Gold Stalls, Copper & Freeport Hang Tough - Blue Sky or Mud Hole?

*** BREAKING NEWS **** COMEX gold surged on hints that the Federal Reserve may be considering further stimulus. From 13:20:00 to 14:30:00 ET, COMEX gold went from $1,541.10/oz to $1,574.30/oz to reach an intraday high just below the record price of 1,577.40/oz. The settlement price did set a new record at $1,562.30/oz.

*** BREAKING NEWS *** COMEX copper reversed to gains, up $0.0270/lb to $4.3950, on improving news from Europe; COMEX gold got some mojo back too moving up $5.2 to 1,554.4/oz. Gold and copper moving together in price is a bullish sign (it must have been Ruby's bracelet, see below). Gold and copper now have both 1-month and 3-month positive correlation (10:15 AM PT)


Morning Miners!

It is 5:35 AM. Have a cup of Tuesday Mud. Sweet Ruby T took the ole Colonel out to the parking lot this morning. She pointed at the ground and asked, "What do you see? Blue sky or mud hole?" I reckon you can ask the same about the markets lately...

Gold Stalls, Copper & Freeport Hang Tough


Now that I've rejoined Ruby T in the bull pasture, Tuesday mornings are a lot more pleasant in the break room. She's been wearing double copper bracelets lately; one for health, the other for luck. Europe debt jitters and our own debt ceiling log jam have cast a long shadow over the markets recently but Ruby is unfazed. I'm keeping a brave face but it's a close race between our market cheer leader and Old Miner Woden. He'll roll in tomorrow loaded for bear.

While we were looking at the mud hole the markets opened and it is a mixed bag for the metals & miners this morning. Our trusty Eureka Miner's Index(EMI) has taken a turn south but is holding above its 1-month moving average (253.5 vs 241.8). It had a good rally off its June 27th 2011 low (180.0) to peak at 347.1 on July 8th. Now, we're down 100 points. I'd say we're right at the bull pasture range gate again - leave or stay?

I'm staying for now, both feet on the ground and one hand on the gate. It's interesting to see how the three benchmark miners used in the EMI calculation are doing this morning compared to the last 3 months:

1) Bellwether copper giant Freeport-McMoran (FCX) is just a thin flat washer above its 150-day moving average ($53.60 vs 53.40) following an impressive rally from its June 28th closing low of $48.94 (still up 9.5% at today's price). The resolution of a strike at their Grasberg Mine in Indonesia is uncertain but ironically, strikes there and in Chile have helped support copper prices. Freeport is only down 4.6% from its April 27th close of $56.17 showing good resilience over these volatile months.

2) Benchmark gold miner Barrick Gold (ABX) is trading up a tad at $45.94 following a 2-buck rise in COMEX gold to $1,551.8/oz. Gold has enjoyed a strong 5-day move to the upside but Barrick has struggled in a $43 to $48 trading range since early May, far off its peak of $55.63 April 21st. It is noteworthy that gold is up about 3% from 4/21 as ABX has fallen 17.4%.

3) Benchmark moly producer Thompson creek (TC) has held bravely above the $10-level against a backdrop of falling moly prices but this morning is trading at $9.88. It has been stuck in a range of $9.40 to $10.50 since early June; like Barrick, a long way from its April 28th close at $12.29 (down 19.6%).

Although we use senior benchmark miners to calculate the EMI, General Moly (GMO) has roughly tracked the fortunes of Thompson Creek. GMO trading at $4.29 this morning is down 19% from its April 14th close of $5.25.

So there we have it, pardner. Blue sky or mud hole? Stay tuned.


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 253.50, up from yesterday's 310.50 and above the 1-month moving average of 241.84. 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 80.38, up from yesterday's 79.62 and above its 1-month average of 80.04. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,613.0/oz or $61.2/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 $94.73
ICE North Sea Brent crude $116.27
Spread (ICE- NYMEX) = $21.54 (Yesterday, $21.03)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $95.64
ICE North Sea Brent crude $115.45
Spread (ICE- NYMEX) = $19.81 (Yesterday, $19.27)

* 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 $0.42 in early trading at $94.73 (August contract, most active); Gold is up $2.6 to $1551.8 (August contract, most active); Silver is down $0.408 to $35.290 (September contract, most active); Copper is down $0.0115 at $4.3565 (September contract, most active)

Western Molybdenum Oxide is $14.29; European Molybdenum Oxide is $14.65; LME cash seller is $14.52, LME moly 3-month seller's contract is $14.52

Stock Market Morning Update

The DOW is up 11.13 points to 12,516.89; the S&P 500 is up 0.62 at 1,320.11

Miners are mixed:

Barrick (ABX) $45.94 up 0.13%
Newmont (NEM) $54.38 up 0.24%
US Gold (UXG) $5.85 down 0.51%
General Moly (Eureka Moly, LLC) (GMO) $4.25 up 0.24%
Thompson Creek (TC) $9.88 down 0.60%
Freeport-McMoRan (FCX) $53.60 up 0.56% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.60 up 0.43%

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

ArcelorMittal (MT) $32.71 down 0.55% - global steel producer
POSCO (PKX) $107.17 down 0.32% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.35% at $1,670,347.79 (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