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