and oil...may signal a near-term correction for the overall metals and mining sector.".

Here is a plot of the variation for both ratios as well as the copper/oil ratio (a larger, more readable chart can be found near the bottom of the blog page):



Once the ratios exceed 3% error, they become less useful in predicting the price moves of one commodity with respect to the another in the ratio pair. However, the gold/oil ratio is nearly 3% again.

For the past 3-months we have these statistics given this mornings' numbers:

Gold:Oil ratio

mean 15.37 bbl/oz
variation > 3.0% limit at 3.11% (1-standard deviation/mean)

Oil:Copper ratio

mean 20.76 lbs/bbl
variation > 3.0% limit at 4.91% (1-standard deviation/mean)

Gold:Copper ratio

mean 319.8 lbs/oz
variation > 3.0% limit at 5.33% (1-standard deviation/mean)

Weekly Molybdenum Roundup



Spot prices for molybdenum oxide remain in $17/lb territory out West and in Europe. Euro moly spot is now in backwardation with both 3-month and 15-month London Metal Exchange (LME) seller contracts. Western Moly is in a very weak contango with both contracts (contango occurs when the price of a commodity for future delivery is higher than the spot price, or a far future delivery price is higher than a nearer future delivery; backwardation is the opposite of contango).

Last Wednesday's report suggested a drop in London Metal Exchange molybdenum futures prices may be a harbinger for lower prices in the moly oxide spot markets in the short term. Here is an interesting article from Platts Resources that backs up that concern:

Moly oxide slides on slow end-user buying and trader liquidations (Platts Metals, 2/24/2011)

The 3-month seller at $17.06/lb is comfortably above the Colonel's mid-range moly price target for 2010 of $15.71/lb but below my target of $20.21/lb for 2011. The Report will give moly prices a "yellow-green" light on the Eureka Outlook Dashboard for now because I do believe we could see much higher prices this year. There is an excellent analysis of the supply/demand argument for $20+/lb moly provided by General Moly's Seth Foreman in the General Moly Update.

Here is a detailed pricing summary for last week:

Western Moly Oxide $17.00/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.75/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $39,990/metric ton $16.78/lb

3-Month (Buyer) $36,600/metric ton $16.60/lb
3-Month (Seller) $37,600/metric ton $17.06/lb

15-Month (Buyer) $37,775/metric ton $17.13/lb
15-Month (Seller) $38,775/metric ton $17.59/lb

Last Tuesday was the one-year anniversary of the molybdenum futures market. Here is a chart of the LME 3-month contract (seller) from the February launch to the present:



Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is ON - The metals & miners are still in a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is just below its 100-day moving average and safely above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.35 in early trading at $97.53 (April contract, most active); Gold is down $0.10 to $1409.2 (April contract, most active); Silver is up $0.437 to $33.360 (May contract, most active); Copper is up $0.0295 to $4.4845 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.75; LME moly 3-month seller's contract is $17.06, LME cash seller is $16.78

Stock Market Morning Update

The DOW is up 72.24 points to 12,202.69; the S&P 500 is up 6.48 to 1326.36. Miners are mixed:

Barrick (ABX) $52.05 up 0.33%
Newmont (NEM) $54.20 down 0.48%
US Gold (UXG) $7.34 up 1.66%
General Moly (Eureka Moly, LLC) (GMO) $5.42 up 2.46%
Thompson Creek (TC) $13.60 up 0.07%
Freeport-McMoRan (FCX) $53.21 up 1.45% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are up (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $36.85 up 2.36% - global steel producer
POSCO (PKX) $102.89 up 0.62% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.05% at $1,801,353.97 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

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

Headline Photograph by Mariana Titus

Friday, February 25, 2011

Buy Freeport (FCX)? Moly Oxide Under Pressure



Morning Miners!

It is 5:50 AM. Have a welcome cup of Raine's TGIF. It has been quite a week...


The Dollar, Gold & Oil


Nothing like a little chaos in the Middle East to set the markets on their head. There are a few rays of light this morning with NYMEX oil below $100/gal and COMEX copper enjoying a nice bounce. Oil and gold - two key indicators of how the world markets see the path going forward. I thought it might be good to look at both in relation to COMEX gold and the U.S. dollar index to gauge just where we are in this dipsy-doodle. Our first chart is COMEX gold (blue) versus the U.S. Dollar Index (DXY, orange) for the last three months:



Both fell together during January but gold got a nice lift when the crisis in Egypt errupted. It pulled back but then resumed its ascent to $1400+/oz territory when Lybia exploded. This is their 3-month relative performance:

COMEX gold up 2.5%
US Dollar Index (DXY) down 4.2%
DXY with respect to gold down 6.7%

Poor old greenback. Remember when it was the safe haven play when geo-political times got scary? Of course gold isn't making records here either. Let's see how NYMEX oil (blue) fared against the U.S. dollar, here is their chart:



Oil naturally got its biggest lift from the Libyan conflagaration starting in mid-February. Our oil/dollar comparison is:

NYMEX Oil up 15%
US Dollar Index (DXY) down 4.2%
DXY with respect to oil down 19.2%

Ouch. The ole Colonel wishes he could fit a barrel of oil in his wallet, it sure would buy more than Uncle Sam paper these days. To finish our comparisons let's look at oil versus gold and forget about the greenback:



NYMEX Oil up 15%
COMEX gold up 2.5%
Oil with repect to gold up 12.5%

At today's trading an ounce of gold will buy you 14.4 barrels of oil. Around Turkey Day last year you could buy 16.5 barrels. Gold just ain't what it used to be, pardner.

