Wednesday, May 18, 2011
The Colonel's Trip to Elko; Big Mo Smiles on the Metals & Miners
It is 6:11 AM. Old Miner Woden has just brewed a fresh pot of Hump Day Happiness, have a cup and let's get happy...
The Colonel's Trip to Elko
Sometimes praying to the molybdenum god is a good remedy for a bad market.
Ruby T packed Mariana, Loquita and me in the truck yesterday morning and we were off to Elko for a Home Depot/WalMart run. When we left, the markets were in the dumps with General Moly (GMO) sliding below $4, touching $3.83 briefly after the open. These are levels not seen since mid-October 2010 and a tall drop from the lofty $7.25 high of late December. Of course, it was not just General Moly, the entire metals & mining sector was hurting yesterday morning. The Eureka Miner's Index(EMI), which includes three benchmark miners, interest rates, market volatility together with oil, copper, gold and silver prices, had just plumbed a new low for 2011.
About 20 miles north of town, Ruby hit the jake brake and we rolled in at the Mt. Hope turnoff. I took a photo of Mariana by the Eureka Moly sign while Ruby gathered and burned some sage. We formed a circle around the smoldering embers and prayed to the god of the forty second element of the Periodic Table, Molybdenum or "Big Mo."
We were without internet but apparently our brief ceremony did not go unnoticed in the metallic heavens. General Moly share price bumped back up to $4.17 mid-day and closed at $4.12, thank you Big Mo. Overall the metals & miners ended a lot better than they started.
The broader markets are now open and it looks like our rally-from-the-depths has legs for another day. General Moly is holding on nicely at $4.15 and bellwether miner Freeport-McMoran has popped 2%. COMEX gold took another run at $1,500/oz in the wee hours touching $1,497.5/oz before falling back to trade presently at $1,491.0/oz - a whole lot better than yesterday's low of $1,471.0/oz. Silver has some mojo too at $34.78/oz and western moly oxide has returned to $17/lb pasture. Comex copper is bracing at $4.050/lb. The Eureka Miner's Index(EMI) is at 270.2 up from yesterday's 2011 low of 235.7 (see below).
The Big Mo smiles on the metals & miners.
We stop to visit Adella Harding
I didn't think the day could get better after buying a new DeWALT drill/driver on special at Home Depot...but it did! We decided to pay a visit to Mining Editor Adella Harding at the Elko Daily Free Press. She was busily putting the finishing touches on the upcoming edition of the Mining Quarterly and it should be a dandy. Talking with Adella is always an uplifting moment and yesterday was no exception. Her "boots-on-the-ground" reporting style for mining in Northern Neveda is second to none.
I promised Adella my latest thoughts on gold price and value and we were off to Eureka before the next storm set in. Let's hope our luck lasts beyond today, pardner. We may need another trip to Mt. Hope to keep Big Mo happy - look for the latest Mining Quarterly coming your way soon.
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 270.16, up from yesterday's 235.69 and below the 1-month moving average of 396.09. The EMI continues to be down from the high set on January 4th and set a new 2011 low May 17th. 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 78.13, down from yesterday's 79.14 and above its 1-month average of 74.02. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,594.6/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 $98.34
ICE North Sea Brent crude $99.10
Spread (ICE- NYMEX) = $12.62 (Yesterday's $13.56 )
Here are the August contracts* with a narrower spread:
NYMEX light sweet crude $99.10
ICE North Sea Brent crude $110.57
Spread (ICE- NYMEX) = $11.47 (Yesterday's $12.44)
Prices are off their crisis highs but we now have $110+ Brent and $90+ NYMEX in August favoring higher 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) has broke below its 200-day moving 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 The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now
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, 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 $1.34 in early trading at $98.34 (June contract, most active); Gold is up $11.0 to $1491.0 (June contract, most active); Silver is up $1.289 to $34.780 (July contract, most active); Copper is up $0.0565 at $4.0550 (July contract, most active)
Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.80; LME cash seller is $17.10, LME moly 3-month seller's contract is $17.24
Stock Market Morning Update
The DOW is down 10.75 points to 12,468.83; the S&P 500 is up 1.40 at 1,330.38
Miners are up:
Barrick (ABX) $45.32 up 0.18%
Newmont (NEM) $53.64 up 0.21%
US Gold (UXG) $6.88 up 1.78%
General Moly (Eureka Moly, LLC) (GMO) $4.15 up 0.73%
Thompson Creek (TC) $10.65 up 0.76%
Freeport-McMoRan (FCX) $47.74 up 1.94% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are up (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $33.42 up 0.15% - global steel producer
POSCO (PKX) $105.03 up 0.34% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 0.93% at $1,677,721.01 (what's this?).
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 firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market