"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.

Tuesday, May 31, 2011

Quadra FNX (TSE:QUX) Joins Eureka Miner; Metals & Miners Weekly Roundup



Morning Miners!

It is 5:33 AM. Have a cup of Tuesday joe and let's get this short week started. Ruby T and I were just commenting on how beautiful yesterday was after all the stormy weather. The ole Colonel hopes you had a thoughtful and pleasant Memorial Day too...

Metals & Miners Outlook

It may be a good day to top your tank. NYMEX oil popped nearly $3 this morning to $103.36. As our headline photo suggests gas prices are down from several weeks ago but still painful. Checkout our Daily Oil Watch below for current Nevada fuel prices and crude oil futures (NYMEX & ICE).

COMEX gold is hanging in nicely this morning at $1,537.7/oz while COMEX silver and copper have a lot of giddy-up posting $38.515/oz and $4.2045/lb. Metal prices are rising this morning as the U.S. dollar weakens against the euro. Some of the recent euro-pessimism has dissipated with Greece on its way to getting more debt help from the EU.

Last Friday we noted there may be a turn around in the works for the miners as the Eureka Miner's Index(EMI) has moved above its 1-month moving average for the past several days and positive re-correlation of copper and gold continues on a 1-month basis (see Correlations). Cooper giant and bellwether miner Freeport-McMoRan (FCX) has been showing strength lately as it rises above its 200-day moving average with some conviction. Stay tuned, pardner.

Spot molybdenum prices have softened recently with western and euro moly oxide both below $17/lb. There is only a very mild contango now between spot and LME futures pricing perhaps signaling some wait-and-see in the minor metals markets.

Quadra FNX (TSE:QUX) Joins Eureka Miner

Quadra FNX Mining Ltd. (TSE:QUX), that operates the Robinson copper mine in nearby White Pine County, has been added to the The Eureka Miner's Grubstake Portfolio. Last Monday, the Report encouraged readers to track both Freeport-McMoRan and Qudara FNX for signs of a turnaround in the mining sector. Although they are copper miners, gold and molybdenum are important by-products for both. This morning QUX is trading up 0.14% at $15.31; FCX is up 1.64% at 52.58.

Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line shows the EMI; a composite of three benchmark miners, key oil and metal prices, the 10-year Treasury rate and market volatility (.VIX). 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 356.03, down up from Friday's close at 336.11 and above the 1-month moving average of 314.56. The EMI continues to be down from the high set on January 4th, but up from the May 23rd 2011 low of 225.03. Although the 1-month moving average has established a troubling downtrend, the EMI has broken above it in the last several days.

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.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 76.23 updown from Friday's close of 77.42 and below the 1-month moving average which is now 76.96. Gold is presently losing value. Today's Value Adjusted Gold Price (VAGP) is $1,685.5/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 0f 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.

Below is a chart of the GVI at Friday's close. The magenta line shows the GVI, a 1-month moving average is given by the blue line and the dotted line represents a "fair value" for a commodity-based valuation based on historical data (a larger, more readable chart can be found near the bottom of the blog page):



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 now above $110/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 the region.

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

NYMEX light sweet crude $103.36
ICE North Sea Brent crude $116.62
Spread (ICE- NYMEX) = $13.26

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $104.28
ICE North Sea Brent crude $116.00
Spread (ICE- NYMEX) = $11.72

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $110 Brent and $100+ NYMEX in September favoring high oil prices throughout the summer. My December prediction that we would 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 returning to the commodity space, diminishing correlations between key commodities are less alarming but trends should still be carefully monitored especially with spiking oil prices.

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

Oil/Au correlation +0.7892(1-month) +0.2439 (3-month)
Cu/Au correlation +0.7658 (1-month) -0.4468 (3-month)
Cu/Oil correlation +0.7342 (1-month) +0.5404 (3-month)

Here are the numbers from the last Monday (5/23/2011):

Oil/Au correlation +0.7427 (1-month) +0.4404 (3-month)
Cu/Au correlation +0.4545 (1-month) -0.4680 (3-month)
Cu/Oil correlation +0.8895 (1-month) +0.3399 (3-month)

We still have only one negative correlation with continued improvement in copper versus gold (1-month) and copper versus oil (3-month). Oil and gold remain in the quadrant of positive correlation. Copper versus gold remain outside the inversion quadrant (i.e. both one-month & three-month correlations are negative). The metals & miners tend to do best when all correlations are positive.

