"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) 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.

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

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 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?).


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

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