"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

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