Buy Freeport (FCX)?

Here's one for the brave (or foolish) at heart. The miners have been getting beat up something terrible since mid-January. Even the big gold miners which got a nice lift on Libya have not been spared. Newmont reported a 45% increase in earnings yesterday and its share price got clobbered on nervousness about an expected decline in production for 2011. One of the worst performers lately has been copper giant Freeport-McMoRan (FCX) which has been wallowing around between its 100-day and 150-day moving averages on a drop in copper prices and new concerns about global growth.

Terrific! Copper is getting a nice pop today, FCX share price has been rising on high volume for the past two days and the Eureka Miner's Index(EMI) may have put in a new bottom yesterday (see below).

COMEX Copper may have also put in a new bottom at $4.225/lb yesterday. Support was $4.20/lb and this morning we're up nicely to $4.3845/lb. There is an expected copper deficit for 2011 explaining some of this resilience in a backdrop of Middle East turmoil.

The Colonel threw a few shares of FCX in the buckboard this morning. We'll see soon if he's just an old fool. Stay tuned.

Moly Oxide Under Pressure

Wednesday's report suggested a drop in London Metal Exchange molybdenum futures prices may be a harbinger for lower prices in the moly oxide spot markets in the short term. Here is an interesting article from Platts Resources that backs up that concern:

Moly oxide slides on slow end-user buying and trader liquidations (Platts Metals, 2/24/2011)

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East. The most active front month contract remains above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in this volatile region.

Here are the most active front month contracts as of this morning:

NYMEX light sweet crude $97.45
ICE North Sea Brent crude $111.78
Spread (ICE- NYMEX) = $14.33(yesterday $14.51)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $99.69
ICE North Sea Brent crude $111.34
Spread (ICE- NYMEX) = $11.65 (yesterday $11.28)

Although prices are off their crisis highs, we still have $100+ Brent in June favoring higher oil prices for the summer. Unfortunately my December prediction that we will see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 473.91 up from yesterday's new low for 2011 of 424.80 and below the 1-month moving average of 545.52. The EMI continues to be down from the high set on January 4th and a trend reversal in the short term may again be in the works.

The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI greater than 100 signals better times for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Eureka Outlook Dashboard

4-WD is ON - The miners are still in a rough patch but conditions are improving; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is trapped between its 100-day and 150-day moving averages but still above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.17 in early trading at $97.45 (April contract, most active); Gold is down $9.1 to $1406.7 (April contract, most active); Silver is down $0.290 to $32.890 (May contract, most active); Copper is up $0.0580 to $4.3845 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.75; LME moly 3-month seller's contract is $17.28, LME cash seller is $17.01

Stock Market Morning Update

The DOW is up 51.66 points to 12,120.16; the S&P 500 is up 10.20 at 1316.30. Miners are mixed:

Barrick (ABX) $51.84 up 1.51%
Newmont (NEM) $55.75 up 1.81%
US Gold (UXG) $7.18 up 0.56%
General Moly (Eureka Moly, LLC) (GMO) $5.29 up 0.95%
Thompson Creek (TC) $13.57 down 0.07%
Freeport-McMoRan (FCX) $52.51 up 1.25% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are up (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $35.98 up 1.81% - global steel producer
POSCO (PKX) $102.25 up 0.64% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.99% at $1,776,901.66(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

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

Thursday, February 24, 2011

Texas Sweet $103+/bbl; US Gold (UXG) Closes Sale



Þūnresdæg
Morning Miners!

It is 5:50 AM. Thor just made a new pot of Thunder, have a cup. He just reminded me to fill up our reserve tank with gasoline before we see $5.00 per gallon. There's no way I want that thunderbolt jockey around my fuel tanks when we're re-stocking, there's enough explosive news these days...

Eureka County in Photographs (circa 1940s)

Today we mark the end of our series of photographs by Arthur Rothstein who captured images of Eureka County in the early 1940s (more detail at the bottom of this blog). The headline photo shows cattle feeding time at the Horseshoe Ranch. This ranch is south-east of Beowawe at the north end of the county and south-west of Emigrant Pass which we talked about Tuesday. My favorite of the series is this haunting image of sky and snow near Emigrant Pass. There is something timeless here, the scene could be from any year and would have certainly been foreboding to settlers caught in an early snowstorm on the California Trail.



