"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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.

Wednesday, August 31, 2011

American Vanadium Gibellini & General Moly Mt. Hope Make Top Five-in-Ten for Nevada


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 (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)

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

Tuesday, August 30, 2011

Gold & Copper Bounce - Are Miners Turning the Corner?


My latest Kitco Commentary: Buy or Sell Gold Now? Check the VAGP First
(8/22/2011)


This morning's...
COMEX Gold price = $1,826.9/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 97.29
Value Adjusted Gold Price© (VAGP) = $1,569.0/oz
COMEX - VAGP = $257.9/oz; gold remains overvalued relative to key commodities



Morning Miners!

It is 5:30 AM. Have a cup of Ruby Red Special. Nothing like Sweet Ruby T to bring a little sunshine into the break room - a 4% bounce in spot copper has her smiling. Even grumpy Old Miner Woden would be happy to see gold back above $1,820/oz. When gold and the red metal move together, the Colonel smiles too...

Gold & Copper Bounce

There has been a real push-pull between the precious and base metals lately but today gold and copper are whistling the same tune. This morning in a CNBC Business News interview,  Charles L. Evans, the ninth president and chief executive officer of the Federal Reserve Bank of Chicago, stated his case for more aggressive monetary policy. COMEX gold which was already in rally mode added another $5/oz on that comment to hit an intraday high of $1,835/oz. It has settled back to trading at $1,826.9/oz but is still up a respectable $35.3/oz from yesterday's close and $121.5/oz above last week's sell-off low.

If you want to explain gold's rebound from a market fear perspective, persistent uncertainty in Europe sovereign debt crisis have pushed gold back up and comments like Evan's suggest the domestic economy is worse than previouly thought. On the other hand, an accommodating Federal Reserve Policy is bullish for base metals as long as the global demand story doesn't fall completely apart. COMEX copper has been trending up since last Tuesday and finds buoyancy in any hint of a third round of quantitative easing (aka QE3) or other monetary stimulus.

The ole Colonel can't sort all this out but I do know that when gold and copper move together it's a much nicer world for the miners than when they don't. Yesterday, the Report pointed out that the gold:copper one-month and three-month correlations are negative (this morning -0.7859 and -0.3737 respectively) which means gold and copper have for the most part have been heading in different directions. In the meantime mining equities have been stumbling around in serious bear country. The two metals need to return to positive correlation as they were in late July to sustain a recovery in the mining sector.

Here are two data points that suggest the metals and miners may be headed for higher ground. The broader markets are now open and our Debt Crisis Index (DCI) has just fallen below the "serious concern" level of 200, presently at 183.9. The DCI was 100 on July 22nd as we established the index to monitor the impact of domestic and European debt woes on the equity, commodity, debt and currency markets. The DCI has been above 200-level for 15 out of the last 17 market days with a peak of 271.0 on August 9th.

The second bit of good news is that the Eureka Miner's Index© (EMI) is above the key 100-level for the third day and has just bumped above its 1-month moving average (120.12 versus 116.79). We need to stay above this average for some time to break the downward spiral for mining equities. The EMI made its bottom of 74.53 on the same day the DCI made its top - August 9th. Both the DCI and EMI are discussed further in the Daily Market Roundup below.


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 120.12, up from yesterday's 110.36 and above the 1-month moving average of 116.79. 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 97.29, up from yesterday's 97.19 and above its 1-month average of 95.00. The record high for 2011 was 102.71 set Friday, August 19th. Today's Value Adjusted Gold Price© (VAGP) is $1,569.0/oz or $257.9/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 183.9 down from yesterday's 201.7. 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 moving below that level.

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 $87.38
ICE North Sea Brent crude $112.162
Spread (ICE- NYMEX) = $24.78 (Friday, $24.68)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $87.69
ICE North Sea Brent crude $111.31
Spread (ICE- NYMEX) = $23.62 (yesterday, $23.19)

* 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 seriously 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 up $1.97 in early trading at $87.34 (October contract, most active); Gold is up $20.2 to $1817.5 (December contract, most active); Silver is up $0.168 to $41.120 (September contract, most active); Copper is up $0.0168 at $4.1120 (September 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 down 42.73 points to 11,496.52; the S&P 500 is down 5.25 points at 1204.83.

