"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.

Friday, July 29, 2011

The Colonel Joins Kitco News; Day-5 Debt Watch


DEBT CRISIS INDEX = 138.9 (200-level is "Oh-oh" time; previous, 136.6)

*** BREAKING NEWS *** COMEX gold set a new nominal price record of $1,637.50/oz at 09:30 ET, December contract (most active)


Morning Miners!

It is 5:47 AM. Have a welcome cup of Raine's famous Red Label TGIF coffee - double strength. The markets are opening without any deal on table for resolving the debt ceiling debate before the Tuesday deadline. The latest Treasury cash balance shows that the United States now has less cash on hand than Apple ($73.7 billion versus $76.4 billion) - that's a watershed moment for a $14+ trillion economy in the my book.

The Colonel Joins Kitco News

Kitco News has invited the Colonel to be a bi-weekly contributor of commentaries on the metal markets. I will also join their 34-member panel of gold experts and input my thoughts to the Kitco weekly gold survey. The Colonel is delighted to join the Kitco team and invites you to visit their terrific website which includes:

"...an online precious metals store, live spot prices, expert market commentaries, up-to-the-minute news and usable market information, our website attracts nearly a million visits every day." (Kitco website)

The "Kitco in the News" segment is part of Kitco Metals Inc. based in Montreal, Canada:

Kitco Metals Inc. is also one of the world's premier retailers of precious metals and a leading supplier of refining services, labware for mineral analysis and precision-crafted devices for high-technology manufacturing processes. From our offices in Montreal, New York, Hong Kong and Shanghai, we buy and sell a wide range of precious metal products in gold, silver, platinum, palladium and rhodium. We also provide metals for custodial storage programs to individual customers and corporations the world over." (Kitco website)

My point of contact is Global News Editor Debbie Carlson, a veteran financial journalist who is based in Chicago.

The Colonel's first "Kitco Contributed Commentary"

The Colonel's first commentary on gold and copper was posted yesterday. You can find it by clicking on the link below and looking under the list of "Contributed Commentaries" (bottom-middle of the page):

$1,700+ Gold and a New Copper High by Year's End (Richard Baker, Kitco in the News, July 28, 2011)

It includes my latest thoughts on copper and gold which I also summarized for the weekly gold survey:

A stable or rising copper price provides support for gold even if there is headline volatility for the precious metal as a safe-haven play.

Lingering debt issues in the United Sates and Europe will provide gold support for many months. Small increments in progress may precipitate gold consolidations or corrections but the long term fundamentals remain intact as a monetary alternative to fiat currencies. In addition, gold continues to maintain a very positive technical relation with copper. The red metal price has proven quite resilient against a backdrop of downbeat macro-headlines due to supply restrictions (e.g., Escondida strike) fueling persistent expectations for deficit in 2011. The positive relation has four parts: 1) the ratio between the two suggests that copper is not overvalued historically relative to gold, 2) there is much less speculative interest in copper than earlier this year (i.e. copper price is being driven primarily by supply/demand fundamentals), 3) the gold:copper ratio has entered a period of notable stability and 4) the correlation of gold and copper prices remains high (~0.8, 1-month & 3-month).


The rationale for these remarks is given in my Kitco article.

Day-5 Debt Watch; DCI ticks up but not "Oh-oh!" yet

This week we introduced the Debt Crisis (DCI) Index to track the debt squabble in Washington and its impact on the bond, equity, currency and commodity markets. The DCI is computed at the market close and reported the following morning. Yesterday, the DCI had a closing value of 138.9 up slightly from Wednesday's 136.6. Our benchmark is 100, the value of the DCI on July 22nd; a bigger number suggests a worsening impact on markets (note 2). This Report has identified an elevated level surpassing 200 is time for serious concern.

CNBC Business News just carried a live morning speech from the President on the status of the debt ceiling debate - nothing really new as far as how to break the deadlock. My snapshot DCI calculation is 150.5; let's see where we close before the weekend, pardner.


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 196.37, down from yesterday's 235.50 and below the 1-month moving average of 291.31. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. The 1-month moving average broke its troubling downtrend on July 5th and is still trending up but very quickly losing steam. The EMI is not far from setting a new low for 2011. Nuts.

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 hot and cold markets 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 81.56, up from yesterday's 80.14 and above its 1-month average of 79.15. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,667.6/oz or $39.9/oz above the current COMEX gold price.

Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend, moved sideways for a while and but now appears to be heading back up.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be 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 $95.26
ICE North Sea Brent crude $115.93
Spread (ICE- NYMEX) = $20.67 (Yesterday, $20.42)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $96.28
ICE North Sea Brent crude $115.69
Spread (ICE- NYMEX) = $19.41 (Yesterday, $19.16)

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

Prices are off their crisis highs but we have $115+ Brent and $95+ NYMEX in November favoring high oil prices throughout the summer and into late fall. 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 back on rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) has broken its its 200-day moving average of $52.88 and 150-day moving average of $53.29 (our new key levels, 07/28 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 phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence with some investors adverse to 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 $2.18 in early trading at $95.26 (September contract, most active); Gold is up $11.5 to $1627.7 (December contract, most active); Silver is up $0.361 to $40.175 (September contract, most active); Copper is down $0.0415 at $4.4280 (September contract, most active)

Western Molybdenum Oxide is $15.20; European Molybdenum Oxide is $14.70; LME cash seller is $14.97, LME moly 3-month seller's contract is $14.97

Stock Market Morning Update

The DOW is down 106.60 points to 12,133.51; the S&P 500 is down 12.57 points at 1,288.10

Miners are down:

Barrick (ABX) $47.73 down 0.91%
Newmont (NEM) $57.34 down 0.68%
US Gold (UXG) $6.37 down 2.60%
General Moly (Eureka Moly, LLC) (GMO) $4.33 down 3.13%
Thompson Creek (TC) $8.90 down 2.20%
Freeport-McMoRan (FCX) $52.46 down 2.92% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.84 down 1.11%
Timberline Resources (TLR) $0.75 down 1.32%

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

ArcelorMittal (MT) $30.92 down 0.77% - global steel producer
POSCO (PKX) $108.89 down 1.06% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 1.18% at $1,715,486.50(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)

Note 2 - The Report will track the progress of the U.S. debt ceiling debate and its effect on markets though the so-called "deadline" on August 2nd. In the meantime we've suspended some of our usual weekly format. The next Metals & Miners Weekly Roundup will be Wednesday, August 3rd. In truth, the impact of the U.S. debt ceiling debate has been affecting investment decisions for weeks. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

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, July 28, 2011

Jobless Claims Lift Markets; Moly Finds a Bottom? Day-4 Debt Watch


DEBT CRISIS INDEX = 136.6 (200-level is "Oh-oh" time)

Just whistle while you work
And cheerfully together we can tidy up the place
So hum a merry tune
It won't take long when there's a song to help you set the pace

Snow White and the Seven Dwarfs


Þūnresdæg
Morning Miners!

It is 5:42 AM. Have hot a cup of Thursday Animation. It's hard to imagine our favorite Norseman making the cut for an old time Disney production but he can definitely whistle while he he works. When it's Thor's turn to tidy up the break room, it's time to put on the ear protectors and safety glasses. Speaking of work, there is a glimmer of light on the jobs front...

Jobless Claims Lift Broader Markets

With all the "histrionics and kabuki theater" in Washington, as one CNBC Business News Commentator put it this morning, it is easy to forget that there is a fragile domestic recovery still in progress. Hopefully, it won't be scuttled by the elected actors in our ongoing debt ceiling melodrama.

New jobless claims fell by a seasonally adjusted 24,000 to 398,000 for last week. Importantly, the prior week's claims figure was revised to 422,000, up from an originally reported 418,000. There are two reasons to interpret this as a positive indication going forward. Although the prior week's number is now higher than thought, it accentuates a noticeable decline to today's number (down roughly 6%). Secondly, this breaks a 15-week spell above the 400,000-level. An economist rule-of-thumb is that the economy is adding more jobs than it is shedding once the weekly claims figure falls below that key level.

The big boy monthly jobs report will be out next Friday. It will either confirm this trend or a few economists may end up with broken thumbs. This morning the news is lifting the broader markets and that's good enough for the ole Colonel.

Moly Finds a Bottom?

There may be some positive news setting up with molybdenum pricing also. On June 15th this report observed a funny wiggle in moly spot and futures prices:

There is another little funny in the metals market - a slight change in moly pricing that may be a harbinger of things to come or just more moon light. Western moly oxide bumped back up to $17.00/lb yesterday while euro-moly dropped to $16.45/lb. No big deal really except the LME moly futures also dropped - the 3-month seller fell to $16.56/lb from $17.01/lb; the 15-month, to $17.11/lb from $17.58/lb (Eureka Miner's Market Report, 6/15/2011)

It came to pass that moly prices did head south plumbing low-$14/lb territory. General Moly's Seth Foreman wrote a thoughtful reply to the Report on the so-called "moly conundrum" on July 5th. Seth pointed out that seasonality and several other factors were probably at work to cause the June/July fall-off. He concluded his analysis with the observation, "If the global economy is still showing signs of strength and growth come August/September, we anticipate the moly price to respond positively."

Yesterday's London Metal Exchange (LME) futures and Western spot moly price action suggest we may have begun the August/September revival. Here are 3-month charts for the LME 3-month seller contract and Western moly oxide (as tracked by Infomine):




The futures market anticipated the downdraft and it appears it may be anticipating an upturn. The 3-month seller contract bumped up from the bottom July 15th; the western moly spot prices, although oscillatory, seem to be heading higher. Yesterday, spot moly moved from $14.25/lb to $15.20/lb and now has caught up with the 3-month seller's price of $15.19/lb. Not a lot of data in the up-direction so we'll need to track this closely. Looks promising to me and hats off to Seth if we go higher. On July 15th, I bet moly spot prices would break $16.00/lb before Halloween. Stay tuned, pardner.