According to my April models (see bottom of blog page): oil is presently undervalued with respect to gold by -4.89 standard deviations and copper is undervalued by -0.58-standard deviations. Copper is presently undervalued with respect to oil by -1.52-standard deviations. The next model update will be in June.

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 although a downward trend is worrisome; the continued movement of copper vs gold in the "+,-" quadrant is encouraging.

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 have diverged. 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.". The mining sector remains on shaky ground.

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.

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

Gold:Oil ratio

mean 14.08 bbl/oz
variation > 3.0% limit at 5.06% (1-standard deviation/mean)

Oil:Copper ratio

mean 24.77 lbs/bbl
variation > 3.0% limit at 4.05% (1-standard deviation/mean)

Gold:Copper ratio

mean 348.54 lbs/oz
variation > 3.0% limit at 5.75% (1-standard deviation/mean)

Weekly Molybdenum Roundup

SPECIAL NOTE: LME 15-month contract and other data was not available (N.A.) to the Report this morning

Spot prices for molybdenum oxide are belw $17/lb territory with $16.53/lb out West and $16.60/lb in Europe. Western and Euro moly spot prices remain in a mild contango with both 3-month London Metal Exchange (LME) 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 $16.78/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. I did believe we could see much higher prices this year although recent commodity reversals 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.

Here is a detailed pricing summary for last week:

Western Moly Oxide $16.53/lb (FeMo65, the price tracked by Infomine - see the side bar graph in the lower right column)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $16.60/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $37,650/metric ton $17.08/lb

3-Month (Buyer) N.A.
3-Month (Seller) $37,000/metric ton $16.78/lb

15-Month (Buyer) N.A.
15-Month (Seller) N.A.
Here is a 1-year chart of the LME 3-month contract (seller):




Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is ON - The miners are in a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is above its 200-day average of $50.42(our new warning level, 05/27 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 YELLOW light is turned back on for Investor Confidence as investors begin to avoid commodity-sensitive equities

The RED light is turned on our Fuel Gauge with oil above $100/bbl

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 $2.77 in early trading at $103.36 (July contract, most active); Gold is up $0.4 to $1509.9 (August contract, most active); Silver is up $0.652 to $38.515 (July contract, most active); Copper is up 0.0185 to $4.2045 (July contract, most active)

Western Molybdenum Oxide is $16.53; European Molybdenum Oxide is $16.60; LME moly 3-month seller's contract is $16.78, LME cash seller is $17.08

Stock Market Morning Update

The DOW is up 124.12 points to 12,565.70; the S&P 500 is up 11.66 at 1,342.76
Miners are up:

Barrick (ABX) $47.76 up 0.78%
Newmont (NEM) $56.61 up 0.39%
US Gold (UXG) $6.91 up 0.73%
General Moly (Eureka Moly, LLC) (GMO) $4.68 up 1.74%
Thompson Creek (TC) $10.88 up 1.78%
Freeport-McMoRan (FCX) $52.58 up 1.64% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.31 up 0.14%

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

ArcelorMittal (MT) $33.63 up 2.44% - global steel producer
POSCO (PKX) $101.33 up 0.66% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.08% at $1,759,029.61(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

Friday, May 27, 2011

Red Metal Rise - Dr. Jekyll and Mr. Hyde; General Moly (GMO) Breaks $5



Morning Miners!

It is 5:44 AM. Have a well deserved cup of Raine's delicious Red Label TGIF coffee. This Friday and last Monday morning are about as different as Dr. Jekyll and Mr. Hyde in terms of weather and markets...

Red Metal Rise - Dr. Jekyll and Mr. Hyde


The following is a bit technical - the short version is that it looks like the metals & miners have turned an important corner to the upside. Have a great weekend.

If you love numbers here's the longer version that explains why:

I'll take sunshine over lousy weather any day and that's not the only thing different about today compared to the beginning of the week. On Monday our trusty Eureka Miner's Index(EMI) plumbed a new low for the year. This was scary because the market sentiment towards metals & miners was cold and turning colder. The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County and our thermometer was falling fast. COMEX copper was below $4/lb and bellwether miner Freeport-McMoran (FCX) and General Moly (GMO) were both headed for their 400-day moving averages (FCX intraday low $46.67 versus $43.89 400-day; GMO $3.95 versus $3.89). Ouch.

