Gold Down in Price, Up in Value; GMO drops below $4

Morning Miners!

It is 5:59 AM. Have a cup of Tuesday, the pot's just brewed. Mariana and I are hitching a ride to Elko this morning with Ruby T. She's itching to put the pedal to the metal so let's get going...

Gold Down in Price, Up in Value

COMEX gold tried to enter $1500/oz pasture in the wee hours touching $1497.5/oz but got slammed at 08:30 ET dropping $15.1 in 25 minutes to $1475.1/oz. It has recovered some to trade presently at $1478.1. COMEX silver took a hit too, now at $33.340/oz. Is the Colonel worried? Nah, the gold/silver ratio is now in 44 territory, a level not seen since mid-February. Gold has been steadily gaining in value against silver, copper and oil as tracked in this Report's Gold Value Index (GVI). This morning the GVI is nearly at its peak for 2011 set last Thursday (see below).

What does this mean? An ounce of gold now buys a lot more ounces of silver, pounds of copper and barrels of oil than it did just a short while ago. As we have pointed out before, gold has been in an 11-month value downtrend against these three key commodities until a reversal to the upside on April 26th. We'll talk more about this recent uptrend when I return from Elko.

On a less positive note, GMO is now trading below $4 at $3.98, the Eureka Miner's Index(EMI) is at a new low (see below) and the S&P 500 is just a notch above its 50-day moving average (1,325.1 versus 1,323.61 average). Tough markets, pardner. Stay tuned.


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 235.69, down from yesterday's 262.12 and below the 1-month moving average of 404.72. The EMI continues to be down from the high set on January 4th and sets a new 2011 low today. The 1-month average has established 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 79.14, up from yesterday's 78.48 and above its 1-month average of 73.66. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,560.6/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 $96.74
ICE North Sea Brent crude $110.30
Spread (ICE- NYMEX) = $13.56 (Yesterday's $13.17)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $97.47
ICE North Sea Brent crude $109.91
Spread (ICE- NYMEX) = $12.44 (Yesterday's $12.31)

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

Prices are off their crisis highs but we now have $100+ Brent and $90+ NYMEX in August favoring higher oil prices throughout the summer although the futures are trending down. 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 down $0.63 in early trading at $96.74 (June contract, most active); Gold is down $12.5 to $1478.1 (June contract, most active); Silver is down $0.792 to $33.340 (July contract, most active); Copper is up $0.0045 at $3.9950(July contract, most active)

Western Molybdenum Oxide is $16.74; European Molybdenum Oxide is $16.98; LME cash seller is $16.99, LME moly 3-month seller's contract is $17.12

Stock Market Morning Update

The DOW is down 71.55 points to 12,476.62; the S&P 500 is down 3.95 at 1,325.52
Miners are down:

Barrick (ABX) $44.75 down 0.93%
Newmont (NEM) $52.84 down 0.19%
US Gold (UXG) $6.57 down 1.50%
General Moly (Eureka Moly, LLC) (GMO) $3.98 down 1.97%
Thompson Creek (TC) $10.24 down 0.49%
Freeport-McMoRan (FCX) $47.12 down 0.49% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.28 down 0.54% - global steel producer
POSCO (PKX) $103.95 down 0.33% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 1.02% at $1,643,340.07 (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