My latest Kitco Commentary: Buy or Sell Gold Now? Check the VAGP First
(8/22/2011)
This morning's...
COMEX Gold price = $1,829.7/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 96.47
Value Adjusted Gold Price© (VAGP) = $1,584.7/oz
COMEX - VAGP = $245.0/oz; gold remains overvalued relative to key commodities
Morning Miners!
It is 5:44 AM. have a cup of Hump Day Hurrah. There's enough good news in the break room today to even make our market bear smile when the ole Colonel isn't looking. Oh-oh, I said that a little too loudly, here comes old Miner Woden, "It won't last, we're doomed - gold is going to $5,000/oz!" Oh well, you can't please everyone with a few good tidings - let's see what's up...
Gold, Silver & the Value Adjusted Gold Price© (VAGP)
COMEX gold has a ways to go to break Woden's $5,000/oz but it is holding its ground at $1,829.9/oz this morning - about where we closed yesterday and up $124.5/oz from last Thursday's low of $1,705.4/oz.
The real story this morning may be silver and copper. COMEX silver gained on gold bouncing $0.241/oz to $41.705/oz bullishly compressing the closely watched gold:silver ratio to 43.87. COMEX copper is continuing an uptrend that started last Tuesday, August 8th. The red metal is trading up $0.405/lb to $4.1820/lb, an impressive 5.7% above the intraday low of August 8th. Both silver and copper most active contracts have now rolled forward to December. Giddy-up go!
The markets are now open and it looks like we will close this month in rally mode with both the DOW and S&P 500 up more than 1 percent. Encouragingly, the Eureka Miner's Index© (EMI) is above the 100-level for the fourth day and above its 1-month moving average for a second day. If this trend continues into September, we may yet escape bear country for the miners. Our Debt Crisis Index is trending down marking its second day below the 200-warning level scoring a 168.6. If the European banks stay solvent, we may be seeing some additional light in the mineshaft.
Finally, this Kitco one-year chart of gold prices through yesterday's close sheds some of that light from above on this report's Value Adjusted Gold Price© (VAGP). Note that the lower trend line (dark blue) nearly intersects yesterday's VAGP of $1,569.0/oz (dark blue diamond). The VAGP is a level that supports current oil, copper & oil prices based on historical commodity norms. Both the trend line and the VAGP suggest there is solid support for gold in mid-$1,500/oz territory, not that Old Miner Woden is worried much about that.
American Vanadium & General Moly Mt. Hope Make Top Five-in-Ten for Nevada
Eureka County has a lot to be proud of with two of our new mining projects given top tier rating by Alan Coyner (Nevada Bureau of Mines & Geology, NBMG) and Jonathan Price (Nevada Division of Minerals, NDOM). These two rate the top 10 minerals exploration projects in Nevada and updated their lists last week. American Vanadium's Gibellini project in the southeast corner of our county ranked number one and General Moly's (Eureka Moly, LLC) Mount Hope molybdenum project ranked number four.
A faithful follower of this report sent me the link to an article about American Vanadium and the top ten in the Northern Nevada Business Weekly:
‘Purple flake’ takes position along gold as attractive prospect (John Seelmeyer, Northern Nevada Business Weekly, 8/29/2011)
This report regularly covers the progress of both American Vanadium and General Moly. The last American Vanadium blog was August 23rd; General Moly, August 1st.
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 138.12, up from yesterday's 120.12 and above the 1-month moving average of 112.97. The EMI set a new low for 2011 of 74.53 on August 9.
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
Gold Value Index (GVI)
The Eureka Miner’s Gold Value Index© (GVI) is below-par at 96.47, down from yesterday's 97.29 and above its 1-month average of 95.75. The record high for 2011 was 102.71 set Friday, August 19th. Today's Value Adjusted Gold Price© (VAGP) is $1,584.7/oz or $245.0/oz below the current COMEX gold price.
Although gold prices were on the rise, the GVI initially trended down from 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend, moved sideways for a time and and headed back up with vigor. It is showing signs of being a little "toppy" now that it is around the 100-level again.
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 derivatives are 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 and industrial metal that now competes with gold for investment and as a hedge against fiat currencies.
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 Debt Crisis Watch
July 26th we introduced the Debt Crisis Index (DCI). The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI & GVI indices. Today, the DCI has a value of 168.6 down from yesterday's 183.9. 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. We are now below that level and trending down.
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 $100/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 $88.35
ICE North Sea Brent crude $114.04
Spread (ICE- NYMEX) = $25.71 (Yesterday, $24.78)
Here are the December contracts* with a narrower spread:
NYMEX light sweet crude $89.06
ICE North Sea Brent crude $112.75
Spread (ICE- NYMEX) = $23.69 (Yesterday, $23.62)
* NYMEX futures contracts have rolled forward, we now show October and December for a 2-month look-ahead
Prices are off their crisis highs and we have $110+ Brent and $85+ NYMEX in December favoring high oil prices throughout the fall and into early winter. My last 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 ON - The miners are on very rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is below its 200-day moving average of $52.70 (our new key level, 08/22 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.
The GREEN light is turned on for Commodity Reflation with copper trading comfortably above $3.50/lb
The YELLOW light is turned on for Stable Markets with the VIX above 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 until mid-2013
The ORANGE light is turned back on for Investor Confidence with investors adverse to commodity-sensitive equities
The YELLOW light is turned on our Fuel Gauge with oil above $80
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 $0.55 in early trading at $88.35 (October contract, most active); Gold is down $0.1 to $1829.7 (December contract, most active); Silver is up $0.241 to $41.705 (December contract, most active); Copper is up $0.0405 at $4.1820 (December contract, most active)
Western Molybdenum Oxide (Infomine) is $14.97; European Molybdenum Oxide (Bloomberg) is $14.50; LME cash seller is $14.97, LME moly 3-month seller's contract is $14.97
Stock Market Morning Update
The DOW is up 126.16 points to 11,686.11; the S&P 500 is up 15.03 points at 1227.95.
Miners are mixed:
Barrick (ABX) $50.40 down 0.88%
Newmont (NEM) $63.06 down 0.11%
US Gold (UXG) $6.29 up 1.13%
General Moly (Eureka Moly, LLC) (GMO) $4.07 up 0.74%
Thompson Creek (TC) $8.29 up 1.59%
Freeport-McMoRan (FCX) $47.82 up 2.60% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.07 up 1.19%
Timberline Resources (TLR) $0.80 up 6.67%
The Steels are up (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $22.05 up 3.13% - global steel producer
POSCO (PKX) $95.03 up 1.37% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 1.01% at $1,664,920.46
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)
Note 2 - The impact of the U.S. debt ceiling debate affected investment decisions for weeks before its resolution August 2nd and was followed by an S&P credit downgrade. 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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