There was something in Monday's data that did argue against impending market Armageddon. Copper, although down in price, was showing correlation strength with oil and gold. This report tracks copper because it has proven to be a reliable gauge of global growth expectations and the mining sector tends to do best when copper is positively correlated with gold and oil.

Let's look at some numbers. From a correlation point of view, copper started the month of May decidedly bearish with very negative 3-month correlations with these two important commodities:

5/3/2011

copper/gold -0.5568 (3-month)
copper/oil -0.6130 (3-month)

By mid-month copper/oil correlation had crossed into positive territory on a 3-month basis and copper/gold on a 1-month. By Horrible Monday of this week correlations were still improving from early May:

5/23/2011

copper/gold -0.4682(3-month)
copper/oil +0.3399 (3-month)

And today, 5/27...

copper/gold -0.4605(3-month)
copper/oil +0.5064 (3-month)

Although the copper/oil transformation from negative to positive is dramatic from early May to now, the copper/gold is still struggling in negative territory. Let's look at the 1-month correlations as of today:

Today, 5/27

copper/gold +0.7470 (1-month)
copper/oil +0.7989 (1-month)

Ah, that's much better. If this trend continues, the 3-month copper/gold will be in positive pasture soon. Everybody positive (1- and 3-month) is definitely a bullish sign for mining.

The broader markets are now open and so far agree with our theory. COMEX copper is trading at a much healthier $4.1785/lb compared to Horrible Monday's sub-$4 and copper giant Freeport-McMoRan has sprung above its 200-day average at $51.60 up 12% from Monday. The EMI has jumped above its 1-month moving average (see below) to hopefully leave the 5/23 year low in the dust. COMEX gold is up too at $1,528/oz and NYMEX oil has ticked up 50-cents to $100.75/bbl. Even though I don't like high oil prices; oil, gold and copper all moving in the same direction is a good sign for miners - that's called positive correlation, pardner.

General Moly (GMO) Breaks $5

After a drop to $3.83/share on May 17th, General Moly stock has broken $5 today in early trading at $5.01 - a 30.8% move from the May low. A one-week move from Horrible Monday's low of $3.95 of 26.8%. Yee-ha!

See you at the town hall meeting next Thursday.


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 342.45, up from yesterday's 286.76 and above the 1-month moving average of 323.91. The EMI continues to be down from the high set on January 4th and set a new 2011 low of 225.03 on May 23rd. There may be a reversal to the upside in the works.

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 77.02, down from yesterday's 77.28 and above its 1-month average of 76.68. The gold-gaining-value trend is intact but stalling. Today's Value Adjusted Gold Price (VAGP) is $1,657.9/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 now above $110/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 the region.

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

NYMEX light sweet crude $100.75
ICE North Sea Brent crude $115.20
Spread (ICE- NYMEX) = $14.45 (Yesterday, $13.80)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $101.77
ICE North Sea Brent crude $114.37
Spread (ICE- NYMEX) = $12.60 (Yesterday, $11.80)

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $100+ NYMEX in September favoring high oil prices throughout 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 on rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is just above its 200-day moving average of $50.26 (our new warning level, 05/25 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 The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

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 up $0.52 in early trading at $100.75 (July contract, most active); Gold is up $5.4 to $1528.2 (June contract, most active); Silver is up $0.550 to $37.880 (July contract, most active); Copper is up $0.0675 at $4.1785 (July contract, most active)

Western Molybdenum Oxide is $16.65; European Molybdenum Oxide is $16.60; LME cash seller is $17.10, LME moly 3-month seller's contract is $17.24

Stock Market Morning Update

The DOW is up 46,16 points to 12,448.92; the S&P 500 is up 5.35 at 1,331.04

Miners are up:

Barrick (ABX) $47.50 up 0.70%
Newmont (NEM) $56.69 up 1.54%
US Gold (UXG) $6.98 up 1.45%
General Moly (Eureka Moly, LLC) (GMO) $5.01 up 2.45%
Thompson Creek (TC) $10.76 up 1.03%
Freeport-McMoRan (FCX) $51.60 up 2.40% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.98 up 1.26% - global steel producer
POSCO (PKX) $100.88 up 0.38% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.32% at $1,764,650.19(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 (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

Thursday, May 26, 2011

General Moly (GMO) Presents Today, Stock Bounce at Open



Þūnresdæg

Morning Miners!