Day 4 Debt Watch - DCI up but not "Oh-oh!"

This week we introduced the Debt Crisis (DCI) Index to track the debt squabble in Washington and its impact on the bond, equity, currency and commodity markets. The DCI is computed at the market close and reported the following morning. Yesterday, the DCI had a closing value of 136.6 up from Tuesday's 116.6. Our benchmark is 100, the value of the DCI on July 22nd; a bigger number suggests a worsening impact on markets (note 2). This Report has identified an elevated level surpassing 200 is time for serious concern.


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 235.50, down from yesterday's 280.93 and below the 1-month moving average of 291.38. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. The 1-month moving average broke its troubling downtrend on July 5th and is still trending up but quickly losing steam.

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 hot and cold markets 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 80.14, down from yesterday's 79.50 and above its 1-month average of 79.16. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,687.0/oz or $69.0/oz above the current COMEX gold price.

Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend but now appears to be moving sideways.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be 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 $97.18
ICE North Sea Brent crude $117.60
Spread (ICE- NYMEX) = $20.42 (Yesterday, $19.56)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $98.10
ICE North Sea Brent crude $117.26
Spread (ICE- NYMEX) = $19.16 (Yesterday, $18.62)

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

Prices are off their crisis highs but we have $115+ Brent and $95+ NYMEX in November favoring high oil prices throughout the summer and into late fall. 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 OFF - The miners are on smoother roads but caution is in the air; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $52.84 and 150-day moving average of $53.32 (our new key levels, 07/27 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 The Federal Reserve phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence with some investors adverse to 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 $0.22 in early trading at $97.18 (September contract, most active); Gold is up $0.7 to $1618.0 (December contract, most active); Silver is down $0.378 to $40.190 (September contract, most active); Copper is up $0.0060 at $4.4525 (September contract, most active)

Western Molybdenum Oxide is $15.20; European Molybdenum Oxide is $14.68; LME cash seller is $15.19, LME moly 3-month seller's contract is $15.19

Stock Market Morning Update

The DOW is up 27.55 points to 12,330.10; the S&P 500 is up 4.93 points at 1,309.82

Miners are hanging tough:

Barrick (ABX) $47.35 down 2.45%
Newmont (NEM) $57.52 up 0.35%
US Gold (UXG) $6.52 down 1.51%
General Moly (Eureka Moly, LLC) (GMO) $4.57 up 1.56%
Thompson Creek (TC) $9.13 down 1.93%
Freeport-McMoRan (FCX) $54.18 down 0.50% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $16.25 down 0.90%
Timberline Resources (TLR) $0.75 unchanged

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

ArcelorMittal (MT) $31.37 down 0.82% - global steel producer
POSCO (PKX) $110.32 up 0.86% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.52% at $1,741,722.41(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)

Note 2 - The Report will track the progress of the U.S. debt ceiling debate and its effect on markets though the so-called "deadline" on August 2nd. In the meantime we've suspended some of our usual weekly format. The next Metals & Miners Weekly Roundup will be Wednesday, August 3rd. In truth, the impact of the U.S. debt ceiling debate has been affecting investment decisions for weeks. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

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, July 27, 2011

$1,628.8 Gold, $41.46 Silver; General Moly (GMO) Survey Positive; Day 3 Debt Watch



DEBT CRISIS INDEX = 116.6 (200-level is "Oh-oh" time)

Com'in in on a wing and a prayer
Com'in in on a wing and a prayer
Though there's one motor gone
We can still carry on
Com'in in on a wing and a prayer
Harold Adamson/Jimmy McHugh


Wōdnesdæg
Morning Miners!

It is 5:36 AM. Have a cup of Hump Day Hurrah. Old Miner Woden has been whistling Ry Cooder's song "Wing and a Prayer" all morning - our market bear has a strange sense of humor. Ruby T is back on the road, gold's breaking new records but copper is cautious. A few dark clouds are forming on the market horizon...but General Moly has good news to report!

$1,628.8 Gold, $41.46 Silver; Copper hangs tough, Moly futures up

COMEX silver got things going this morning by posting an 11-week high of $41.465/oz at 9:15 EDT. Fifteen minutes later, COMEX gold beat Sunday's run at a record with an all time nominal price of $1,628.80/oz. Precious metals were boosted as German Finance Minister Wolfgang Schäuble grumbled about the festering euro-zone debt debacle and by the Washington gridlock that holds our debt ceiling for ransom. Countries that have large U.S. dollar reserves as far away as the Philippines are are beginning to move away from the dollar on the margin. The euro bounced up to the 1.45 level but then retreated on the Schäuble comments which strengthened the dollar some. Strikingly, the yen fell to 77.78 - the strongest of the three major reserve currencies. What a mess.

