"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.

Tuesday, July 19, 2011

Gold $1,610.7; Copper 3-Month High; More GMO Thoughts on Moly

(Metal Art by Mariana Titus)

Morning Miners!

It is 5:37 AM. Have a cup of Tuesday Bliss. Our market bull Ruby T couldn't be in finer spirits - her herd of favorite metals are running for greener pasture...

Gold $1,602.7; Copper 3-Month High

COMEX gold and silver held hands in the wee hours and reached new highs. COMEX gold touched $1,610.7/oz for a new all time record for nominal gold price at 3:15 AM ET. COMEX silver recorded $40.880/oz at the same time and the closely watched gold/silver ratio remained below 40 at 39.4; a level not seen since early May. If this trend continues, silver may make another dash at Hunt Brother's $50/oz territory. Mining editor Adella Harding reported some of my latest thoughts on gold and silver in yesterday's online edition of the Elko Daily Free Press:

Gold prices break records (ADELLA HARDING Mining Editor, Elko Daily Free Press, Monday, July 18, 2011 3:18 PM PT)

COMEX gold and silver have retreated a bit, now trading at $1,602.8/oz and $40.350/lb respectively.

Not to be outdone by her precious metal friends, COMEX copper jumped to a 3-month high of $4.488/lb. Presently it is trading at $4.4805/lb boosted by expectations of better-than-expected news from the embattled housing front today. As reported by Bloomberg News this morning:

Copper Advances to a Three-Month High as U.S. Housing Starts May Increase (Agnieszka Troszkiewicz, Bloomberg News, Jul 19, 2011 4:57 AM PT)

The other day we reported that billionaire investor Warren Buffet said that he thought housing would "surprise." If this comes true, there is no better remedy for creating new jobs domestically and adding key demand support for construction commodities like copper.

The correlation trajectory of copper and gold continues its positive ascent; a very bullish sign for the mining sector (1-month correlation = +0.5923; 3-month, +0.5486). Another bullish trend is a return to a rock-steady gold:copper ratio. The 3-month average is 367.0 lbs of copper per ounce of gold with less than 2.85% variation (standard deviation/mean). This report considers any variation under 3% as very stable. The ratio is also very near historical norms not seen since last fall (our benchmark date is 11/26/10 when the ratio was 363.2). When copper was setting records in February the ratio was sub-300 (292.8 low, 2/7/2011).

More General Moly (GMO) Thoughts on Moly Prices

One of the big questions for moly miners is whether spot moly prices are near the bottom for the summer with improving prospects for higher prices in the fall. The London Metal Exchange (LME) futures data and expectations of improving supply/demand fundamentals are encouraging but the jury is still out. Here is a comparison of Western moly spot prices as reported by Infomine (bottom chart) compared to the LME 3-month seller's contract (top chart) for the period of May 2nd to yesterday's closing prices (remember, London dates are shown in reverse order from our convention: 3/5/11 is May 3rd):

You will note that the LME price declines in mid-June appear to anticipate the downtrend in spot prices commencing June 21st. Conversely, the uptick in LME moly price last Thursday has now been followed by a rise in Western price yesterday. Western moly oxide and the LME 3-month seller are now both $15.06 ($33,200/metric ton). Up we go?

I asked General Moly's Director of Investor Relations Seth Foreman for his thoughts on the subject yesterday. You may remember he provided the report with a thoughtful seasonal argument for summer-dips/fall-rises in moly prices (General Moly on Moly Prices, 6/7/2011). He too is watching the latest LME data with interest:

"...I believe the increase in LME prices (ahead of any other reports such as Metals Week, Ryan’s Notes or Metals Bulletin) may signal a speculative view that moly prices are going to be moving up soon. Last Friday, Plats Metals Week published its weekly moly price unchanged from last week while Ryan’s notes decreased its price just a bit (to match Metals Week) and LME prices increased. Also, Metals Bulletin decreased their European oxide price on Tuesday only to increase it on Friday.

So that could be three wiggles. 1) LME prices increase; 2) Metals Bulletin decreases but then increases its European prices in the same week; and 3) MW holds its price steady WoW after decreasing them for several weeks straight." (Seth Foreman to the Report, 7/18/2011)

It is always great to hear from Seth and we will follow these wiggles and trends closely in the coming weeks. The ole Colonel has bet that spot prices will break $16.00/lb before Halloween.

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 308.84, up from yesterday's 291.32 and above the 1-month moving average of 261.10. 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 78.91, down from yesterday's 79.78 and below its 1-month average of 79.99. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,697.1/oz or $94.3/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 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 $97.82
ICE North Sea Brent crude $117.83
Spread (ICE- NYMEX) = $20.01 (Yesterday, $20.26)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $98.63
ICE North Sea Brent crude $117.24
Spread (ICE- NYMEX) = $18.61 (Yesterday, $19.51)

* 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 still have $110+ Brent and $95+ NYMEX in October 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 up $1.57 in early trading at $97.82 (August contract, most active); Gold is up $0.4 to $1602.8 (August contract, most active); Silver is up $0.008 to $40.350 (September contract, most active); Copper is up $0.0775 at $4.4805 (September contract, most active)

Western Molybdenum Oxide is $15.06; 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 113.15 points to 12,498.31; the S&P 500 is up 12.04 at 1,317.48

Miners are mixed:

Barrick (ABX) $48.72 down 0.63%
Newmont (NEM) $57.63 down 0.79%
US Gold (UXG) $7.05 up 0.43%
General Moly (Eureka Moly, LLC) (GMO) $4.51 up 3.20%
Thompson Creek (TC) $9.91 up 1.33%
Freeport-McMoRan (FCX) $55.85 up 1.45% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.27 up 1.40%
Timberline Resources (TLR) $0.81 down 2.41%

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

ArcelorMittal (MT) $31.67 up 1.21% - global steel producer
POSCO (PKX) $106.24 up 1.58% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.63% at $1,778,183.45 (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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