It is 6:15 AM. Have a cup of Thor's Storm Buster java. Our favorite Norseman is all stormed out after pitching thunderbolts around Eureka County for the past week. Time for a little sunshine and horse liniment for his sore throwing arm. Looks like the sun is shining on General Moly too...

General Moly (GMO) Presents Today

Goldman Sachs and JP Morgan got the metals back on their feet with upbeat forecasts on demand earlier this week. In a few hours, Bruce D. Hansen, Chief Executive Officer of General Moly, will present at the Goldman Sachs Basic Materials Conference. According to Seth Foreman, Director of Investor Relations, General Moly will also participate in one-on-one investor meetings at the conference. You can listen to a webcast of the presentation by visiting the GMO's website; click on the conference webcast link under the "Upcoming Events" section on the bottom-left of the home page. The slide deck associated with the presentation can be accessed via this link:

General Moly Presentation - Goldman Sachs Basic Materials Conference

In the presentation is their latest schedule. Here is how the ole Colonel deciphered that slide so I could figure when mine construction starts using a best-case/worst-case roll up of their presentation numbers:

Best Case:

Publish DEIS Q2/2011 - for fun let's pick a midpoint, 7/15/2011. That's a Friday with a full moon.

Record-of-Decision (ROD) 6 months later
Financing complete 3 more months

Initiate mine construction: 4/15/2012 (by my figurin')

Worst Case:

Publish DEIS Q3/2011 - for worst case let's say the last working day of the year, 12/30/2011.

Record-of-Decision (ROD) 9 months later
Financing complete 3 more months

Initiate mine construction: 12/30/2012 (by my figurin')

OK then, the digging begins mid-April to late-December of next year. If you don't like my dates give me a holler; if you don't like their numbers, ask some questions next week at the Town hall Meeting. I plan to be at one or both of the meetings (Thursday, June 2; 12 noon to 1:00 PM and 5:30PM to 6:30PM).

When does the first pound of molybdenum come from Mt. Hope? By their numbers added to my dates:

Best Case:

Mine construction: +18 months from 4/15/2012

Commence production: 10/15/2013

Worst Case:

Mine construction: +20 months from 12/30/2012

Commence production: 8/30/2014

There you have it: Hunting season 2013 to just before Labor Day 2014.

General Moly (GMO) Stock Bounces

After a scary drop to $3.83/share on May 17th, General Moly stock had a great day yesterday and opened this morning at $4.91/share - a 28.2% move from the May low. Presently, some profit taking has dropped GMO down to $4.69/share, but that's still up more than 20% from earlier this month. Not too bad, pardner. See you at the town hall meeting next Thursday!


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 286.76, up from yesterday's 272.89 and below the 1-month moving average of 330.54. The EMI continues to be down from the high set on January 4th and set a new 2011 low of 225.03 on May 23rd. The 1-month average continues a troubling negative trend.

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 77.28, down from yesterday's 78.40 and above its 1-month average of 76.35. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,646.2/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 now above $110/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 the region.

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

NYMEX light sweet crude $101.04
ICE North Sea Brent crude $114.84
Spread (ICE- NYMEX) = $13.80 (Yesterday, $13.55)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $102.10
ICE North Sea Brent crude $113.90
Spread (ICE- NYMEX) = $11.80 (Yesterday, $11.77)

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $100+ NYMEX in September favoring high oil prices throughout 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 still on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is just above its 200-day moving average of $50.26 (our new warning level, 05/25 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 The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

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 $0.28 in early trading at $101.04 (July contract, most active); Gold is down $4.2 to $1522.5 (June contract, most active); Silver is down $0.187 to $37.455 (July contract, most active); Copper is up $0.0045 at $4.1115 (July contract, most active)

Western Molybdenum Oxide is $16.65; European Molybdenum Oxide is $16.65; LME cash seller is $17.10, LME moly 3-month seller's contract is $17.24

Stock Market Morning Update

The DOW is down 52.60 points to 12,342.06; the S&P 500 is down 3.34 at 1,317.13

Miners are mixed:

Barrick (ABX) $47.20 up 0.43%
Newmont (NEM) $55.69 up 0.14%
US Gold (UXG) $6.82 down 1.45%
General Moly (Eureka Moly, LLC) (GMO) $4.69 down 2.90%
Thompson Creek (TC) $10.53 up 0.19%
Freeport-McMoRan (FCX) $50.61 up 1.26% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.43 down 0.15% - global steel producer
POSCO (PKX) $101.17 up 0.86% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.83% at $1,723,606.29 (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 (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

Wednesday, May 25, 2011

CNBC Anchor Mark Haines Dies



Wōdnesdæg

Morning Miners...