Oil & Metals Update

Sometimes it's no fun being right, especially when a prediction about higher fuel costs comes true. Oil and its byproducts are important costs to mining and can quickly offset gains from rising metal prices. On December 10th of last year I made three predictions for 2011. Before July Fourth,

NYMEX light crude will break $100/bbl

COMEX gold will break $1570/oz

COMEX silver will break $36/oz

Yesterday one floor trade brought NYMEX Texas light sweet crude to $100/bbl (see note 1). It soon fell back below $100 but then raced to a new high of $103.41/bbl in the wee hours of the morning. Both NYMEX crude and ICE Brent crude peaked at 02:45 ET, the latter hitting a jaw-dropping $119.79/bbl. When geo-political conflicts spiral out of control, the fundamentals of supply and demand are among the early casualties. Here is a Bloomberg article on that subject and the possibility of $220/bbl oil:

Oil Surges to $119 on Libya Crisis; Goldman Sees ‘Upside Risk’ (Grant Smith, Bloomberg News, Feb 24, 2011 5:14 AM PT)

Nuts.

Two things were a bit unexpected about yesterday's oil trade:

1) I thought that gold would move higher than it did on a $100/bbl NYMEX spike. This Report has been saying for some time that $100 oil should comfortably support $1500+/oz gold, this morning we are presently at $1414.2/oz. We've based our argument on the relatively stable gold/oil ratio which has a 3-month average value of 15.43. This morning the gold/oil ratio is a much lower 14.18, a full 2.7-standard deviations below the average. That is a lot of statistical gobble-de-gook to say the Colonel may be barking up the wrong tree.

2) The US dollar failed as a safe haven trade on recent Middle East tensions. The Swiss franc is the rising safe currency trade as the dollar plummets. The 5-yr Treasury auction was also dismal yesterday, CNBC Rick Santelli graded it at D-. Retreat from the dollar and Treasurys on geo-political turmoil is not a good sign. There is a thought that rising interest rates in Europe may draw money to the euro further weakening the dollar. Interest rates also put pressure on gold because our favorite metal does not generate income and perhaps sheds some light on our first item.

Stay tuned.

Let's update the records for our big three metals with the addition of both Brent and NYMEX crude:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $34.330/oz 20:00:00 ET 02/21/2011, March contract most active
COMEX Copper $4.6375/lb 06:15:00 ET 02/04/2011, March contract most active
NYMEX WTI Crude $103.41/bbl 02:45:00 ET, 02/24/2011, April contract most active
ICE Brent crude $119.79/bbl 02:45:00 ET 02/24/2011, April contract most active

US Gold (UXG) Closes Sale

US Gold (UXG) closed the sale of its latest stock offering. From their morning Press Release:

"US GOLD CORPORATION (UXG:$6.9500,$-0.1200,-1.70%) (the "Company" or "US Gold"), an exploration company focused on gold and silver in the United States and Mexico, announced today the closing of its previously announced underwritten offering in the United States and Canada. The company sold 17,250,000 shares of common stock, including 2,250,000 shares pursuant to the underwriters' full exercise of their over-allotment option at $6.50 per share for aggregate gross proceeds of $112.12 million, or net proceeds of $105.3 million after commissions and expenses.

US Gold intends to use the net proceeds from the offering to complete feasibility study work and acquire long lead-time capital items for the El Gallo Project in Mexico, complete pre-feasibility and feasibility work at the Gold Bar Project in Nevada, continue ongoing aggressive exploration programs in Mexico and Nevada and for general corporate purposes." (Press release, 2/24/2010)

US Gold is one of the twelve stocks in the Eureka Miner's Grubstake Portfolio. The Gold Bar Project is in Eureka County and was commonly called the "Atlas Mine" when it was in production in the late 1980s-early 1990s. The Colonel misses those times buckaroos.

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East. The most active front month contract remains above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in this volatile region.

Here are the most active front month contracts as of this morning:

NYMEX light sweet crude $99.73
ICE North Sea Brent crude $114.24
Spread (ICE- NYMEX) = $14.51 (yesterday $12.21)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $102.17
ICE North Sea Brent crude $113.45
Spread (ICE- NYMEX) = $11.28 (yesterday $9.36)

Although prices are off their crisis highs, we have $100+ Brent and NYMEX in June favoring higher oil prices for the summer. Unfortunately my December prediction that we will see NYMEX $100/bbl oil before the Fourth of July came true.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 408.67 but makes a new low for 2011; down from yesterday's 424.80 and below the 1-month moving average of 544.90. The EMI continues to be down from the high set on January 4th and a trend reversal in the short term now appears unlikely.

The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI greater than 100 signals better times for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Eureka Outlook Dashboard

4-WD is ON - The miners are still in a rough patch but conditions are improving; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is trapped between its 100-day and 150-day moving averages but still above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $1.63 in early trading at $96.73 (April contract, most active); Gold is up $0.2 to $1414.2 (April contract, most active); Silver is down $0.023 to $33.275 (March contract, most active); Copper is up $0.0325 to $4.3080 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.82; LME moly 3-month seller's contract is $17.28, LME cash seller is $17.01

Stock Market Morning Update

The DOW is up 3.21 points to 12,108.99; the S&P 500 is up 0.54 at 1307.94. Miners are mixed:

Barrick (ABX) $51.93 down 0.92%
Newmont (NEM) $57.63 down 2.50%
US Gold (UXG) $6.95 down 1.70%
General Moly (Eureka Moly, LLC) (GMO) $5.23 up 2.35%
Thompson Creek (TC) $13.61 up 0.89%
Freeport-McMoRan (FCX) $51.87 up 1.69% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are mixed (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $35.91 up 1.21% - global steel producer
POSCO (PKX) $102.58 down 0.52% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.16% at $1,772,369.30(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

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

Headline photograph from the Library of Congress

• Title: Feeding cattle. Horshoe Ranch, Eureka County, Nevada
• Creator(s): Rothstein, Arthur, 1915-1985, photographer
• Date Created/Published: 1940 Mar.
• Medium: 1 negative : safety ; 3 1/4 x 4 1/4 inches or smaller.
• Reproduction Number: LC-USF34-029687-D (b&w film neg.)