COMEX copper is hanging tough presently down $0.0255 at $4.4525 buoyed by a softer dollar and the ongoing Escondido mine strike. London Metal Exchange (LME) moly futures continue to creep up, making $15.19/lb on the 3-month seller yesterday to sharpen the contango with Western moly oxide at $14.25/lb.

We'll checkout our new Debt Ceiling Index (DCI) in a moment but first some good news...

A Thumb's Up Mt. Hope Survey

According to a recent General Moly survey, there is strong local support for the Mt. Hope molybdenum project. Here is their press release that just came off the wires:

GENERAL MOLY ANNOUNCES STRONG SUPPORT FOR MT. HOPE PROJECT (Press release, 7/26/2011)

General Moly CEO Bruce D. Hansen said, "The results of this survey indicate that our commitment to becoming a long-term partner of the Eureka community through involvement and through open and transparent communications has helped us generate this well deserved public support for the Mt. Hope project. Based on responses from 448 households, 83% are supportive of the Mt. Hope project being developed."

Details of the survey are provided in the release and will be discussed at an open house in Eureka at the Opera House beginning at 5:30pm on August 3, 2011.

Day 3 Debt Watch - Putting a number on "Oh-oh!"

Yesterday we introduced the Debt Crisis (DCI) Index to track the debt squabble in Washington and its impact on the bond, equity, currency and commodity markets. The DCI will be computed at the market close and reported the next morning until things quiet down. Yesterday, the DCI had a closing value of 116.6 slightly up from Monday's 113.5. Our benchmark is 100, the value of the DCI last Friday; a bigger number suggests a worsening impact on markets (note 2).

So far nothing too alarming but it is not unreasonable to ask what level signals a run for the exits. A DCI greater than 200 is probably time for serious concern. Here are the six DCI factors and a trip wire for each:

Three factors expected to go up on worsening conditions:

Market volatility as measured by the S&P 500 volatility index (.VIX) - This Report uses a level of 25 or higher to signal significant fear in the markets; this morning the .VIX is at 21.56

10-year Treasury yields to represent bond market reaction - In the past 6-months the peak 10-year yield was 3.725%; this morning we're at 2.973%. A return to the peak in short order would be a loud alarm bell.

COMEX gold price as a safe haven refuge - the ole Colonel believes $1,700+/oz gold is the next big leg up if the debt situation accelerates in severity.

Three factors expected to go down:

The S&P 500 index (.SPX) to represent stock market reaction - The S&P 500 tested its 200-day moving average twice in May and bounced back. The current average is 1,282.9 and the S&P 500 is presently trading down 12.09 points to 1,319.85

Dollar Index (.DXY) to represent currency market reaction, measured by the PowerShares ETF (UUP) - In the last six-months, the dollar index has fallen 7.5% from its peak in mid-February. Another 2.5% move down would be scary (UUP = $20.34, yesterday's close = 20.93)

COMEX copper price* as a proxy for global growth expectations - The last big scary day for copper prices was June 7th, 2010, when the DOW returned to the "flash crash" lows. The gold:copper ratio on that day jumped to 448.6. If we hit $1,700/oz gold on debt crisis fear; copper could go to $3.79/lb by this ratio.

(* most active front month contract)

Rolling up all six thresholds gives you a DCI of 241.3 supporting the notion that levels above 200 are "oh-oh!" time.


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 280.93, down from yesterday's 288.94 and breaking below the 1-month moving average of 288.86. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. The 1-month moving average broke its troubling downtrend on July 5th and is still trending up but quickly losing steam.

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 hot and cold markets 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 79.50, down from yesterday's 78.85 and above its 1-month average of 79.25. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,707.8/oz or $82.9/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be 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.

Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend but now appears to be moving sideways.

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 $98.70
ICE North Sea Brent crude $118.26
Spread (ICE- NYMEX) = $19.56 (Friday, $18.56)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $99.56
ICE North Sea Brent crude $118.18
Spread (ICE- NYMEX) = $18.62 (Friday, $17.72)

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

Prices are off their crisis highs but we have $115+ Brent and $95+ NYMEX in November favoring high oil prices throughout the summer and into late fall. 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 OFF - The miners are on smoother roads but caution is in the air; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $52.22 and 150-day moving average of $53.40 (our new key levels, 07/11 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 phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence with some investors adverse to 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 $0.89 in early trading at $98.70 (September contract, most active); Gold is up $8.1 to $1624.9 (August contract, most active); Silver is up $0.607 to $41.305 (September contract, most active); Copper is down $0.0255 at $4.4525 (September contract, most active)