It is 6:06 AM. Have a cup with Old Miner Woden and me. It is a sad day for market watchers, Mark Haines of CNBC Business News has died unexpectedly at age 65...

CNBC Anchor Mark Haines Dies


It was promising to be a great market morning. The sun was shining over Diamond Valley after days of rain, hail and snow. All the base metal spot prices were up 1 to 2% as Goldman Sachs Group Inc. and JPMorgan Chase & Co. backed metal’s prospects amid signs of improving demand. COMEX gold was up and trading at $1,524.5/oz; COMEX silver recovered some of her shine bouncing a buck to $37.190/oz. COMEX silver was flexing at $4.0945 and NYMEX oil dropped a dollar to $98.66/bbl, not cheap but better than the $100 stuff.

Then I heard CNBC Business News reporter had died unexpectedly Tuesday evening. He was 65 years old. The ole Colonel feels like he just lost an old friend.

Veteran journalist Mark Haines was an icon of the early morning market hours; the founding anchor of CNBC's "Squawk Box" and more recently co-anchor of the network's "Squawk on the Street" program. I imagine his face and good humor are familiar to many of you. He used to joke that Mickey Mantle was his last hero - terrific wit, that Haines. Traders at the New York Stock Exchange paused for a moment of silence.

This will be a short report this morning.

CNBC Anchor Mark Haines Dies Unexpectedly at Age 65 (CNBC Business News, 5/25/2011)


Daily Market Roundup

Enough talk, let's walk the walk in memory of Mark Haines:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 272.89, up from yesterday's 253.16 and below the 1-month moving average of 340.81. The EMI continues to be down from the high set on January 4th and set a new 2011 low of 225.03 on May 23rd. The 1-month average continues a troubling negative trend.

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 78.40, down from yesterday's 78.96 and above its 1-month average of 75.98. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,624.7/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 now above $110/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 the region.

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

NYMEX light sweet crude $98.66
ICE North Sea Brent crude $112.21
Spread (ICE- NYMEX) = $13.55 (Yesterday, $12.85)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $99.63
ICE North Sea Brent crude $111.40
Spread (ICE- NYMEX) = $11.77 (Yesterday, $12.08)

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $90+ NYMEX in September favoring high oil prices throughout 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 on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is still below its 200-day moving average of $50.14 (our new warning level, 05/23 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 The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

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, 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 $0.93 in early trading at $98.66 (July contract, most active); Gold is up $1.2 to $1524.5 (June contract, most active); Silver is up $1.062 to $37.190 (July contract, most active); Copper is up $0.0815 at $4.0945 (July contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.65; LME cash seller is $17.10, LME moly 3-month seller's contract is $17.24

Stock Market Morning Update

The DOW is down 10.10 points to 12,345.96; the S&P 500 is down 0.97 at 1,315.31

Miners are up:

Barrick (ABX) $46.87 up 0.13%
Newmont (NEM) $55.65 up 0.80%
US Gold (UXG) $6.89 up 1.32%
General Moly (Eureka Moly, LLC) (GMO) $4.18 up 2.20%
Thompson Creek (TC) $10.47 up 1.16%
Freeport-McMoRan (FCX) $49.46 up 1.31% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.32 down 0.06% - global steel producer
POSCO (PKX) $100.16 down 1.78% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.81% at $1,699,002.11 (what's this?).

Sadly,

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

Tuesday, May 24, 2011

Bluer Skies? Watch Quadra FNX (TSE:QUX), Freeport-McMoRan (FCX)



Morning Miners!

It is 6:04 AM. Have a cup of Tuesday Lucky Numbers. Sweet Ruby T can jam gears with the best of them but she also has quite a head for numbers. Anytime Tuesday falls on the 24th of the month you can bet she's whistling "Blue Skies." Her birthday falls on that day and she points out that 24 is the only number in the month that is divisible by so many other numbers; 1,2,3,4,6,8 and 12. Ruby says no other date is so willing to divide and share - yesterday's 23rd is a good example of a "stingy" number splitting her fortunes with only herself and that loner "one." Monday the 23rd surely didn't share any good fortune with the markets, let's see if we have a more generous day today...