Miners are up and at'em.:

Barrick (ABX) $50.44 up 0.46%
Newmont (NEM) $62.41 up 0.42%
US Gold (UXG) $6.07 up 2.71%
General Moly (Eureka Moly, LLC) (GMO) $3.99 unchanged
Thompson Creek (TC) $8.23 up 0.98%
Freeport-McMoRan (FCX) $45.91 up 0.22% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.07 up 0.08%
Timberline Resources (TLR) $0.76 up 1.33%

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

ArcelorMittal (MT) $20.97 down 0.71% - global steel producer
POSCO (PKX) $93.17 up 0.04% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.90% at $1,632,596.30 (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)

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

Monday, August 29, 2011

Good Night Irene


My latest Kitco Commentary: Buy or Sell Gold Now? Check the VAGP First
(8/22/2011)


This morning's...
COMEX Gold price = $1,817.5/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 97.19
Value Adjusted Gold Price© (VAGP) = $1,562.6/oz
COMEX - VAGP = $254.9/oz; gold is overvalued relative to key commodities


Morning Miners!

It is 5:34 AM. have a cup of Monday Courage. Hurricane Irene has passed - nobody at the NYSE is wearing rubber boots, Greeks are happy about a bank merger and it is a new moon. Maybe we're looking at the start of a good market week...

Eureka Miner’s Gold Value Index© (GVI)

Here is an updated chart of the Gold Value Index© (GVI) through Friday's close (a larger more readable version is given near the bottom of this blog page):


COMEX gold has rebounded in value and price from the $1,705.4/oz low of last Thursday. This morning COMEX is trading up $20.2/oz at $1,817.5/oz and the GVI is just slightly down from Friday at 97.19 and above the one-month moving average (blue line).

A GVI near the 100-level indicates we are still at a high-value relative to current oil, copper and silver prices. Gold trading at a premium is a measure of the fear that still exists in the marketplace driven primarily by the uncertainty caused by the European sovereign debt crisis. Greece's EFG Eurobank and Alpha Bank were set to merge which is positive for relieving some pressure on European banks. The ole Colonel believes this is far from over lending continued support to precious metals.

Although Fed Chairman Ben Bernanke's comments Friday lacked specifics it is now generally thought they were commodity market bullish. COMEX copper has indeed made steady progress in regaining price since Monday, 8/22, and is presently trading up $0.0168/lb at $4.1080/lb. This puts the gold:copper ratio at a still lofty 442.4; a ratio in a range of 300-400 would be a sign of less volatile times for metal prices. NYMEX oil has also seen some bounce trading up $1.34 today at $87.34/bbl. The gold:oil ratio of 20.81 indicates that, like copper, it's outside of a more normal range of 13-18.

The gold:copper and gold:oil one-month and three-month correlations tell a similar story:

Au:Cu correlation  -0.8405 (one-month) -0.3645 (3-month)
Au:Oil correlation  -0.7167 (one-month) -0.7738 (3-month)

By this Reports' definition Au:Cu and Au:oil are in a "deep inversion" when both the one-month and 3-month correlations are negative - a very bearish condition for metals and miners. There are some signs of slowing negativity in both which is supported by the recent price strength in copper and oil.

Value Adjusted Gold Price© (VAGP)

We can transform the above GVI into a dollar-denominated Value Adjusted Gold Price (VAGP). The VAGP is a level that supports current oil, copper & oil prices based on historical commodity norms. Here is the companion VAGP plot over the same time period as the GVI (a larger more readable version is given near the bottom of this blog page):


Notice that COMEX gold price (dark blue line) is quite elevated in comparison to the VAGP (magenta line) showing that gold is currently overvalued. This morning's numbers don't do much to close this gap with a VAGP of $1,562.6/oz compared to a COMEX gold price of $1,817.5/oz - a significant difference of  $254.9/oz. Further discussion of the GVI and VAGP follows in the Daily Market Roundup below.