Western Molybdenum Oxide is $14.25; European Molybdenum Oxide is $14.68; LME cash seller is $15.19, LME moly 3-month seller's contract is $15.19

Stock Market Morning Update

The DOW is down 77.19 points to 12,429.40; the S&P 500 is down 12.09 points at 1,319.85

Miners are hanging tough:

Barrick (ABX) $50.18 up 0.78%
Newmont (NEM) $58.97 up 1.01%
US Gold (UXG) $7.01 up 1.01%
General Moly (Eureka Moly, LLC) (GMO) $4.78 up 0.63%
Thompson Creek (TC) $9.56 down 0.62%
Freeport-McMoRan (FCX) $56.24 up 0.29% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $16.86 down 0.69%
Timberline Resources (TLR) $0.76 up 1.33%

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

ArcelorMittal (MT) $32.48 up 1.03% - global steel producer
POSCO (PKX) $110.20 down 0.68% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.36% at $1,809,152.48(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)

Note 2 - The Report will track the progress of the U.S. debt ceiling debate and its effect on markets though the so-called "deadline" on August 2nd. In the meantime we've suspended some of our usual weekly format. The next Metals & Miners Weekly Roundup will be Wednesday, August 3rd. In truth, the impact of the U.S. debt ceiling debate has been affecting investment decisions for weeks. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

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, July 26, 2011

Quadra FNX (QUX:TSE) Rocks; Day-2 Debt Watch & The DCI


Ruby T's Copper Angel


Morning Miners!

It is 5:40 AM. Let me pour you some Tuesday Sunshine in a copper cup. Nothing like Sweet Ruby T to chase those debt ceiling blues away. She pointed out to me that spot copper prices just enjoyed a nice 1.3% pop this morning. A strike in the world's largest copper mine and a sagging dollar are putting some shine on the red metal. Speaking of copper miners, guess who is happy in Ely...

Quadra FNX (QUX:TSE) Rocks

Quadra FNX Mining Ltd. (QUX:TSE) saw a nice bounce yesterday in share price on the heels of a very positive production report. Quadra operates the Robinson copper mine outside Ely, Nevada, which includes the re-opened Ruth Pit. Mining editor Adella Harding wrote a nice piece on Quadra and their results last night in the Elko Daily Free Press online edition:

Quadra FNX reports production totals (Adella Harding, Elko Daily Free Press, 7/25/2011)

Adella reports, "The production profile at Robinson will benefit from access to higher grade material at the bottom of the [Ruth] pit and the removal of the existing north ramp, as well as additional haulage capacity, according to Quadra, which Ore grades are expected to further improve at Robinson in the fourth quarter, the company reported."

The Ruth Pit has a long history and its re-opening has been hampered by some of the old timer diggings and a large quantity of mud at the bottom of the pit. Investors have rewarded their good efforts lately. Below is a 3-month chart of share price (blue line). Quadra has broken above its 200-day average (green line) and is presently trading at $16.94 ($16.00 CAD).



Day-2 Debt Watch, Introducing the DCI

Yesterday, the Report began a "debt watch" to track how the ongoing debt ceiling debate in Washington might effect the markets (see note 2). So far so good, nothing calamitous yet.

Last night, The ole Colonel thought a Debt Crisis index (DCI) would be helpful in quantifying progress or panic. It will be similar in concept to our Eureka Miner's Index(EMI) and Gold Value Index (GVI). A value of par (i.e. 100) is the state of the markets at last Friday's close, 7/22/2011 (Day-0). We will interpret any number above 100 as indicating a worsening state of affairs; below par, improving conditions.

The DCI will be computed at the market close and reported the next morning until things quiet down. Yesterday, the DCI had a closing value of 113.5 - a little worse than our benchmark on Friday but no one is screaming out of the market theaters yet.

So what's in the index? I chose two groups of three things each. The first group of factors would presumably rise in value or price if the debt crisis in the U.S. worsens. Here are my choices:

First group:

Market volatility as measured by the S&P 500 volatility index (.VIX)
10-year Treasury yields to represent bond market reaction
COMEX gold price* as a safe haven refuge

The second group are things that would be expected to go down:

The S&P 500 index (.SPX) to represent stock market reaction
Dollar Index (.DXY) to represent currency market reaction, measured by the PowerShares ETF (UUP)
COMEX copper price* as a proxy for global growth expectations

(* most active front month contract)

We multiply the factors of the first group together and divide them by the product of the second group. The results are then normalized (NORM) by the 7/22/2011 baseline, therefore:

DCI = NORM * (VIX*(10-Year Yield)*(COMEX gold))/(SPX*UUP*(COMEX copper))

Here are the values/price at the Friday close:

.VIX = 19.35
.SPX = 1,337.43
10-year yield 3.0040%
COMEX gold $1,611.8/oz (16:00 EDT)
COMEX copper $4.4065/lb (16:00 EDT)
UUP 21.11

Now we're off and running...