Watch Quadra FNX (TSE:QUX), Freeport-McMoRan (FCX)

Ruby is on a haul back run from the Quadra FNX Mining's Robinson copper mine in nearby White Pine County. The Ruth pit is up and running again and plans to chunk out a good share of copper, gold and molybdenum in 2011 - this report's favorite metals. Earlier this month, Quadra agreed to form a joint venture with Sumitomo Metal Mining Co. and Sumitomo Corp. to develop the Sierra Gorda copper-molybdenum project in Chile. Quadra will retain a 55% stake in the joint venture. I'd say this is a miner on the move.

But what about the latest carnage in the metals & mining sector? This report's Eureka Miner's Index(EMI) made a new low for 2011 yesterday (see below). All manner of pessimism has put a damper on global growth stories lately and this has taken a good whack on the base metals complex.

Lower expectations for global demand is always only half the story in markets. What about the supply side? There was a terrific Kitco Market Nugget this morning on Barclays Capital's latest assessment on copper production for 2011:

Market Nuggets: Global Copper Production Could Fall Sharply In 2011 – Barclays Capital (Kitco News, 5/24/2011)

(note: Kitco Market Nuggets are fleeting events, the above link should take you there but you may need to do a little digging to find this one)

The title at first looks a little scary suggesting that copper production is being paired back to match falling demand as in late 2008-2009. Actually the article is addressing the an expected drop in copper output for 2011 given the problems of declining ore grades, aging mines and rising costs. In fact by Barclays' new estimate, global copper mine production could fall as low as 15.7 million metric tons in 2011, down significantly from their April forecast for 16.1. This difference is primarily due to supply-side issues. Their conclusion, “...although expectations were broadly in agreement for stagnant mine supply growth in 2011, the outturn of available data so far points to an even worse picture evolving which should offer some upside support to copper prices.”

My thoughts are that a floor for copper prices is very welcome news and that miners that can control costs with new supply coming online should fare well in this environment. But what about demand if global growth is less than expected earlier this year? JP Morgan just cited "compelling evidence the global economy will bounce back from temporary setbacks" in a Wall Street Journal article this morning on higher oil prices. Maybe things aren't so bad after all, but oil back over $100/bbl will be a cost challenge for all miners. It won't be easy but the red metal is looking a little happier today with COMEX copper trading above $4/lb again at $4.0420/lb.

Watch Quadra FNX, pardner and of course our bellwether miner Freeport-McMoRan (FCX). If FCX can break above its 200-day moving average with some conviction there may be bluer skies ahead for the whole mining sector. Presently FCX is trading at $48.63 up 2.55% but still below yesterday's 200-day average of $50.14. To prove I'm a believer, the ole Colonel just threw a few shares of FCX in the buckboard this morning. Go copper, go gold, go 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 253.03, down from yesterday's 225.03 and below the 1-month moving average of 354.18. The EMI continues to be down from the high set on January 4th and set a new 2011 low of 225.03 on May 23rd. The 1-month average continues a troubling negative trend.

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 78.96, down from yesterday's 80.25 and above its 1-month average of 75.52. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,611.2/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 now 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 the region.

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

NYMEX light sweet crude $99.45
ICE North Sea Brent crude $112.30
Spread (ICE- NYMEX) = $12.85 (Yesterday, $12.12)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $99.88
ICE North Sea Brent crude $111.96
Spread (ICE- NYMEX) = $12.08 (Yesterday, $10.64)

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $100+ Brent and $90+ NYMEX in September favoring high oil prices throughout 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 on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is still below its 200-day moving average of $50.14 (our new warning level, 05/23 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 The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

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, 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 up $1.75 in early trading at $99.45 (June contract, most active); Gold is up $7.2 to $1522.6 (June contract, most active); Silver is up $1.031 to $35.935 (July contract, most active); Copper is up $0.0505 at $4.0420 (July contract, most active)

Western Molybdenum Oxide is $16.65; European Molybdenum Oxide is $16.72; LME cash seller is $17.10, LME moly 3-month seller's contract is $17.24

Stock Market Morning Update

The DOW is up 25.39 points to 12,406.05; the S&P 500 is up 4.43 at 1,321.80
Miners are up:

Barrick (ABX) $46.03 up 1.10%
Newmont (NEM) $54.73 up 0.85%
US Gold (UXG) $6.71 up 3.23%
General Moly (Eureka Moly, LLC) (GMO) $4.14 up 1.72%
Thompson Creek (TC) $10.51 up 1.94%
Freeport-McMoRan (FCX) $48.63 up 2.55% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.37 up 0.75% - global steel producer
POSCO (PKX) $102.12 up 0.62% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.59% at $1,680,587.61 (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 (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

Monday, May 23, 2011

Stormy Monday - Metals & Miners Weekly Roundup


They call it Stormy Monday
Well the Tuesday's just as bad...