Eureka Miner's Index© (EMI)

Finally, the Eureka Miner's Index© (EMI) shows just what a tough time mining companies have had this year. Here is a chart over the same time period as the GVI an VAGP (a larger more readable version is given near the bottom of this blog page):


From an EMI of 816.8 a at the beginning of the year, we have trended mostly down dropping below the critical 100-level into solid bear country. The current EMI (magenta line) inched above 100 Friday and this morning is a little higher at 110.4 on improving news from Europe. The EMI needs to cross above the one-month moving average (blue line) before the ole Colonel gives our poor miners any shade of green light. The copper and moly miners seem to be enjoying a nice morning bounce with bellwether Freepot-McMoran (FCX) up 1.3% at $45.12; General Moly (GMO) is up 1.05% at $3.86. more discussion on the EMI and the miners is given in the Roundup...


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 110.03, up from Friday's 103.54 and below the 1-month moving average of 120.33. 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 97.19, down from Friday's 97.37 and above its 1-month average of 94.27. The record high for 2011 was 102.71 set Friday, August 19th. Today's Value Adjusted Gold Price© (VAGP) is $1,562.6/oz or $254.9/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.

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 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 201.7 down from Friday's 211.8. 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 above that level.

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 $87.34
ICE North Sea Brent crude $112.02
Spread (ICE- NYMEX) = $24.68 (Friday, $26.24)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $87.97
ICE North Sea Brent crude $111.16
Spread (ICE- NYMEX) = $23.19 (yesterday, $24.65)

* 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 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 seriously 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 up $1.97 in early trading at $87.34 (October contract, most active); Gold is up $20.2 to $1817.5 (December contract, most active); Silver is up $0.168 to $41.120 (September contract, most active); Copper is up $0.0168 at $4.1120 (September 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 174.67 points to 11,459.21; the S&P 500 is up 20.70 points at 1197.50

Miners are mixed:

Barrick (ABX) $50.24 down 1.32%
Newmont (NEM) $61.41 down 1.22%
US Gold (UXG) $5.86 up 0.51%
General Moly (Eureka Moly, LLC) (GMO) $3.86 up 1.05%
Thompson Creek (TC) $7.84 up 2.35%
Freeport-McMoRan (FCX) $45.12 up 1.32% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $12.68 up 1.31%
Timberline Resources (TLR) $0.76 down 1.30%

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

ArcelorMittal (MT) $20.72 up 2.73% - global steel producer
POSCO (PKX) $91.53 up 2.05% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.04% at $1,597,311.78(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)

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




Friday, August 26, 2011

What Saying Nothing Does to Gold, Copper, Silver & Oil

An old timer's refuge from the storm


My latest Kitco Commentary: Buy or Sell Gold Now? Check the VAGP First
(8/22/2011)


This morning's...
COMEX Gold price = $1,782.1/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 98.19
Value Adjusted Gold Price© (VAGP) = $1,516.6/oz



Morning Miners!

It is 5:32 AM. Have a well deserved cup of Raine's famous Red Label TGIF. The ole Colonel thought it would be interesting to see how the much awaited Federal Reserve Chairman's speech at Jackson Hole, Wyoming, affects the price movements of some of our favorite commodities. While waiting for Ben Bernanke to speak, I've changed the format of the Eureka Miner a bit. Notice that this morning's COMEX gold price, Gold Value Index© and Value Adjusted Gold Price© are now near the top of the page for quick reference. Discussion of all three will continue in the Daily Market Roundup (see below).

What Saying Nothing Does to Gold, Copper, Silver & Oil

Federal Reserve Chairman Ben Bernanke has finished talking. He has assured us the central bank stands ready to provide further support to a persistently weak economy. The Chairman did not indicate any move was imminent despite fresh signs of feeble growth. Many global monetary policymakers were gathered at this annual meeting in Wyoming.

OK, no helicopters dropping money...yet.

Before the speech COMEX gold was up $15.0/oz at $1,778.2/oz regaining some of the losses of the last several days. After the speech, COMEX gold took an additional bump up to $1,782.1/oz or $22.2/oz above yesterday's close.

Before the monetary shaman spoke, copper and silver were up form yesterday; after the speech, both headed down. Presently, copper is trading down $0.0225/lb to $4.0565/lb and silver has dropped $0.120/oz to $40.590. The closely watched gold:silver ratio is 43.9 still near the middle of the 39-46 range we've been in since early May.

Standing-ready-words pushed an all ready falling NYMEX oil price down another buck to $83.30/bb, netting a total drop of $2.00 from yesterday's close.