Inset photograph from the Library of Congress

• Title: Snow on Emigrant Pass. Eureka County, Nevada
• Creator(s): Rothstein, Arthur, 1915-1985, photographer
• Date Created/Published: 1940 Mar.
• Medium: 1 negative : safety ; 3 1/4 x 4 1/4 inches or smaller.
• Reproduction Number: LC-USF34-029685-D (b&w film neg.)

Rights Advisory: No known restrictions for either photograph. For information, see U.S. Farm Security Administration/Office of War Information Black & White

Wednesday, February 23, 2011

Brent Breaks $110/bbl; 1-Year for Miss Moly; LME Moly Drops



Wōdnesdæg
Morning Miners!

It is 5:52 AM. Have a brimming cup of Hump Day Splendor. Who's chuckling this morning? Old Miner Woden! Looks like I just lost another bet...

Eureka County in Photographs (circa 1940s)

Today's headline photograph continues our series of photographs by Arthur Rothstein who captured images of Eureka County in the early 1940s (more detail at the bottom of this blog, you may be amused to see Eureka referred to as a "ghost town"). This photo is one of my favorites because it is pretty rare to find an oldie Eureka shot taken on my side of the canyon. We're looking south along Monroe street from the north-west corner of town just down from Marge Pastorino's house. The Colonel's place is a just little further north and up the hill on North O'Neil Avenue (not in picture). Monroe is one street back from Main St. and you can see the Eureka Courthouse and the Colonnade Hotel in the distance.

I bet Woden that the house in the center of the photo was the Biale place. He said, "Hogwash!" and stomped up town to get a second opinion. John Brown gave me a holler and said it was not the Biale but the old McBride residence. I owe John and Old Miner Woden a beer. Nuts.

Eric Pastorino reminded me that the McBride house was roughly where the south two bays sit in the new Eureka Firehouse. By the way, I believe our firehouse is the second largest in the state but that's a story for another day. You can check out more fun facts about early Eureka in the town's self-guiding tour .


Oil & Metals Update

Heavy gunfire in Libya's capital today from forces loyal to Moammar Gadhafi was enough to send Brent crude oil to a new record breaking $110/bbl. This Report is using Brent crude oil as a barometer for the developing Middle East situation (see below).

The escalating conflict in Libya is keeping COMEX gold above $1400/oz trading presently at $1404.3/oz. COMEX silver is checking in at $33.135/oz and copper is continuing its descent plumbing $4.2675/lb. Here is a good article on copper's dilemna by Bloomberg's metal reporter Agnieszka Troszkiewicz (say that in one breath and I'll buy you a beer too):

Copper Drops in New York on Worries Unrest Will Hamper Growth (Agnieszka Troszkiewicz - Feb 23, 2011 5:29 AM PT)

Let's update the records for our big three metals and Brent:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $34.330/oz 20:00:00 ET 02/21/2011, March contract most active
COMEX Copper $4.6375/lb 06:15:00 ET 02/04/2011, March contract most active
ICE Brent crude $110.35/bbl 09:45:00 ET 02/23/2011, April contract most active

Miss Moly has an Anniversary


We mentioned yesterday that Miss Moly was having her 1-year anniversary at the London Metal Exchange (LME) which started trading cobalt and molybdenum futures on February 22nd, 2010. This report tracks the latter daily and gives a detailed report bright and early Monday on spot and future moly oxide prices. According to this article the new exchange for minor metals is enjoying some success:

LME trade of cobalt and molybdenum crosses $430mn
(Commodity Online, London, February 23 2011 09:40 GMT)

Some interesting facts:

1) Cobalt trading was 7,825 tonnes traded during the year to February 21st; Molybdenum trading was 3,498 tonnes during the same period.

2) Warehousing in both metals was dominated by Rotterdam while Singapore and Baltimore also attracted good warehouse activity in cobalt.

3) Brand registration for both metals has also been good, with good delivery brands registered from ten cobalt producers and seven molybdenum producers.

Moly price is still predominantly determined by supply and demand and not speculative interest in the LME futures market. Although thinly traded, molybdenum futures have lately been behaving more or less like the major metals with periods of contango and backwardation of the 3-month and 15-month contarcts compared to moly oxide spot prices (contango occurs when the price of a commodity for future delivery is higher than the spot price, or a far future delivery price is higher than a nearer future delivery; backwardation is the opposite of contango).

I thought of a simple way we can test whether the LME moly futures contracts can indeed predict future prices...