"Stormy Monday", Earl Hines, Billy Eckstine

Morning Miners!

It is 5:51 AM. Come on in, dry off and have a cup of Stormy Monday. The storm this morning is not just in Eureka, the markets have a little more rain on the way too. Nuts, I promise to end this report on a positive note...

Stormy Monday for Metals & Miners

Any morning that starts off with a reserve currency spiking a full percent or a major base metal dropping 4% or a barrel of oil falling $3/gal signals a bumpy market ride; when they all do it together, hold on to dashboard with both hands. The dollar index (.DXY) got a solid updraft from the bottom of its canyon on a diving euro this morning. The euro dropped below $1.40 briefly while the "Dixie" popped a percent. A strengthening dollar creates headwinds for "dollarized" commodities but a one-day 4% drop in spot copper prices is red metal in a gale. Don't worry about $100/bbl oil this morning - NYMEX crude is trading down to $97/bbl (remember the $113/bbl stuff earlier this month?).

I'm not sad to see oil prices decline and COMEX gold is proving stalwart in these winds; up a buck to $1508.9/oz. The ole Colonel will not be surprised to see gold move sideways for a while but move up it will if the present downbeat market sentiment persists.

So what is the latest gloom and doom? On a bad headline basis, European sovereign debt troubles are back in the news this morning with eyes on heavy losses by Spain's ruling party and widespread protests against austerity measures throughout the region. Fitch Ratings downgraded Greek debt on Friday and Standard & Poor's lowered Italy's credit outlook to negative on Saturday...haven't we seen this movie before?

We learned last year that any major economies with debt issues can create a pretty lousy environment for the metals and miners; today it's Spain, it could just as well be California later this year if their fiscal crisis spins out of control. What's the bigger picture here? I think the recent bearish attitude towards commodities in general stems from the winding down of various stimulus and monetary easing policies that were put in place to revive economies and reduce high unemployment in developed countries devastated by the Great Recession. In the United States, the Federal Reserve's quantitative easing program ends next month with a recovery that remains fragile and a labor market that shows only marginal signs of improving. This has soured more upbeat expectations for both domestic and global growth and that in turn has hammered the demand story for oil, base metals and other growth-sensitive commodities. So it goes.

What about that positive closing note? Last week this report did a two-part series on gold (Part I & Part II) and examined some of the reasons why I'm not too concerned about my favorite precious metal. On this Monday's scary headlines gold didn't pop but it is steadily gaining value against oil, copper and silver. This report's Gold Value Index (GVI) (see below) broke 80 this morning, up nearly 19% from its April low and continues to reverse the 11-month decline gold's relative value. The next trend up should be dollar price over the coming months - I'm sticking with my recent prediction that COMEX gold will break $1,600/oz before Labor Day.

Hey, it just stopped raining outside. The broader markets are open, the DOW is down 142 points but Barrick Gold (ABX) is up 1% and General Moly is still above 4-bucks. Now, don't you feel better?

Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line shows the EMI; a composite of three benchmark miners, key oil and metal prices, the 10-year Treasury rate and market volatility (.VIX). 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 225.03, down from from Friday's's close at 249.62 and below the 1-month moving average of 369.82. The EMI continues to be down from the high set on January 4th, and sets a new low today for 2011. The 1-month moving average has established a troubling downtrend.

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.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 80.25 up from Friday's close of 77.87 and above the 1-month moving average which is now 75.05. Gold is presently gaining value. Today is a new GVI high for 2011. Today's Value Adjusted Gold Price (VAGP) is $1,572.1/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 0f 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.

Below is a chart of the GVI at Friday's close. The magenta line shows the GVI, a 1-month moving average is given by the blue line and the dotted line represents a "fair value" for a commodity-based valuation based on historical data (a larger, more readable chart can be found near the bottom of the blog page):



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 now 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 the region.

