"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.

Thursday, July 28, 2011

Jobless Claims Lift Markets; Moly Finds a Bottom? Day-4 Debt Watch

DEBT CRISIS INDEX = 136.6 (200-level is "Oh-oh" time)

Just whistle while you work
And cheerfully together we can tidy up the place
So hum a merry tune
It won't take long when there's a song to help you set the pace

Snow White and the Seven Dwarfs

Morning Miners!

It is 5:42 AM. Have hot a cup of Thursday Animation. It's hard to imagine our favorite Norseman making the cut for an old time Disney production but he can definitely whistle while he he works. When it's Thor's turn to tidy up the break room, it's time to put on the ear protectors and safety glasses. Speaking of work, there is a glimmer of light on the jobs front...

Jobless Claims Lift Broader Markets

With all the "histrionics and kabuki theater" in Washington, as one CNBC Business News Commentator put it this morning, it is easy to forget that there is a fragile domestic recovery still in progress. Hopefully, it won't be scuttled by the elected actors in our ongoing debt ceiling melodrama.

New jobless claims fell by a seasonally adjusted 24,000 to 398,000 for last week. Importantly, the prior week's claims figure was revised to 422,000, up from an originally reported 418,000. There are two reasons to interpret this as a positive indication going forward. Although the prior week's number is now higher than thought, it accentuates a noticeable decline to today's number (down roughly 6%). Secondly, this breaks a 15-week spell above the 400,000-level. An economist rule-of-thumb is that the economy is adding more jobs than it is shedding once the weekly claims figure falls below that key level.

The big boy monthly jobs report will be out next Friday. It will either confirm this trend or a few economists may end up with broken thumbs. This morning the news is lifting the broader markets and that's good enough for the ole Colonel.

Moly Finds a Bottom?

There may be some positive news setting up with molybdenum pricing also. On June 15th this report observed a funny wiggle in moly spot and futures prices:

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)

It came to pass that moly prices did head south plumbing low-$14/lb territory. General Moly's Seth Foreman wrote a thoughtful reply to the Report on the so-called "moly conundrum" on July 5th. Seth pointed out that seasonality and several other factors were probably at work to cause the June/July fall-off. He concluded his analysis with the observation, "If the global economy is still showing signs of strength and growth come August/September, we anticipate the moly price to respond positively."

Yesterday's London Metal Exchange (LME) futures and Western spot moly price action suggest we may have begun the August/September revival. Here are 3-month charts for the LME 3-month seller contract and Western moly oxide (as tracked by Infomine):

The futures market anticipated the downdraft and it appears it may be anticipating an upturn. The 3-month seller contract bumped up from the bottom July 15th; the western moly spot prices, although oscillatory, seem to be heading higher. Yesterday, spot moly moved from $14.25/lb to $15.20/lb and now has caught up with the 3-month seller's price of $15.19/lb. Not a lot of data in the up-direction so we'll need to track this closely. Looks promising to me and hats off to Seth if we go higher. On July 15th, I bet moly spot prices would break $16.00/lb before Halloween. Stay tuned, pardner.

Day 4 Debt Watch - DCI up but not "Oh-oh!"

This week we introduced the Debt Crisis (DCI) Index to track the debt squabble in Washington and its impact on the bond, equity, currency and commodity markets. The DCI is computed at the market close and reported the following morning. Yesterday, the DCI had a closing value of 136.6 up from Tuesday's 116.6. Our benchmark is 100, the value of the DCI on July 22nd; a bigger number suggests a worsening impact on markets (note 2). This Report has identified an elevated level surpassing 200 is time for serious concern.

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 235.50, down from yesterday's 280.93 and below the 1-month moving average of 291.38. 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 still trending up but quickly losing steam.

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 80.14, down from yesterday's 79.50 and above its 1-month average of 79.16. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,687.0/oz or $69.0/oz above the current COMEX gold price.

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 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.

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 $97.18
ICE North Sea Brent crude $117.60
Spread (ICE- NYMEX) = $20.42 (Yesterday, $19.56)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $98.10
ICE North Sea Brent crude $117.26
Spread (ICE- NYMEX) = $19.16 (Yesterday, $18.62)

* 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 $52.84 and 150-day moving average of $53.32 (our new key levels, 07/27 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 $0.22 in early trading at $97.18 (September contract, most active); Gold is up $0.7 to $1618.0 (December contract, most active); Silver is down $0.378 to $40.190 (September contract, most active); Copper is up $0.0060 at $4.4525 (September contract, most active)

Western Molybdenum Oxide is $15.20; European Molybdenum Oxide is $14.68; LME cash seller is $15.19, LME moly 3-month seller's contract is $15.19

Stock Market Morning Update

The DOW is up 27.55 points to 12,330.10; the S&P 500 is up 4.93 points at 1,309.82

Miners are hanging tough:

Barrick (ABX) $47.35 down 2.45%
Newmont (NEM) $57.52 up 0.35%
US Gold (UXG) $6.52 down 1.51%
General Moly (Eureka Moly, LLC) (GMO) $4.57 up 1.56%
Thompson Creek (TC) $9.13 down 1.93%
Freeport-McMoRan (FCX) $54.18 down 0.50% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $16.25 down 0.90%
Timberline Resources (TLR) $0.75 unchanged

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

ArcelorMittal (MT) $31.37 down 0.82% - global steel producer
POSCO (PKX) $110.32 up 0.86% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.52% at $1,741,722.41(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)

Note 2 - The Report will track the progress of the U.S. debt ceiling debate and its effect on markets though the so-called "deadline" on August 2nd. In the meantime we've suspended some of our usual weekly format. The next Metals & Miners Weekly Roundup will be Wednesday, August 3rd. 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.

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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