LME Moly Prices Drop

Yesterday, LME 3-month and 15-month contracts dropped but spot prices in the West and Europe remain unchanged at $17.00/lb and $17.82/lb respectively. Here's a comparison of future prices between last Friday and yesterday:

Friday (2/18/2011):

3-month seller $18.14/lb
15-month seller $18.28/lb

Tuesday (2/22/2011):

3-month seller $17.10/lb down 5.7%
15-month seller $17.85/lb down 2.4%

In Europe we've gone from contango to backwardation on the 3-month seller contract and spot price. I'm willing to place a bet that we'll see a fall in European spot prices soon. Here's a good Irish beer bet:

European Moly Oxide will break below $17.50/lb before St. Patrick's day 2011

You can check out some of the Colonel's other beer bets near the bottom of the column to your right.

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East. The most active front month contract remains above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in this volatile region.

Here are the most active front month contracts as of this morning:

NYMEX light sweet crude $96.67
ICE North Sea Brent crude $108.88
Spread (ICE- NYMEX) = $12.21 (yesterday $10.44)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $99.0
ICE North Sea Brent crude $108.36
Spread (ICE- NYMEX) = $9.36 (yesterday $8.14)

Although prices are off their crisis highs, we have $100+ Brent and high-$90 NYMEX in June favoring higher oil prices for the summer. I'll still stick with my December prediction that we will see NYMEX $100/bbl oil before the Fourth of July.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 424.80 but makes a new low for 2011; down from yesterday's 503.43 and below the 1-month moving average of 548.30. The EMI continues to be down from the high set on January 4th and a trend reversal in the short term now appears unlikely.

The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI greater than 100 signals better times for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Eureka Outlook Dashboard

4-WD is ON - The miners are still in a rough patch but conditions are improving; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 100-day moving average but still above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $1.25 in early trading at $96.67 (April contract, most active); Gold is up $3.2 to $1404.3 (April contract, most active); Silver is up $0.273 to $33.135 (March contract, most active); Copper is down $0.0795 to $4.2675 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.82; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.79

Stock Market Morning Update

The DOW is down 38.86 points to 12,173.93; the S&P 500 is down 2.47 at 1312.97. Miners are up:

Barrick (ABX) $52.20 up 1.32%
Newmont (NEM) $59.17 up 1.74%
US Gold (UXG) $7.20 up 1.41%
General Moly (Eureka Moly, LLC) (GMO) $5.14 up 0.59%
Thompson Creek (TC) $13.52 up 0.37%
Freeport-McMoRan (FCX) $50.81 up 0.85% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are up (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $36.06 up 1.49% - global steel producer
POSCO (PKX) $103.72 up 1.20% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.69% at $1,776,686.71(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

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

Headline photograph from the Library of Congress

Title: Ghost mining town once produced over eighty million dollars in gold, silver and load. Eureka, Nevada
Creator(s): Rothstein, Arthur, 1915-1985, photographer
Date Created/Published: 1940 Mar.
Medium: 1 negative : safety ; 3 1/4 x 4 1/4 inches or smaller.
Reproduction Number: LC-USF34-029908-D (b&w film neg.)

Rights Advisory: No known restrictions. For information, see U.S. Farm Security Administration/Office of War Information Black & White

Tuesday, February 22, 2011

Silver & Oil Surge on Libya - Metals & Miners Weekly Roundup



Morning Miners!

It is 5:28 AM. Have a big cup of Tuesday joe, we got a big'un today. Sweet Ruby T was just telling me a tale about chugging up Emigrant Pass in her old Studebaker pickup. By the way, she just hauled in two new records with her big 379 Pete - that and much more...

Eureka County in Photographs (circa 1940s)

Today's headline photograph continues our series of photographs by Arthur Rothstein who captured images of Eureka County in the early 1940s (more detail at the bottom of this blog). The photo is of Emigrant Pass at the north end of the county between Nevada Highway 306 to the west and Highway 278 to the east. The pass road is south and roughly parallel to the Humboldt River. It formed a part of the Emigrant Trail network of overland wagon trails throughout the American West. The portion that followed the Humboldt River came to be known as the California Trail, heavily used from 1845-1869. It lead to several rugged wagon routes across the Carson Range and Sierra Nevada mountains to different parts of northern California. After 1848 the most popular route was the Carson Route since it was easier than most others and entered California in the middle of the gold fields.

Oil & Metals Outlook

The escalating conflict in Libya brought a new 31-year record for silver and a new eye-popper for Brent crude oil. In the late hours yesterday both peaked at the same time in electronic trading; COMEX silver hit $34.33/oz and Brent crude oil touched $108.70/bbl. This Report is using Brent crude oil as a barometer for the developing Middle East situation (see below).

Here's a record update for our big three metals and Brent:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $34.330/oz 20:00:00 ET 02/21/2011, March contract most active
COMEX Copper $4.6375/lb 06:15:00 ET 02/04/2011, March contract most active
ICE Brent crude $108.70/bbl 20:00:00 ET 02/21/2011, April contract most active

The beginning of 2011 was a period of rising copper, falling-to-sideways gold and resilient silver. Spreading Middle East troubles have replaced the copper rally with rising gold, silver and oil against a backdrop of falling base metal prices. Early morning headlines from the London Metal Exchange (LME) tell the story, "LME LATEST - Metals sharply lower, lead plummets more than 4 percent...Metals plunge as investors seek out safer assets."

