Thursday, July 7, 2011
The Bulls Are Running; Silver, Copper, Freeport Pop; Markets Rock
It is 5:47AM. Have a cup of Summer Thunder. Nothing like a stampede to jolt our favorite Norseman from the July doldrums. It is a good thing Old Miner Woden is out at his diggings today, the bulls are running and our market bear would not be happy. The break room's semi-retired thunder god is pounding his chest in the parking lot, happy Thor's Day...
Jobs, Jobs, Jobs
The Colonel had CNBC Business News on this morning to watch two of three of this week's labor reports come in. The big boy is the nonfarm payroll report tomorrow but today the Automatic Data Processing Inc. (ADP) and the Labor Department jobless claims data had some positive surprises indeed.
The ADP survey tallies only private-sector jobs, while the Bureau of Labor Statistics' nonfarm payroll data includes government workers. This ADP report this morning shows private-sector jobs rose by 157,000 last month; economists surveyed by Dow Jones Newswires had expected a gain of just 95,000.
That's encouraging and the number of idled U.S. workers making new claims for unemployment benefits fell last week too. The Labor Department reports new claims dropped by 14,000 to a seasonally adjusted 418,000 in the week that ended July 2. A rule-of-thumb is that the economy adds more jobs than it is sheds once the weekly claims figure falls below 400,000 so we're not out of the woods yet. The jobs market remains soft with claims above that level since the week that ended April 9.
All in all, a pretty decent pair of reports, pardner. We needed some positive news, let's cross our fingers for tomorrow. The number to beat is an expectation of 108,000 nonfarm payroll jobs added in June, double the weak 54,000 reported in May. Stay tuned
John D. Rockerfeller Couldn't Watch Baseball in His Living Room
About the time the labor reports were coming across the wire CNBC's Becky Quick was interviewing Warren Buffet about the economy from Sun Valley, Idaho. The venerable billionaire and sage of Omaha is feeling fairly upbeat about the path going forward. He thinks housing will surprise and feels confident that America will dig itself out of the hole we're in. Tax reform will come with "leadership and outrage" and grandpa Warren thinks we may be near that threshold. Old timers always provide needed perspective in hard times and Mr. Buffet is no exception. With good humor he said most people today are better off than John D. Rockerfeller who couldn't even watch baseball in his living room. Warren was born in 1930 and reminded the audience that the Great Depression, a World War and nuclear weapons were not enough to stop American prosperity (or to keep him from making billions), "America is still the best place in the world to be born."
Silver, Copper Pop; Markets Rock
Whether it was Warren Buffet or the labor reports, markets reacted very positively to the morning news. Of our favorite metals the most impressive were moves in silver and copper. Here is how spot silver reacted in London:
COMEX gold remained pretty flat at $1,528.5/oz on a rising U.S. dollar and falling euro but the COMEX silver bounce is impressive, presently up $0.364/oz at $36.280/oz. COMEX copper beat its high the other day and is now trading up $0.0470/lb at $4.3820/lb; a level not seen since April 25th. Continued expectations of demand from China and supply disruptions in Chile boosted the red metal as well as the decline of inventories. Here is a chart of the falling London Metal Exchange (LME) copper stocks:
Perhaps most importantly, bellwether miner and copper giant Freepot-McMoran (FCX) gaped above its 150-day moving average of $53.38 to presently trade at $54.90. This is an amazing 16.5% rise from an intraday low of $47.11 on June 23rd and enough to kick us out of 4-WD on the Eureka Outlook Dashboard. The miners should be on smoother roads.
Moly benchmark producer Thompson Creek (TC) also appears strong today even against a backdrop of falling moly prices. Yesterday, euro-moly oxide dropped to $14.65/lb approaching western moly at $14.52/lb. TC is approaching its 50-day moving average of $10.43 presently up 1.39% at $10.18. General Moly (GMO) is up 2.03% to $4.53.
With the benchmarks in bull mode, the Eureka Miner's Index(EMI) has finally broken the downtrend of its 1-month moving average. Today the average is up for it's third day after declining steadily downward from its peak on May 2nd. The EMI is at 323.7 up from its June 27th 2011 low of 180.0 (see discussion below). Let's get another positive labor report under our saddle, pardner, things are looking up!
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 323.66, up from yesterday's 298.26 and above the 1-month moving average of 232.93 for the fourth day. 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 has broken its troubling downtrend since May 2nd.
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 77.09, down from yesterday's 78.26 and below its 1-month average of 79.93. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,656.8/oz or $128.3/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 back on the down slope.
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 $98.76
ICE North Sea Brent crude $116.79
Spread (ICE- NYMEX) = $18.03 (Yesterday, $16.41)
Here are the October contracts* with a narrower spread:
NYMEX light sweet crude $99.70
ICE North Sea Brent crude $116.40
Spread (ICE- NYMEX) = $16.70 (Yesterday, $15.08)
* NYMEX futures contracts have rolled forward, we now show August & October for a 2-month look-ahead
Prices are off their crisis highs but we still have $110+ Brent and $95+ NYMEX in October favoring high oil prices throughout the summer and into 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 finally on smoother roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $52.03 and 150-day moving average of $53.38 (our new key levels, 07/06 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 GREEN light is turned back on for Investor Confidence as more investors return 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 $2.11 in early trading at $98.76 (August contract, most active); Gold is down $0.7 to $1528.5 (August contract, most active); Silver is up $0.364 to $36.280 (September contract, most active); Copper is up $0.0470 at $4.3820 (September contract, most active)
Western Molybdenum Oxide is $14.52; European Molybdenum Oxide is $14.65; LME cash seller is $14.52, LME moly 3-month seller's contract is $14.52
Stock Market Morning Update
The DOW is up 79.55 points to 12,705.57; the S&P 500 is up 11.41 at 1,350.63
Miners are up:
Barrick (ABX) $46.45 up 0.65%
Newmont (NEM) $54.99 up 0.81%
US Gold (UXG) $6.20 up 0.49%
General Moly (Eureka Moly, LLC) (GMO) $4.53 up 2.03%
Thompson Creek (TC) $10.18 up 1.39%
Freeport-McMoRan (FCX) $54.90 up 2.58% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.23 up 0.97%
The Steels are up (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $34.77 up 2.08% - global steel producer
POSCO (PKX) $108.92 up 0.67% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 1.10% at $1,727,827.80 (what's this?).
Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)
Headline photograph by Mariana Titus
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