So saying nothing appears to promote a "risk-off" sentiment for commodities, except for gold which has attracted some of the safe-haven trade that evaporated during this week's correction. So it goes - no easy money today.

The Colonel's input to the Weekly Kitco Gold Survey

Here is my weekly input to the Kitco gold survey:

We experienced an overdue correction this week but the long term outlook for gold is positive and intact. In the near term, gold relative to other key commodities could be quite comfortable in the $1,620-$1,650/oz range with solid support at the mid-$1,500/oz level. However, it is likely that gold price will resume its rise next week because headlines will trump fundamentals until the European banking situation is more fully understood.

Have a great weekend and try to avoid saying something.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is below-par at 88.95, down from yesterday's 93.28 and below the 1-month moving average of 125.36. 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 to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

The Gold Value Index (GVI) is below par at 98.19, up from yesterday's 93.24 and above its 1-month average of 93.53. The record high for 2011 was 102.71 set Friday, August 19th. Today's Value Adjusted Gold Price (VAGP) is $1,516.6/oz or $265.5/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.

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 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 224.4 up from yesterday's 219.5. 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 dangerously above that level.

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 $83.30
ICE North Sea Brent crude $109.54
Spread (ICE- NYMEX) = $26.24 (yesterday, $25.08)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $85.15
ICE North Sea Brent crude $109.53
Spread (ICE- NYMEX) = $24.65 (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 $100+ Brent and $80+ NYMEX in December favoring high oil prices throughout the fall and into early winter although there are now signs of weakening prices. 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 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 seriously 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 $2.00 in early trading at $83.30 (October contract, most active); Gold is up $22.2 to $1782.10 (December contract, most active); Silver is down $0.155 to $40.590 (September contract, most active); Copper is down $0.0225 at $4.0565 (September contract, most active)

Western Molybdenum Oxide (Infomine) is $14.97; European Molybdenum Oxide (Bloomberg) is $14.55; LME cash seller is $14.97, LME moly 3-month seller's contract is $14.97

Stock Market Morning Update

The DOW is down 105.43 points to 11,044.39; the S&P 500 is down 6.62 points at 1152.65

Miners are mixed:

Barrick (ABX) $50.05 up 0.12%
Newmont (NEM) $60.55 down 0.46%
US Gold (UXG) $5.64 unchanged
General Moly (Eureka Moly, LLC) (GMO) $3.58 down 1.38%
Thompson Creek (TC) $7.42 down 0.93%
Freeport-McMoRan (FCX) $42.79 down 1.63% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $12.10 down 0.91%
Timberline Resources (TLR) $0.75 down 2.60%

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

ArcelorMittal (MT) $19.19 down 3.95% - global steel producer
POSCO (PKX) $86.89 down 1.24% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.89% at $1,544,662.43(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)

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




Thursday, August 25, 2011

Understanding Gold's Descent


My latest Kitco Commentary: Buy or Sell Gold Now? Check the VAGP First
(8/22/2011)



Þūnresdæg
Morning Miners!

It is 5:38 AM. have a cup of  Thor's Summer Thunder. It is time to understand gold's price descent. We are experiencing an overdue correction but the long term outlook for gold is positive and intact...

Understanding Gold's Descent

There is a natural tendency to believe gold's recent heyday is in the rear view mirror after seeing more than a $200/oz price drop from its all-time COMEX record of 1,917.50/oz set just Tuesday to an intraday low of $1,705.4/oz this morning. There will be all manner of talk about bursting bubbles and a "fool's investment." The ole Colonel is amused that the some of the talking heads that promoted gold as a safe haven asset just several days ago are now claiming that it's all over for the barbarous relic.

This report uses the Eureka Miner’s Gold Value Index© (GVI) and Value Adjusted Gold Price© (VAGP) to understand the real dynamics behind the price movements of gold. You can read about both in my latest commentaries in Kitco News (click on the links for each) and the GVI and VAGP are updated daily in the mornings and at the Friday market close in this report.

As I said recently in my August 8 commentary, "...for those who believe in a slow-but-steady growth outlook, gold prices are showing signs of being very over-extended with a re-convergence of gold price and VAGP overdue." What does that mean?