Over the 3-day domestic market holiday, I relayed my reaction to the Libyan crisis to Adella Harding, Mining Editor of the Elko Daily Free Press. She carried some of my thoughts in her Monday article:

Gold price rises above $1,400 (ADELLA HARDING Mining Editor, Elko Daily Free Press, Monday, February 21, 2011 11:55 am)

Here is a quick update on copper's descent from Bloomberg metals reporter Glenys Sim:

Copper Drops for a Second Day as Oil Stokes Inflation Concerns (By Glenys Sim - Feb 21, 2011 11:53 PM PT Tue Feb 22 07:53:18 GMT 2011)

The closely watched gold/silver ratio is at a very low 42.3 with gold presently trading at $1403.0/oz and silver, at $33.205/oz. The Report often reminds the reader that the gold/silver ratio was in a range of 50-56 before the collapse of Lehman Brothers and at the height of the financial crisis the ratio spiked above the 80s. The ratio is presently at decade lows.

Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line is the EMI with a low interest cap of 3% on 10-year Treasurys (LIRC) and adjustments for gold and silver prices (i.e., Au:Ag ratio). A 1-month moving average is given by the blue line (a larger, more readable chart can be found near the bottom of the blog page):


This morning the Eureka Miner's Index(EMI) is above-par at 503.43, down sharply from from Friday's close at 602.11 and falling below the 1-month moving average of 550.70. The EMI continues its trend down from the high set on January 4th, a trend reversal now appears unlikely in the short-term.

The 2011 record high for the EMI is now 816.78 set 01/04/2011; the 52-week low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East. It is still above $100/bbl with a large but narrowing spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the Middle East.

Here are the most active front-month contracts as of this morning:

NYMEX light sweet crude $96.33
ICE North Sea Brent crude $106.77
Spread (ICE- NYMEX) = $10.44 (Last Friday $11.68)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $98.68
ICE North Sea Brent crude $106.82
Spread (ICE- NYMEX) = $8.14 (Last Friday $8.93)

The spreads between NYMEX and Brent crude are narrowing to the upside favoring higher oil prices for the summer. I'll stick with my December prediction that we will see NYMEX $100/bbl oil before the Fourth of July. The August NYMEX futures contract is already $100.03/bbl this morning.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners. With supply and demand fundamentals driving the commodity space, diminishing correlations between key commodities are less alarming but trends should still be carefully monitored.

Here are the latest correlations given this morning's NYMEX/COMEX trading:

Oil/Au correlation +0.1642 (1-month) +0.2414 (3-month)
Cu/Au correlation 0.4035 (1-month) -0.2320 (3-month)
Cu/Oil correlation -0.0654 (1-month) +0.5060 (3-month)

Here are the numbers from the last roundup (2/14/2011):

Oil/Au correlation +0.2506 (1-month) +0.3243 (3-month)
Cu/Au correlation 0.3249 (1-month) -0.0890 (3-month)
Cu/Oil correlation +0.0514 (1-month) +0.7289 (3-month)

All these correlations remain positive except copper and gold with a bearish negative three-month value and copper and oil now with a negative 1-month correlation. The metals & miners tend to do best when all correlations are positive.

Oil is presently overvalued with respect to gold by +2.69-standard deviations. The 3-month correlations of copper & oil is now 0.5 suggesting price correlation continues to weaken with a negative 1-month number. Copper is presently undervalued with respect to oil by a -2.83-standard deviations.

One way to visualize these correlations over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations (aka "rho") as shown below in a graph of oil versus gold and copper versus gold. The blue line indicates the correlation trajectory since October 1st; the magenta line is more recent data (ref: China to the Rescue?):



In the case of oil versus gold, we start out on 10/1/10 in the "+,-" or "yellow" quadrant and move upward until both are positively correlated (i.e. in the "+,+" or "green" quadrant). Copper correlated positively faster than oil and has been in the green quadrant longer. Correlation data in this region is typically considered bullish. The movement of oil into the "-,+" quadrant and copper into the "+,-" region is a bearish trend.

Gold/Oil, Oil/Copper & Gold/Copper Ratios

The Report has been tracking the stability of the gold/oil, oil/copper & gold/copper ratios. Although they ended last year rock solid (<3% variation, 1-standard deviation/mean) the ratios diverged and now appear to be near peak values. The period of divergence is what prompted my January 14th comment to Adella Harding, Elko Daily Free Press, "The recent divergence of our lustrous friend [gold] from copper and oil...may signal a near-term correction for the overall metals and mining sector.".

There were signs that the bottom of the correction was 1/28/2011 with prospects improving for the miners. The latest flare-up in Libya may delay this turn-around. Bellwether Freeport-McMoRan (FCX) has fallen through its 100-day moving average, a bearish sign indeed.