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 288.94, down from yesterday's 313.93 and just above the 1-month moving average of 284.74. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. The 1-month moving average broke its troubling downtrend on July 5th and is now trending up.

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 hot and cold markets 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 78.85, down from yesterday's 79.78 and above its 1-month average of 79.32. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,708.1/oz or $96.2/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be 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.

Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend but now appears to be moving sideways.

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 $99.30
ICE North Sea Brent crude $117.86
Spread (ICE- NYMEX) = $18.56 (Friday, $18.40)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $100.18
ICE North Sea Brent crude $117.90
Spread (ICE- NYMEX) = $17.72 (Friday, $17.62)

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

Prices are off their crisis highs but we have $115+ Brent and $100+ NYMEX in November favoring high oil prices throughout the summer and into late fall. 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 OFF - The miners are on smoother roads but caution is in the air; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $52.22 and 150-day moving average of $53.40 (our new key levels, 07/11 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 phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence with some investors adverse to 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 $0.10 in early trading at $99.30 (September contract, most active); Gold is up $0.3 to $1612.5 (August contract, most active); Silver is up $0.499 to $40.460 (September contract, most active); Copper is up $0.0635 at $4.4700 (September contract, most active)

Western Molybdenum Oxide is $14.83; European Molybdenum Oxide is $14.68; LME cash seller is $15.15, LME moly 3-month seller's contract is $15.15

Stock Market Morning Update

The DOW is down 74.21 points to 12,518.59; the S&P 500 is down 4.84 points at 1,332.59

Miners are hanging in there:

Barrick (ABX) $49.90 up 0.28%
Newmont (NEM) $58.74 up 0.56%
US Gold (UXG) $6.94 up 0.14%
General Moly (Eureka Moly, LLC) (GMO) $4.80 up 0.84%
Thompson Creek (TC) $9.55 down 1.14%
Freeport-McMoRan (FCX) $55.69 up 0.41% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $16.94 up 0.69%
Timberline Resources (TLR) $0.77 down 1.28%

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

ArcelorMittal (MT) $32.19 down 1.53% - global steel producer
POSCO (PKX) $111.61 down 0.71% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is unchanged (to two decimal places in %) at $1,802,105.18(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)

Note 2 - The Report will track the progress of the U.S. debt ceiling debate and its effect on markets though the so-called "deadline" on August 2nd. In the meantime we've suspended some of our usual weekly format. The next Metals & Miners Weekly Roundup will be Wednesday, August 3rd. In truth, the impact of the U.S. debt ceiling debate has been affecting investment decisions for weeks. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

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, July 25, 2011

Day-1 Debt Watch - $1,621.9 Gold; General Moly (GMO) Update


Morning Miners!

It is 5:51 AM. Have a quick cup of Monday Cliff Hanger. With the debt ceiling drama in Washington hurdling toward the August 2nd deadline and lacking any signs of realistic resolution, the ole Colonel suspects some congressmen are holding long positions in the gold market. COMEX gold hit a new record in nominal price just past 6:00 AM EDT this morning at $1,621.9/oz as more investors sought safe haven. If you count "weekend wonders" in electronic trading as records, Sunday traders bid gold to $1,624.3/oz last night. We're off and running, pardner.

There are 6-market days before the markets open on the fateful August Day of Reckoning. Of course, markets anticipate so if anything horrible is going to occur it will most likely happen this week. In truth, the impact of the U.S. debt ceiling debate has been affecting investment decisions for weeks. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011. The present "Full Faith and Credit Super Bowl" is the channel we'll be watching this week and I plan to suspend the Report's usual format. The ole Colonel is moving the next Metals & Miners Weekly Roundup to Wednesday, August 3rd. Let's see how are teams are doing...

Day-1 Debt Watch

Other than gold making new highs, the base metals appear fairly calm and COMEX copper is flexing its new-found resilience by dropping off only 2-cents to trade presently at $4.3895/lb. The red metal's supply/demand story remains solid and it is getting further support from U.S. dollar weakness given U.S. credit rating concerns. The U.S. dollar index has fallen further below the 75-level currently at 74.20. As major reserve currencies go, the yen is strengthening markedly at 78.24 - not long ago, the Japanese government rushed to prop up their currency at the 83-level. Not too many happy exporters in the land of the rising sun today. The euro is at a respectable 1.4344 even though Greece just received another credit downgrade - all eyes are on Washington this week.

The 10-year Treasury is up above the 3% level for a 3.015% yield. Higher yes but nothing very scary. Some traders are keeping their eyes on the 30-year Treasury this week. The long bond fell in price this morning for a yield of 4.429%, not too bad either. The broader markets have opened and the S&P 500 dipped to 1,331.09 12-minutes into trading - a 1% drop from Friday's close (1,345.02) and now we're heading back up. So far, this doesn't look like Market Armageddon to me. In fact, our miners are feeling pretty good: Barrick Gold (ABX) is up 0.62% to 50.56; General Moly (GMO) is up 0.42% to 4.74 and bellwether miner Freeport-McMoRan (FCX) is down only 0.02% to 55.66.

