"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 15, 2011

Au $1481; Ag $42.7; LME Moly bounce

Morning Miners!

It is 5:52 AM. have a welcome cup of Raine's Red Label TGIF. Come sit on their nice wooden bench outside, time to scratch our heads on gold and moly.

Gold $1481; Silver $42.7

Nothing like ending a tough market week with a few new records for precious metals. COMEX gold made an evening run at $1,480.5/oz and COMEX silver followed scoring a new 31-year record early this morning at $42.72/oz. The closely watched gold/silver ratio is in 34 pasture making new multi-decade lows (presently 34.79 with COMEX gold at 1,476.9/oz; silver, $42.445/oz).

I guess those predicting silver's tumble will have to wait a little longer, this wildcat still has a lot of purr. Even with silver gaining on gold, gold value is gaining ground for the fourth day against a combination of oil, silver and copper prices. As computed by this Report's Gold Value Index (GVI), gold value is up 3.9% from the 2011 low set this Monday. After a long steady decline since last June, this recent turnaround in relative value could signal the OK to put a little more glitter under your mattress (Gold Gains Value, Time to Buy?).

Much of the move in the GVI is due to copper weakness. COMEX copper is right at the key $4.25/lb level on fears that increasing inventories and lower Chinese demand will maintain pressure on the red metal in the near term. This morning an ounce of gold will buy 347.4 pounds of copper. At the low on February 7th, an ounce only fetched 292.8 pounds. That's progress, pardner.

Copper giant Freeport-McMoRan (FCX) fell below its 150-day moving average this morning presently trading at $51.20. If FCX closes the day below the 150-day price of $52.21/lb, we could see some more rough roads for the mining sector. Here's a Bloomberg article on some of the challenges copper faces in the near term:

Copper Erases Gain, Heads for Weekly Loss, on China Supply, Demand Outlook (Glenys Sim, Bloomberg News, Apr 15, 2011 12:44 AM PT)

Am I worried? Not yet. The Eureka Miner's Index(EMI) is up today even with Freeport's weakness continuing an uptrend from the March 15th low. We'll keep a close watch on this one.

Let's update our record book for the big three metals together with NYMEX and ICE Brent crude:

COMEX Gold $1,480.5/oz 20:00 ET 04/14/2011, June contract most active (new)
COMEX Silver $42.720/oz 07:35 ET 04/15/2011, May contract most active (new)
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $113.46/bbl 18:00 ET, 04/10/2011, May contract most active
ICE Brent crude $126.47/bbl 016:45 ET 04/08/2011, June contract most active

LME Moly Bounce

In a down market, the ole Colonel likes to see small changes in a positive direction. Even though copper is under pressure, the London Metal Exchange molybdenum futures are showing some renewed signs of life. The 3-month seller contract bounced 3% yesterday to reach the top of its recent trading range at $38,500/tonne or $17.46/lb. Here is a 1-month chart of this important front month contract:

The 15-month rose to just shy of its $18/lb top to find $39,500/tonne or $17.92/lb. Here is that 1-month chart:

The 3-month seller at $17.46/lb is comfortably above my mid-range moly price target for 2010 of $15.71/lb but below my target of $20.21/lb for 2011. I continue to believe we could see higher prices this year although the turmoil in the Arab World and the crisis in Japan have put a damper on that expectation. 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.

The Western moly oxide spot price is $16.62/lb and European moly is trading at $17.12/lb leaving some nice headroom in relation to improving futures prices. In March, I said Euro moly oxide should break $17.20/lb before May day - we're almost there.

Good golly Miss Moly.

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 518.97, up from yesterday's 450.27 and above the 1-month moving average of 447.48. The EMI continues to be down from the high set on January 4th but is up from the March 15th low of 262.02. The EMI is trending up from the March low but caution is again in the winds.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. 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.

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.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 70.31, up from yesterday's 70.21 and marks a 4-day ascent from Monday's 2011 low of 67.68. The 1-month moving average is 69.89. Today's Value Adjusted Gold Price (VAGP) is $1,755.2/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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 (MENA). 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 key front-month contracts as of this morning:

NYMEX light sweet crude $107.92
ICE North Sea Brent crude $122.35
Spread (ICE- NYMEX) = $14.43 (Yesterday $15.70)

Here are the July contracts with a narrower spread:

NYMEX light sweet crude $108.99
ICE North Sea Brent crude $121.96
Spread (ICE- NYMEX) = $12.97 (Yesterday $13.51)

Although prices are off their crisis highs, we have $120+ Brent and $100+ NYMEX in July favoring higher oil prices through the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are back on some rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 150-day moving averages today but is still above its 200-day average of $47.94 (our new warning level, 04/15 update); 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 RED light is turned on our Fuel Gauge with oil above $100

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, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.19 in early trading at $107.92 (May contract, most active); Gold is up $4.3 to $1476.9 (June contract, most active); Silver is up $0.781 to $42.445 (May contract, most active); Copper is down $0.0330 to $4.2510 (May contract, most active)

Western Molybdenum Oxide is $16.62; European Molybdenum Oxide is $17.12; LME cash seller is $17.30, LME moly 3-month seller's contract is $17.46

Stock Market Morning Update

The DOW is down 95.93 points to 12,175.06; the S&P 500 is down 10.99 at 1,303.42

Miners are mixed:

Barrick (ABX) $53.31 down 0.21%
Newmont (NEM) $57.76 up 0.40%
US Gold (UXG) $9.42 down 0.32%
General Moly (Eureka Moly, LLC) (GMO) $5.25 unchanged
Thompson Creek (TC) $11.94 down 0.42%
Freeport-McMoRan (FCX) $51.20 down 1.41% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $34.70 down 2.42% - global steel producer
POSCO (PKX) $112.18 up 0.21% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.23% at $1,929,008.74 (what's this?).


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 (source: Wikipedia)

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

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