Gold New Record $1,588.90; Copper in Bull Mode

*** BREAKING NEWS *** The title of this blog was revised as COMEX gold just bested its earlier morning record of $1,581.40/oz with a new high of $1,588.90/oz at 9:10 AM PT

In a cavern, in a canyon,
Excavating for a mine
Dwelt a miner forty niner,
And his daughter Clementine

Oh my darling, oh my darling,
Oh my darling, Clementine!
Thou art lost and gone forever
Dreadful sorry, Clementine (Oh My Darling Clementine)


Wōdnesdæg
Morning Miners!

It is 5:38 AM. Have a cup of delicious Hump Day Bliss. There may be something to make everybody happy this morning, market bears and bulls...

Gold New Record $1,581.40


Old Miner Woden, our resident market bear, was singing "Oh My Darling Clementine" when he rolled in this morning. Yesterday, Europe finance ministers considered allowing Greece to default on some of its debt, Italy’s borrowing costs blew out and US Federal Reserve minutes hinted about the possibility of additional financial stimulus. Not the happiest scenarios for a fragile global recovery and safe haven investors pushed COMEX gold to a record settle price of $1,562.30/oz.

This morning at 6:10 AM PT, COMEX gold popped to a new all time record high of $1,581.40/oz [revised to a new high of $1,588.90/oz at 9:10 AM PT] - very near my May prediction of $1,600/oz before Labor Day. Not quite there, almost. Currently, COMEX gold is trading at $1,578.3/oz and Old Miner Woden is singing, singing...

Light she was and like a fairy,
And her shoes were number nine,
Herring boxes, without topses,
Sandals were for Clementine.

Oh my darling, oh my darling,
Oh my darling, Clementine!
Thou art lost and gone forever
Dreadful sorry, Clementine

Copper in Bull Mode


It's too bad our resident market bull Ruby T is on a back haul to Bald Mountain today, she'd be singing too. The mere thought of additional quantitative easing by the Federal Reserve is not a good sign for domestic recovery but it helps the base metals join the chorus. More easy money, pardner...

Drove she ducklings to the water
Ev'ry morning just at nine,
Hit her foot against a splinter,
Fell into the foaming brine.

Oh my darling, oh my darling,
Oh my darling, Clementine!
Thou art lost and gone forever
Dreadful sorry, Clementine

But there are also fundamental underpinnings to the recent strength in copper and his metallic friends. The respected 30-Day GFMS Base Metal Index has steadily trended up from a June 20 low of 330 to today's number of 367; more than an 11% move. Presently COMEX copper is up a second day with gold trading at $4.3920/lb.

Part of the copper strength can be attributed to improving expectations about the Chinese economy. New data shows that despite monetary tightening measures, China's economy grew 9.5 percent in the second quarter beating the 9.4 percent
forecast by a Reuters poll.

Bloomberg News carried an upbeat article on Chinese copper demand yesterday:

Copper Climbs for First Time in Three Sessions as Chinese Imports Rebound (Yi Tian, Bloomberg News, Jul 12, 2011)

The article quotes top copper producer Codelco as saying there are “strong signs” that the country [China] will “come back and buy in a more aggressive way...” Accordingly, Chinese imports rose in June for the first time in three months after a period of de-stocking.

Remember when Old Miner Woden told Ruby that the summer China story was "a bunch of bull poop"? Of course he mined copper in Arizona when he was a young feller, "Copper was 4-bits a pound then. I'd give up electricity before I'd buy copper at 4 dollars!"

That may be so but today has something for everybody. The ole Colonel is happy because the copper/gold correlation is spending its second day in green pasture (by this report's definition "green pasture" occurs when both 1-month and 3-month correlations are positive). Here is a copper/gold correlation chart we update every Monday for the roundup:



The white arrow shows the recent transition from inversion (i.e. 1-month and 3-month correlations are negative) to positive territory, a decidedly bullish development for the metals & miners. The broader markets are now open and it looks like the miners are indeed on a roll; Barrick is up 2% and Freeport, 1.6%

Ruby lips above the water,
Blowing bubbles, soft and fine,
But, alas, I was no swimmer,
So I lost my Clementine.

Oh my darling, oh my darling,
Oh my darling, Clementine!
Thou art lost and gone forever
Dreadful sorry, Clementine

How I missed her! How I missed her,
How I missed my Clementine,
But I kissed her little sister,
I forgot my Clementine.

Oh my darling, oh my darling,
Oh my darling, Clementine!
Thou art lost and gone forever
Dreadful sorry, Clementine


Daily Market Roundup

Enough singing, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 290.46, up from yesterday's 253.50 and above the 1-month moving average of 245.41. 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 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 79.75, up from yesterday's 80.38 and above its 1-month average of 80.07. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,653.6/oz or $75.3/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 $97.00
ICE North Sea Brent crude $117.16
Spread (ICE- NYMEX) = $20.16 (Yesterday, $21.54)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $97.88
ICE North Sea Brent crude $116.22
Spread (ICE- NYMEX) = $18.34 (Yesterday, $19.81)

* 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 down $0.43 in early trading at $97.00 (August contract, most active); Gold is up $16.0 to $1578.3 (August contract, most active); Silver is up $1.616 to $37.250 (September contract, most active); Copper is up $0.0005 at $4.3920 (September contract, most active)

Western Molybdenum Oxide is $14.25; European Molybdenum Oxide is $14.60; LME cash seller is $14.52, LME moly 3-month seller's contract is $14.52

Stock Market Morning Update

The DOW is up 91.73 points to 12,538.61; the S&P 500 is up 9.25 at 1,322.89

Miners are singing Clementine:

Barrick (ABX) $47.97 up 2.00%
Newmont (NEM) $55.95 up 1.14%
US Gold (UXG) $6.19 up 2.48%
General Moly (Eureka Moly, LLC) (GMO) $4.28 up 2.64%
Thompson Creek (TC) $10.00 up 1.21%
Freeport-McMoRan (FCX) $54.70 up 1.62% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.84 up 2.37%

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

ArcelorMittal (MT) $32.78 up 0.61% - global steel producer
POSCO (PKX) $107.94 up 1.14% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 2.01% at $1,716,150.96 (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