Friday, July 8, 2011
Jobs Shocker: Gold, Silver Up; Markets Down, Miners Resilient
It is 5:26 AM. You have a choice this morning, Raine's delicious Red Label or Elko's famous White King. Old Miner Woden hitchhiked in from his Lone Mountain diggings just to brew the extra pot for market bears; the ole Colonel is getting a lot of "told you so" from the old cuss...
There are times when all the experts get it wrong. Even CNBC's Rick Santelli thought the nonfarm payroll number would be up 83,000 from an his earlier prediction of "same as May's paltry 54,000." Rick is the bond reporter made famous by his Chicago Tea Party rant in February, 2009. Rick like others upped their estimates following yesterday's rosy ADP report that said 157,000 private-sector jobs were added in June. The consensus number moved from 108,000 to 125,000 and some economists, more optimistic about the recovery than Rick Santelli, saw 175,000 additional jobs in the ether.
Reality set in when the U.S. Labor Report came in at 5:30 AM PT - nonfarm payrolls rose a dismal 18,000 last month, a fraction of what everyone expected. CNBC's usually upbeat economist, Steve Liesman said, "We're within a round-off error of being negative." The rise in private-sector jobs barely nudged out the loss in government jobs and was a much less rosy 57,000 compared to the ADP number. The jobless rate, calculated from a separate household survey, increased for a third straight month to 9.2% in June, the highest since December 2010. Nuts.
COMEX gold and silver reacted immediately as investors sought safe haven. Gold went from $1,525.50/oz before the report release to $1,546.0/oz by 6:05 AM PT; a $20.5/oz pop or 1.3%. COMEX silver did even better rocketing from $36.15/oz to $36.90/oz; a 2.1% move. Predictably, COMEX copper took a hit falling from $4.4450/lb to $4,3810/lb by 5:55 AM PT; a 1.4% drop. Here is how gold and silver fared in London:
COMEX gold has settled back some presently trading at $1,544.5/oz; silver is at $36.770/oz and copper at $4.3965/lb.
To be a Market Bear or Not To Be?
The ole Colonel was certainly praying for a better report than this. The stagnant domestic jobs market is very discouraging. The broader markets are now open and the DOW is down a 100 points, the S&P 500 is down nearly 1% at 1,340.86. Lousy but not scary. Earnings reports commence Monday with aluminum giant Alcoa (AA) reporting after the bell. Some think that there will be surprises to the upside for many companies. Hopefully those analysts will do a better job of predicting earnings than economists have done with jobs.
I just did a calculation of our Eureka Miner's Index(EMI) and it is actually up at 328.96 compared to yesterday's 323.66 extending the rally above its 1-month moving average into the 6th day. The EMI is now well above the 2011 low of 180.03 set June 27th (see discussion below). Another positive sign for the metals & miners is the correlation trajectory of copper and gold. Both remain in a state of inversion (by this report's definition this occurs when both 1-month and 3-month correlations are negative) but the direction of change is pointed directly at positive territory (i.e. both correlations are positive). Copper fell today but did not "gap down" and will be supported by weather induced supply restrictions in Chile and improving signs for global demand.
This week I joined Ruby T in her bull pasture after hanging out with Old Miner Woden in his depressing bear camp. The ole Colonel believes that even with a dismal labor report today, the metals & miners have put the worse behind them in May-June. Just to show my conviction, I pitched a few a few shares of Caterpillar (CAT) in the buckboard this morning as that stock pulled back 2.4%. Fire up the CATs, there's still a lot of mining to be done in this resource-stretched world!
Please do your own research, the ole Colonel could be dead wrong.
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 328.96, up from yesterday's 323.66 and above the 1-month moving average of 236.42. 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 78.08, up from yesterday's 77.09 and below its 1-month average of 79.89. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,652.9/oz or $128.3/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 on the down slope.
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 $97.40
ICE North Sea Brent crude $118.38
Spread (ICE- NYMEX) = $20.98 (Yesterday, $18.03)
Here are the October contracts* with a narrower spread:
NYMEX light sweet crude $98.41
ICE North Sea Brent crude $117.74
Spread (ICE- NYMEX) = $19.33 (Yesterday, $16.70)
* 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 finally on smoother roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $52.03 and 150-day moving average of $53.38 (our new key levels, 07/06 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 GREEN light is turned back on for Investor Confidence as more investors return 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 $1.27 in early trading at $97.40 (August contract, most active); Gold is up $13.9 to $1544.5 (August contract, most active); Silver is up $0.234 to $36.770 (September contract, most active); Copper is down $0.0455 at $4.3965 (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 101.75 points to 12,617.74; the S&P 500 is down 12.36 at 1,340.86
Miners are mixed but resilient:
Barrick (ABX) $46.61 up 0.91%
Newmont (NEM) $55.18 up 0.38%
US Gold (UXG) $6.42 up 3.38%
General Moly (Eureka Moly, LLC) (GMO) $4.55 down 0.87%
Thompson Creek (TC) $10.16 down 1.84%
Freeport-McMoRan (FCX) $54.87 down 1.12% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.39 down 0.13%
The Steels are mixed (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $34.62 down 1.84% - global steel producer
POSCO (PKX) $109.70 up 0.41% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 0.08% at $1,737,909.18 (what's this?).
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 firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market