Except for the gold pop, the Day-1 Debt Watch looks like a snoozer.

General Moly (GMO) Update

There are some encouraging developments on the local front. A good friend of this Report tells me that the Eureka Commissioners Meeting went well last week. With the General Moly (GMO) water rights issue mostly in the rear view mirror, there wasn't any real discussion on the recent water ruling. As a next step, the Eureka County and General Moly will continue to work together to fine tune the monitoring, management and mitigation or "3M" plan.

My trusted source went on to say that the commissioners agreed last week, "...to have Rex Massey update the 'Fiscal Impact Review and Analysis of the Mt. Hope Project' document that he created a few years back. Several proposed projects that were recommended in that study have already either been completed or are close to completion." General Moly is relying upon that study to identify potential impacts to the County. He added, "...it was pertinent to update the study and reevaluate and prioritize impacts."

Eureka County is also negotiating with General Moly on the temporary construction of worker housing. My source tells me, "The County has designated a portion of the Eureka Canyon subdivision to locate a temporary 'man camp' for the construction phase of the mine and GM [General Moly] is looking at purchasing a modular dorm-like structure from another project in western Nevada that is shutting down in the near future. I think it’s a nice fit and will house a fair number of workers near town rather than having a 'man camp' out at the Romano Ranch. All in all, I think there is a cooperative spirit between the parties and I am hopeful that we can move forward with getting this project up and running on schedule."

Sounds good to me!


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 313.93, down from Friday's 335.77 and above the 1-month moving average of 280.56. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. The 1-month moving average broke its troubling downtrend on July 5th and is now trending up.

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 hot and cold markets 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 79.78, up from Friday's 78.60 and above its 1-month average of 79.48. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,694.8/oz or $101.1/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be 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.

Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend but now appears to be moving sideways.

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 $98.83
ICE North Sea Brent crude $117.23
Spread (ICE- NYMEX) = $18.40 (Friday, $19.06)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $99.55
ICE North Sea Brent crude $117.17
Spread (ICE- NYMEX) = $17.62 (Friday, $18.46)

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

Prices are off their crisis highs but we have $115+ Brent and $95+ NYMEX in November favoring high oil prices throughout the summer and into late fall. 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 OFF - The miners are on smoother roads but caution is in the air; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $52.22 and 150-day moving average of $53.40 (our new key levels, 07/11 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 phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence with some investors adverse to 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 $1.04 in early trading at $98.83 (September contract, most active); Gold is up $16.8 to $1618.3 (August contract, most active); Silver is up $0.433 to $40.555 (September contract, most active); Copper is up $0.0205 at $4.3895 (September contract, most active)

Western Molybdenum Oxide is $15.06; European Molybdenum Oxide is $14.68; LME cash seller is $14.83, LME moly 3-month seller's contract is $14.83

Stock Market Morning Update

The DOW is down 84.05 points to 12,597.11; the S&P 500 is down 8.42 points at 1,336.60

Miners are hanging in there:

Barrick (ABX) $50.56 up 0.62%
Newmont (NEM) $59.32 up 1.13%
US Gold (UXG) $7.10 up 3.05%
General Moly (Eureka Moly, LLC) (GMO) $4.74 up 0.42%
Thompson Creek (TC) $9.76 up 0.51%
Freeport-McMoRan (FCX) $55.66 down 0.02% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $17.02 up 6.91%
Timberline Resources (TLR) $0.81 up 2.53%

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

ArcelorMittal (MT) $32.81 down 0.70% - global steel producer
POSCO (PKX) $112.43 up 1.88% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.40% at $1,815,497.35(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

Friday, July 22, 2011

"We Are Prepared for Success"- Why Copper is Important to Eureka



Morning Miners!

It is 5:32 AM. Have a hot cup of that classic Raine's TGIF Red Label. You've earned every bit of it this week!
Have a great weekend from the Colonel.

"We Are Prepared for Success" - Why Copper is Important to Eureka

There is no doubt the present debt concerns in Europe and the United States have cast a long shadow of uncertainty on the markets. This morning, things look a little brighter in Europe but Congress seems only further away from resolving our own debt ceiling debate as the August 2nd deadline draws near. Tomorrow these headlines could reverse; gold up, gold down. Armageddon or smooth sailing?

If we can see through the noise of all these headlines there are actually some increasingly positive signs coming from the price movements of gold and copper. It makes sense for Eurekans to feel good about rising gold prices; gold mining royalties are a major part of our county revenue. Why should we care about copper? Although the Robinson copper mine is just down the road a piece outside of Ely, it is in another county. Not much copper in Eureka, gold and molybdenum abound.

