"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.

Friday, July 15, 2011

Copper & Gold Back in the Saddle Again; LME Moly Surprises

I'm back in the saddle again
Out where a friend is a friend
Where the longhorn cattle feed
On the lowly gypsum weed
Back in the saddle again
(Gene Autry)

Morning Miners!

It is 5:37 AM. Have a cup of Raine's Full Moon Friday. The lunar cycle appears to be pulling the market tide higher today...

Copper & Gold Elope

With all the recent Europe/U.S.debt whoopy-de-doops and Federal Reserve QE3 jack-in-the-box shenanigans, it's refreshing to see something very positive in the commodity space. Although COMEX gold nearly touching the $1,600/oz level is capturing the daily headlines, the ole Colonel believes the improving relation between copper and gold is just as exciting for the metals & miners. Pardner, I saw copper and gold burn rubber for Las Vegas this morning when I ran my latest numbers. It looks like there may be wedding bells soon chiming for two of our favorite metals.

Some of you are probably thinking I've gone mad. COMEX gold is actually down 6-bucks this morning at $1,583.4/oz while COMEX copper is up $0.131/lb to $4.4035/lb. Looks like the two are arguing again; the old gold-down copper-up, gold-up copper-down discordant behavior we've seen for much of the spring and early summer. Miners typically don't do well as a group when that quarrel is going on...and they haven't. Our Eureka Miner's Index(EMI) plumbed a new 2011 low on June 27th (see discussion below).

What's important is not the day-to-day price fluctuations but what this report calls "correlation trajectory." Copper and gold have moved from negative correlation (i.e. price moves in opposition) to positive correlation (prices move together) in a very strong way since July 5th. The short-term (1-month) and mid-term (3-month) correlations are now increasingly positive, a historically bullish condition for both metals and miners. If you plot the 3-month versus the 1-month, the movement or "trajectory" has been from the lower-left to the upper right in nearly a straight line for 9-market days. Here is the copper/gold chart from two days ago:

The magenta line is the most recent data and the white arrow shows the direction of positive correlation. Yesterday and today the trajectory has extended deeper into "+,+" territory. I will show an updated chart for the Monday Roundup. For the number heads like me, here are the data:

July 5th copper:gold correlation -0.440 (1-month) -0.3830 (3-month)
July 15th copper:gold correlation +0.481 (1-month) +0.421 (3-month)

That's equivalent to a 400hp muscle car burning rubber in the wedding chapel parking lot, pardner.

LME Moly Surprises

There's also a positive sign for moly miners in the ether this morning. After a recent and steady downtrend in moly prices, the London Metal Exchange (LME) 3-month seller's contract reversed yesterday. The price uptick was small and may lead nowhere. However, the last wiggle like this in the opposite direction proved to be a leading indicator of further price deterioration. You may remember I reported in mid-May:

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)

Shortly after this futures move, spot moly prices left the $16-17lb ridge and fell to the $14/lb bottom of the canyon.

This time around the 3-month seller bumped back up above the $15-level to $15.06/lb while spot prices out west and in Europe remained unchanged at $14.29/lb and $14.65/lb respectively. This sharpens the "contango" between spot and future prices and halts the descent of the latter. Here is the 2-month price history of the 3-month seller contract:

How about a beer bet? The ole Colonel bets that spot prices will reverse to the upside soon and break $16.00/lb before Halloween. Any takers?

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 275.51, down from yesterday's 299.21 and above the 1-month moving average of 251.37. 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.

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 79.64, up from yesterday's 78.97 and above its 1-month average of 80.05. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,661.2/oz or $77.8/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 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 $96.44
ICE North Sea Brent crude $116.70
Spread (ICE- NYMEX) = $20.26 (Yesterday, $20.10)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $97.30
ICE North Sea Brent crude $116.81
Spread (ICE- NYMEX) = $19.51 (Yesterday, $18.24)

* 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 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 $0.75 in early trading at $96.44 (August contract, most active); Gold is down $5.9 to $1583.4 (August contract, most active); Silver is down $0.209 to $38.485 (September contract, most active); Copper is up $0.0235 at $4.4035 (September contract, most active)

Western Molybdenum Oxide is $14.29; 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 up 12.41 points to 12,449.53; the S&P 500 is up 2.08 at 1,310.95

Miners are mostly up:

Barrick (ABX) $48.21 up 0.54%
Newmont (NEM) $57.21 up 0.81%
US Gold (UXG) $6.54 down 0.30%
General Moly (Eureka Moly, LLC) (GMO) $4.21 up 0.72%
Thompson Creek (TC) $9.90 up 0.81%
Freeport-McMoRan (FCX) $55.05 up 1.47% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.00 up 1.27%
Timberline Resources (TLR) $0.81 down 2.41%

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

ArcelorMittal (MT) $32.03 down 0.25% - global steel producer
POSCO (PKX) $108.49 up 0.22% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.40% at $1,731,843.95 (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)

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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