A Maiden Moon - How Will the Metals & Miners Fare?

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Morning Miners!

It is 5:58 AM. Have a cup of New Moon Java for a little lunar luck. Heaven knows we need it after the month of May. Old Miner Woden told me this morning that the Maiden Moon is a time of energy and alertness, a time to start new projects. I'm still trying to finish putting a roof on my wood shed, maybe the metals & miners will fare better in June...

How Will the Metals & Miners Fare?


The beginning of every month brings on a host of global and domestic data, the big boy will be the Labor Department's jobs report this Friday. Already we have declining Purchasing Manager Index (PMI) data from China supporting their anticipated economic slowdown, Automatic Data Processing (ADP) released a disappointing report on private sector jobs growth and the U.S. manufacturing sector slowed sharply in May. Nuts.

Predictably Treasurys soared this morning as investors sought safe haven and the U.S. dollar got hammered. COMEX copper dropped more than 1% on the China news. It is troubling that the yield on 10-year treasuries is on the doorstep of sub-3% (presently 3.002%; yields go down when bond prices go up). This report's Eureka Miner's Index(EMI) includes the 10-year in its calculation - presumably, low interest rates are good for mining companies. However, the EMI stops counting low interest rates as a good thing when the 10-year drops below 3%, generally a sign of tougher times ahead (get ready for the "deflation before hyper-inflation, the world's going to hell" crowd to crawl back out of the closet).

OK, everything is lousy so let's go home? Nuts to that too!

Let's put a little perspective on this. Early last June the EMI plunged to the 50 level, today's number is in the mid-300s. The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County; 50 was horrible, mid-300s isn't all that bad. Remember, we plumbed a 2011 low of 225 May 23rd and things have been trending up ever since.

Bellwether miner Freeport-McMoRan (FCX) was heading for its 400-day moving average and has now climbed above its 200-day; not great but better. General Moly (GMO) visited the $3 basement in late May and is now back in the high-$4s trading presently at $4.79 against all this bad news. Pretty resilient I'd say.

The ole Colonel thought analyst Gayle Berry of Barclays Capital had a good view on what's ahead as reported by London Reuters this morning:

"We're moving from what was a period of very fast expansion in 2010 as economies went into recovery, into a more mature phase where you'd expect to see rates of expansion slow. You need... perspective when looking at these [China PMI] numbers." (London Reuters, 6/1/2011)

Here is a link to the full article:

METALS-Copper steady after China data, soft dollar supports (London Reuters, 6/1/2011)

I think "mature" is the key word here. We have moved from overly optimistic views on domestic and global growth in late December and early January to much slower recoveries. But the U.S. and the world are still recovering, pardner. We won't get another hell-bent-for-leather late year rally for the metals & miners but we're not going to hell-in-a-hand-basket either.

See you at the Eureka Moly town hall meeting tomorrow.


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 335.92, down from yesterday's 356.03 and above the 1-month moving average of 305.23. 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 77.35, up from yesterday's 76.23 and above its 1-month average of 77.24. The gold-gaining-value trend has stalled. Today's Value Adjusted Gold Price (VAGP) is $1,661.2/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 $102.26
ICE North Sea Brent crude $116.3
1Spread (ICE- NYMEX) = $14.05(Yesterday, $13.26)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $102.8
0ICE North Sea Brent crude $115.90
Spread (ICE- NYMEX) = $13.10 (Yesterday, $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.

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 $50.50 (our new warning level, 05/31 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 $0.44 in early trading at $102.26 (July contract, most active); Gold is up $0.9 to $1537.7 (August contract, most active); Silver is down $0.355 to $37.950 (July contract, most active); Copper is down $0.0505 at $4.1270 (July contract, most active)

Western Molybdenum Oxide is $16.60; European Molybdenum Oxide is $16.60; LME cash seller is $16.87, LME moly 3-month seller's contract is $17.01

Stock Market Morning Update

The DOW is down 60.17 points to 12,509.62; the S&P 500 is down 6.30 at 1,338.90

Miners are mixed:

Barrick (ABX) $47.69 down 0.15%
Newmont (NEM) $56.12 down 0.80%
US Gold (UXG) $7.11 up 0.57%
General Moly (Eureka Moly, LLC) (GMO) $4.79 down 1.84%
Thompson Creek (TC) $11.08 up 2.03%
Freeport-McMoRan (FCX) $51.43 down 0.41% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) 15.04 down 0.68%

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

ArcelorMittal (MT) $33.13 down 0.96% - global steel producer
POSCO (PKX) $101.85 down 0.17% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.49% at $1,761,881.44(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