Followers of this Report know that copper has been a very reliable proxy for global recovery since the dark days of March 2009 when the Eureka Miner first went on the air. As copper prices reflated on improving demand, the overall metals & mining sector improved. We were excited when copper broke $2.50/lb then; nowadays we are in the lofty $4+/lb range and the red metal remains our brave canary in the mineshaft.

China makes up nearly 40% of global copper demand and is clearly slowing down. The preliminary HSBC China PMI update hit a 28-month low at 48.9 this week showing that Chinese manufacturing is now in contraction. The curious thing is that copper price remains resilient against this backdrop.

You might guess that this is just frothy market speculation but Freeport-McMoran CEO Richard Adkerson said on CNBC Business News yesterday that investment flows were down and fundamentals were driving price. As we have reported, even with slowing demand there are anticipated supply restrictions and copper miners are doing their best to ramp up production. Mr. Adkerson's memorable quote from the CNBC interview was, "We are prepared for success."

He added, "China is the risk to the copper price today...If something were to happen with China I believe it would be temporary. The forces that have been unleashed for the global growth are not things we’re going to have to go back on." (CNBC Business News, 7/22/2011)

That's music to this ole Colonel's ears. This is not a mining CEO that says things to boost share price; he was one of the first mining bosses to slash costs and reduce production during the 2008-2009 financial crisis. As we have said before, unless the wheels come off either the U.S. or Europe debt buckboards, we should see improving times for the miners in the second half of this year. As copper goes, so go the metals & miners, so go the broader markets in my view.

This morning Caterpillar (CAT) reported disappointing earnings on dropping demand from Japan and China. On the other hand, General Electric with an large international footprint too, reported good results with optimism about the path forward. What did copper think? COMEX copper is trading up $0.0260 at a respectable $4.4095/lb - not bad.

But what about gold? If there is some breakthrough on the debt fronts gold could drop more than a tad. We saw that the other day when there was hope for the so-called gang-of-six plan, gold fell nearly $30/lb after just setting an all time nominal high of $1,610.70/oz. That deal went soft and COMEX gold is now trading back up at $1,602.8/oz.

I think Commodity King Dennis Gartman has gold about right. Allen Sykora of Kitco News reported Gartman's thoughts in a "Kitco Market Nugget" this morning, “The inevitable and long overdue correction has begun, and although we have retained a core position in gold, we’ve time on our side, allowing us to sit and wait for the correction to run its course and into which we hope to replenish that which we sold and perhaps a bit more also.”

Next week, the Report plans to expand on the technical reasons for why gold and copper should do well together in the second half of the year even though there may be some scary ups and downs. That's good for Eureka, pardner - let's be prepared for success!


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 337.60, down from yesterday's 341.38 and above the 1-month moving average of 277.84. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. The 1-month moving average broke its troubling downtrend on July 5th and is now trending up.

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 hot and cold markets 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 79.17, up from yesterday's 79.04 and below its 1-month average of 79.60. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,691.3/oz or $88.9/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be 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.

Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend but now appears to be moving sideways.

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 $98.70
ICE North Sea Brent crude $117.76
Spread (ICE- NYMEX) = $19.06 (Yesterday, $19.31)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $99.30
ICE North Sea Brent crude $117.76
Spread (ICE- NYMEX) = $18.46 (Yesterday, $18.48)

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

Prices are off their crisis highs but we have $115+ Brent and $95+ NYMEX in November favoring high oil prices throughout the summer and into late fall. 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 OFF - The miners are on smoother roads but caution is in the air; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $52.22 and 150-day moving average of $53.40 (our new key levels, 07/11 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 phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence with some investors adverse to 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 $0.43 in early trading at $98.70 (August contract, most active); Gold is up $15.4 to $1602.4 (August contract, most active); Silver is up $0.923 to $39.870 (September contract, most active); Copper is up $0.0260 at $4.4095 (September contract, most active)

Western Molybdenum Oxide is $15.06; European Molybdenum Oxide is $14.65; LME cash seller is $15.06, LME moly 3-month seller's contract is $15.06

Stock Market Morning Update

The DOW is down 52.86 points to 12,671.55; the S&P 500 is down 2.45 points at 1,341.35

Miners are mixed:

Barrick (ABX) $50.19 up 1.23%
Newmont (NEM) $58.85 up 0.58%
US Gold (UXG) $6.98 up 1.31%
General Moly (Eureka Moly, LLC) (GMO) $4.70 down 1.67%
Thompson Creek (TC) $9.65 down 3.60%
Freeport-McMoRan (FCX) $55.39 up 0.09% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.96 up 0.13%
Timberline Resources (TLR) $0.82 up 5.13%

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

ArcelorMittal (MT) $32.84 down 1.02% - global steel producer
POSCO (PKX) $110.56 down 0.32% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.45% at $1,790,634.02(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