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

NYMEX light sweet crude $97.19
ICE North Sea Brent crude $109.31
Spread (ICE- NYMEX) = $12.12

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $98.00
ICE North Sea Brent crude $108.64
Spread (ICE- NYMEX) = $10.64

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $100+ Brent and $90+ NYMEX in September favoring high oil prices throughout the summer. My December prediction that we would 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 returning to the commodity space, diminishing correlations between key commodities are less alarming but trends should still be carefully monitored especially with spiking oil prices.

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

Oil/Au correlation +0.7427 (1-month) +0.4404 (3-month)
Cu/Au correlation +0.4545 (1-month) -0.4680 (3-month)
Cu/Oil correlation +0.8895 (1-month) +0.3399 (3-month)

Here are the numbers from the last Monday (5/16/2011):

Oil/Au correlation +0.5067 (1-month) +0.6674 (3-month)
Cu/Au correlation +0.0969 (1-month) -0.4964 (3-month)
Cu/Oil correlation +0.8794 (1-month) -0.0464 (3-month)

We now have only one negative correlation with some improvement in copper versus gold (1-month) and copper versus oil (1- and 3-month). Oil and gold remain in the quadrant of positive correlation. Copper versus gold remain outside the inversion quadrant (i.e. both one-month & three-month correlations are negative). The metals & miners tend to do best when all correlations are positive.

According to my April models (see bottom of blog page): oil is presently undervalued with respect to gold by -5.39 standard deviations and copper is undervalued by -2.80-standard deviations. Copper is presently undervalued with respect to oil by -3.63-standard deviations. The next model update will be in June.

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 continued movement of copper vs gold in the "+,-" quadrant is somewhat encouraging.

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 have diverged. 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.". The mining sector remains on shaky ground.

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.

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

Gold:Oil ratio

mean 14.01 bbl/oz
variation > 3.0% limit at 4.54% (1-standard deviation/mean)

Oil:Copper ratio

mean 24.60 lbs/bbl
variation > 3.0% limit at 5.01% (1-standard deviation/mean)

Gold:Copper ratio

mean 344.41 lbs/oz
variation > 3.0% limit at 5.93% (1-standard deviation/mean)

Weekly Molybdenum Roundup

Spot prices for molybdenum oxide remain outside $17/lb territory with $16.65/lb out West and $16.72/lb in Europe. Western and Euro moly spot prices remain in a moderate contango with both 3-month and 15-month London Metal Exchange (LME) 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 $17.24/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. I did believe we could see much higher prices this year although recent commodity reversals 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.

Here is a detailed pricing summary for last week:

Western Moly Oxide $16.65/lb (FeMo65, the price tracked by Infomine - see the side bar graph in the lower right column)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $16.72/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $37,700/metric ton $16.65/lb

3-Month (Buyer) $36,000/metric ton $16.33/lb
3-Month (Seller) $38,000/metric ton $17.24/lb

15-Month (Buyer) $37,700/metric ton $17.10/lb
15-Month (Seller) $38,700/metric ton $17.55/lb

Here is a 1-year chart of the LME 3-month contract (seller):




Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is ON - The miners are in a very rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 200-day average of $49.88(our new warning level, 05/16 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 YELLOW light is turned back on for Investor Confidence as investors begin to avoid commodity-sensitive equities

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

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 down $2.91 in early trading at $97.19 (July contract, most active); Gold is up $1.0 to $1509.9 (June contract, most active); Silver is down $0.417 to $34.670 (July contract, most active); Copper is down $0.0100 to $3.9735 (July contract, most active)

Western Molybdenum Oxide is $16.65; European Molybdenum Oxide is $16.72; LME moly 3-month seller's contract is $17.24, LME cash seller is $16.65

Stock Market Morning Update

The DOW is down 141.68 points to 12,370.36; the S&P 500 is down 16.94 at 1,316.85

Miners are mixed:

Barrick (ABX) $46.05 up 0.99%
Newmont (NEM) $55.21 up 2.09%
US Gold (UXG) $6.73 up 0.30%
General Moly (Eureka Moly, LLC) (GMO) $4.05 down 1.02%
Thompson Creek (TC) $10.50 down 1.13%
Freeport-McMoRan (FCX) $47.80 down 1.20% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $31.94 down 1.66% - global steel producer
POSCO (PKX) $101.60 down 1.54% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.66% at $1,665,469.83(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