Here is a plot of the variation for both ratios as well as the copper/oil ratio (a larger, more readable chart can be found near the bottom of the blog page):



Once the ratios exceed 3% error, they become less useful in predicting the price moves of one commodity with respect to the another in the ratio pair. However, the gold/oil ratio is nearly 3% again. A current mean of 15.51 (below) indicates that NYMEX $100/bbl oil should easily support $1500+/oz gold. Here is a plot of that ratio since mid-2010 (a larger, more readable chart can be found near the bottom of the blog page):



For the past 3-months we have these statistics given this mornings' numbers:

Au/Oil ratio

mean 15.51 bbl/oz
variation > 3.0% limit at 3.183% (1-standard deviation/mean)

Oil/Copper ratio

mean 20.74 lbs/bbl
variation > 3.0% limit at 4.73% (1-standard deviation/mean)

Au/Copper ratio

mean 321.9 lbs/oz
variation > 3.0% limit at 6.37% (1-standard deviation/mean)

Weekly Molybdenum Roundup



Spot prices for molybdenum oxide remain in $17/lb territory out West and in Europe. Moly futures remain in a mild contango between spot prices and the London Metal Exchange (LME) 3-month and 15-month seller contracts (contango occurs when the price of a commodity for future delivery is higher than the spot price, or a far future delivery price is higher than a nearer future delivery; backwardation is the opposite of contango).

The 3-month seller at $18.14/lb is comfortably above the Colonel's mid-range moly price target for 2010 of $15.71/lb but below my target of $20.21/lb for 2011. The Report will give moly prices a "yellow-green" light on the Eureka Outlook Dashboard for now because I do believe we could see much higher prices this year. There is an excellent analysis of the supply/demand argument for $20+/lb moly provided by General Moly's Seth Foreman in the General Moly Update.

Here is a detailed pricing summary for last week:

Western Moly Oxide $17.00/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.82/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $39,600/metric ton $17.96/lb

3-Month (Buyer) $38,600/metric ton $17.51/lb
3-Month (Seller) $40,000/metric ton $18.14/lb

15-Month (Buyer) $38,300/metric ton $17.37/lb
15-Month (Seller) $40,300/metric ton $18.28/lb

Today is the one-year anniversary of the molybdenum futures market. Here is a chart of the LME 3-month contract (seller) from the February launch to the present:



Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is ON - The metals & miners are still in a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 100-day moving average but still above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $6.62 in early trading at $96.33 (March contract, most active); Gold is up $14.4 to $1403.0 (April contract, most active); Silver is up $0.909 to $33.205 (March contract, most active); Copper is down $0.1030 to $4.3790 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.82; LME moly 3-month seller's contract is $18.14, LME cash seller is $17.96

Stock Market Morning Update

The DOW is down 61.60 points to 12,329.65; the S&P 500 is down 10.93 to 1332.08. Miners are mixed:

Barrick (ABX) $52.26 up 1.67%
Newmont (NEM) $59.17 up 1.15%
US Gold (UXG) $7.48 up 1.08%
General Moly (Eureka Moly, LLC) (GMO) $5.45 up 0.55%
Thompson Creek (TC) $13.83 up 0.51%
Freeport-McMoRan (FCX) $52.18 down 1.45% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are down (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $36.57 down 1.88% - global steel producer
POSCO (PKX) $104.39 down 3.72% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.27% at $1,816,475.15 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

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

Headline photograph from the Library of Congress

Title: Emigrant Pass. Eureka County, Nevada
Creator(s): Rothstein, Arthur, 1915-1985, photographer
Date Created/Published: 1940 Mar.
Medium: 1 negative : safety ; 3 1/4 x 4 1/4 inches or smaller.
Reproduction Number: LC-USF34-029539-D (b&w film neg.)
Bookmark This Record: http://www.loc.gov/pictures/item/fsa2000010860/PP/

Rights Advisory: No known restrictions. For information, see U.S. Farm Security Administration/Office of War Information Black & White

Friday, February 18, 2011

Silver 31-Year Record - Barrick (ABX) Rocks On



Morning Miners!

It is 5:46 AM. Have a brimming cup of Raine's Classic Red Label. Time for a little more Eureka history, more stuff for the record books, a happy mining company and then its a 3-day weekend for the markets. For the New York Stock Exchange (NYSE), Monday is still "Washington's Day." Out of no disrespect for our Founding Father, I found the official reason the NYSE doesn't recognize "President's Day" to be rather amusing and have included their full explanation in Note (1) below.

Eureka County in Photographs (circa 1940s)

Today's headline photograph continues our series of photographs by Arthur Rothstein who captured images of Eureka County in the early 1940s (more detail at the bottom of this blog). This photo shows Main Street looking south-east; the building on the far corner is now the Nevada State Bank. Next to the bank is the Eureka Drug and Fountain and then the Kitchen Brother's Market which later became Raine's Market in 1973 (inset photo). Brothers Hiram and Joe Kitchen ran the market, the ole Colonel now lives in the house that Joe and his wife Isabel owned on North O'Neil Avenue. The old Drug and Fountain location was added to Raine's in 1979 to create a larger store. The fellow walking on the sidewalk is a much younger Old Miner Woden who helps me prepare this report every Wednesday morning. You can check out more fun fatcs about early Eureka in the town's self-guiding tour .

Silver's new 31-year record

COMEX silver spent much of the day setting new records yesterday and then set another in the wee hours this morning at $31.960/oz. This is a 31-year water mark going back to the days of the Hunt Brother's speculative scandal when silver price peaked at $48.70/oz.

Let's update our record book of our three big metals and Brent crude oil:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $31.960/oz 03:15:00 ET 02/18/2011, March contract most active
COMEX Copper $4.6495/lb 18:15:00 ET 02/14/2011, March contract most active
ICE Brent crude $104.52/bbl 16:30:00 ET 02/16/2011, April contract most active

This morning we've pulled back some to $31.775/oz but the gold/silver ratio is at an amazingly low 43.6 with gold trading at $1,386.0/oz. This closely watched ratio has been compressing for some time with strong silver/weak gold price movements. Here is 5-year chart showing we are at multi-year lows dating back to early 2006:



Barrick Gold (ABX) Rocks On

Barrick Gold (ABX) released their fourth quarter and year-end results yesterday. Here's the link to their report:

FOURTH QUARTER AND YEAR-END REPORT 2010

A more easily digestible summary that includes conference call comments by CEO Aaron Regent was reported by Mining Editor Adella Harding in last night's Elko Daily Free Press:

Barrick reports golden earnings (Adella harding, Elko Daily Free press, 2/17/2011)

As her title implies, Barrick had a good'un. I heartily recommend this article, it has good updates on Cortez, Goldstrike, Turquoise Ridge and our nearby Ruby Hill mines. Investors were also pleased with Barrick Gold which is presently trading at $51.07 up 1% from yesterday's closing price.

Remember when everyone hated big gold miners in January and the ole Colonel suggested it might be a good time to throw a little Barrick in your buckboard (Buy Barrick? But Newmont?)? It was trading at $48 then, today we're up 6.4% with more to go from where I sit. Barrick also just upped their dividend to 12 cents/share or 0.95% yield at today's price. That beats most 1-year CDs these days, pardner. Do your own research, sometimes I'm just an old fool.

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East. The most active front month contract remains above $100/bbl with a very large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 2). The Report normally follows the latter but will track both until things settle out in this volatile region.

Here are the most active front month contracts as of this morning:

NYMEX light sweet crude $90.07
ICE North Sea Brent crude $101.75
Spread (ICE- NYMEX) = $11.86 (yesterday $16.02)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $93.46
ICE North Sea Brent crude $102.39
Spread (ICE- NYMEX) = $8.93 (yesterday $12.06)

Although prices are off their crisis highs, we have $100+ Brent and $90+ NYMEX in June favoring higher oil prices for the summer. I'll still stick with my December prediction that we will see NYMEX $100/bbl oil before the Fourth of July.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 600.87, up slightly from from yesterday's 599.62 and above the 1-month moving average of 550.47. The EMI continues to be down from the high set on January 4th but a trend reversal to the upside may be in the works.

The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI greater than 100 signals better times for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Eureka Outlook Dashboard

4-WD is ON - The miners are still in a rough patch but conditions are improving; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is stuck between its 50-day and 100-day moving average. FCX is still well above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $1.23 in early trading at $90.07 (April contract, most active); Gold is up $0.9 to $1386.0 (April contract, most active); Silver is up $0.205 to $31.960 (March contract, most active); Copper is down $0.0230 to $4.4610 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.82; LME moly 3-month seller's contract is $18.14, LME cash seller is $17.96

Stock Market Morning Update

The DOW is up 17.26 points to 12,335.32; the S&P 500 is down 0.05 at 1340.38. Miners are mixed:

Barrick (ABX) $51.07 up 0.85%
Newmont (NEM) $59.37 up 0.70%
US Gold (UXG) $7.20 up 5.11%
General Moly (Eureka Moly, LLC) (GMO) $5.78 up 1.05%
Thompson Creek (TC) $13.88 down 0.64%
Freeport-McMoRan (FCX) $54.47 down 1.39% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are down (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $37.23 down 1.17% - global steel producer
POSCO (PKX) $108.81 down 0.51% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.11% at $1,816,398.52(what's this?).

Cheers,

Colonel Possum

Note 1 - Splitting hairs on holiday designations at the NYSE:

"Washington's Birthday was first declared a federal holiday by an 1879 act of Congress. The Monday Holiday Law, enacted in 1968, shifted the date of the commemoration of Washington's Birthday from February 22 to the third Monday in February, but neither that law nor any subsequent law changed the name of the holiday from Washington's Birthday to President's Day.

Although the third Monday in February has become popularly known as President's Day, the NYSE's designation of Washington's Birthday as an Exchange holiday (Rule 51) follows the form of the federal holiday outlined above (section 6103(a) of title 5 of the United States Code)." (NYSE)

Note 2 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

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

Headline photograph from the Library of Congress

* Title: Main street. Eureka, Nevada
* Creator(s): Rothstein, Arthur, 1915-1985, photographer
* Date Created/Published: 1940 Mar.
* Medium: 1 negative : safety ; 3 1/4 x 4 1/4 inches or smaller.
* Reproduction Number: LC-USF34-029883-D (b&w film neg.)

Rights Advisory: No known restrictions. For information, see U.S. Farm Security Administration/Office of War Information Black & White