Let's start by looking at a chart of the GVI from the day the DOW closed below the "Flash Crash" low on June 7, 2010 to this morning's COMEX gold price (a larger more readable chart is given near the bottom of this blog page):


The GVI (magenta line) is the value of gold in relation to key commodities and independent of currency. This report assigned the GVI a value of 100 on June 7, 2010 which represents a "high value" on a day that commodity and equity markets were dramatically falling. With the recent sovereign debt worries in Europe and our own concerns in the U.S., gold prices and relative value have surged. The GVI surpassed 100 to score a high of 102.7 on August 19.

We consider a GVI equal to 83.6 to be a market norm where gold's value is in line with the historical commodity norms of its components (namely, oil, copper and silver). A GVI above 83.6 indicates gold is overvalued; a value below, undervalued. When the Federal Reserve's second round of quantatative easing inflated commodity prices this spring, the GVI fell to a low of 67.7.

This morning, with COMEX gold now trading at $1,720.16/oz, the GVI is quickly approaching its one-month average (93.2 versus 92.7). I would expect to see both the GVI and its average to fall closer to the market norm (83.6) in the next several weeks unless there is a European bank failure or other such headline horror. As one expert on CNBC Business News described it yesterday, "chronic event risk" could spike safe haven assets and crater markets. So if the GVI is heading back to normalacy where do gold prices go? Ask the VAGP...

Value Adjusted Gold Price© (VAGP)

The VAGP adjusts price of gold in for a selected currency to 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. Here is a chart of the VAGP denominated in U.S. dollars over the same time period as the previous GVI chart (a larger more readable chart is given near the bottom of this blog page):


The COMEX gold price (dark blue line) is recorded just before the broader markets open in the U.S. (daily update, approximately 9:20 AM EDT). As such, the peak price for that time occurred August 22 at $1,872.9/oz (the record $1,917.50/oz occurred in late afternoon electronic trading on August 23). At its peak, the VAGP was in the low-$1,500/oz level indicating a very high disparity between actual and commodity-relative prices. COMEX price and value quickly descended from these heights and today COMEX gold at $1,720.6/oz is quickly approaching the VAGP of $1,541.9/oz. I would guess that in the next several weeks COMEX will trend down and VAGP will trend up so both end up in low-to-mid-$1,600/oz territory (lacking a "chronic event risk").

Conclusion? Gold is experiencing an overdue correction but there is solid support below. COMEX gold at $1,620-$1,650/oz is nothing to be too tearful about - hang tight, pardner.As Kitco's Jim Wyckoff  said this morning, "It would take a move in nearby gold futures prices below the $1,480.00 level to begin to produce some significant longer-term chart damage." (Kitco News, 8/25/2011)


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is below-par at 93.28, up from yesterday's 96.16 and below the 1-month moving average of 134.09. The EMI

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)

The Gold Value Index (GVI) is below par at 93.24, down from yesterday's 99.44 and approaching its 1-month average of 92.68. The record high for 2011 was 102.71 set Friday, August 19th. Today's Value Adjusted Gold Price (VAGP) is $1,534.6/oz or $291.8/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.

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 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 219.5 up from yesterday's 212.1. 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 dangerously above that level.

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 $86.30
ICE North Sea Brent crude $111.38
Spread (ICE- NYMEX) = $25.08 (yesterday, $24.24)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $87.01
ICE North Sea Brent crude $110.63
Spread (ICE- NYMEX) = $23.62 (yesterday, $22.61)

* 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 $80+ NYMEX in December favoring high oil prices throughout the fall and into early winter although there are now signs of weakening prices. 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 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 seriously 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 up $1.14 in early trading at $86.30 (October contract, most active); Gold is down $36.7 to $1720.6 (December contract, most active); Silver is down $0.353 to $39.515 (September contract, most active); Copper is up $0.0950 at $4.0930 (September contract, most active)

Western Molybdenum Oxide (Infomine) is $14.97; European Molybdenum Oxide (Bloomberg) is $14.55; LME cash seller is $14.97, LME moly 3-month seller's contract is $14.97

Stock Market Morning Update

The DOW is down 112.99 points to 11,207.72; the S&P 500 is down 10.41 points at 1167.19

Miners are mixed:

Barrick (ABX) $49.31 0.65%
Newmont (NEM) $59.97 down 0.48%
US Gold (UXG) $5.54 down 0.36%
General Moly (Eureka Moly, LLC) (GMO) $3.69 down 3.40%
Thompson Creek (TC) $7.74 down 0.51%
Freeport-McMoRan (FCX) $43.80 up 0.76% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $12.31 down 0.33%
Timberline Resources (TLR) $0.73 down 1.35%

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

ArcelorMittal (MT) $20.31 down 1.46% - global steel producer
POSCO (PKX) $89.25 down 0.63% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.84% at $1,548,802.81(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)

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

Wednesday, August 24, 2011

Dog Days of Summer

diēs caniculārēs

*** BREAKING NEWS *** The COMEX gold sell-off has accelerated; presently trading at $1,780.6/oz down $80.7/oz from yesterday's close and $137.3/oz from Monday's record $1,917.9/oz

My latest Kitco Commentary: Buy or Sell Gold Now? Check the VAGP First
(8/22/2011)



Morning Miners!

It is 5:38 AM. Have a cup of Dog Days of Summer. I have to put up with Old Miner Woden griping about gold dropping more than $90/oz yesterday and markets that just don't know where to go - wait a minute, it's always like this in the waning days of August!

COMEX gold is falling another level trading near yesterday's lows; down $35.0/oz at $1,826.3/oz. It is important to see if today will be a key reversal for gold (i.e. lower highs, lower lows, lower close) after its parabolic surge to $1,917.90/oz Monday evening. COMEX silver is also down $1.181 at $41.110/oz preserving the mid range gold:silver ratio of 44.4 (the ratio has been 39-46 since early May). This report has expected a consolidation or correction in gold and silver prices before we return to the $1,900+/oz territory. It may take a while, "...for those who believe in a slow-but-steady growth outlook, gold prices are showing signs of being very over-extended with a re-convergence of gold price and VAGP overdue." (Kitco commentary, 8/22/2011)

Dog Days of Summer

Hurricane Irene is a category three hurricane, the largest we've seen since 2008 and may very well threaten the eastern seaboard from the Carolinas to Boston. A 5.8 earthquake in Virginia caused Capitol buildings and the Pentagon to be evacuated yesterday. Those are some real headlines but not real market movers. The ole Colonel watched the floor of the NYSE on CNBC Business News when the earthquake wave passed through New York. Moments later an ominous post-911 voice on the PA system told floor specialists "Do not evacuate!" Keep trading, the markets must grind on and on.

It's not earthquakes or hurricanes that these brave folks are worried about; it's economic headlines from Europe or Ben Bernanke's overly anticipated speech on Friday that sparks their interest - but my sense is not that much. Their bosses are in the Hamptons or Martha's Vineyard or Cape Cod. I bet even a few troubled EU finance ministers have snuck back to the warm beaches of profligate Greece or southern France.

It's the last days of August, pardner. Gold is down, copper is up a bit, molybdenum spot and futures prices have been unchanged for days. Time to walk your dog, enjoy your summer - we'll be back in the mix soon enough.

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 below-par at 96.16, up from yesterday's 77.70 and below the 1-month moving average of 142.98. The EMI is down from the high of January 4th and set a new 2011 low of 74.53 on August 9th. The 1-month moving average broke its troubling downtrend on July 5th, trended up for awhile but is now dangerously trending down. Falling below the 100-mark is a bearish development.

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)

The Gold Value Index (GVI) is just above par at 99.44, down slightly from yesterday's 101.57 and well above its 1-month average of 92.03. The record high for 2011 was 102.71 set Friday, August 19th. Today's Value Adjusted Gold Price (VAGP) is $1,534.6/oz or $291.8/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.

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 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 212.1 down from yesterday's 263.5. 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 dangerously above that level.

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 $85.64
ICE North Sea Brent crude $109.88
Spread (ICE- NYMEX) = $24.24(yesterday, $23.34)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $86.32
ICE North Sea Brent crude $108.93
Spread (ICE- NYMEX) = $22.61(yesterday, $22.31)

* 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 $100+ Brent and $80+ NYMEX in November favoring high oil prices throughout the summer and into early winter although there are now signs of weakening prices. 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 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 seriously 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 up $0.20 in early trading at $85.64 (October contract, most active); Gold is down $35.0 to $1826.30 (December contract, most active); Silver is down $1.181 to $41.110 (September contract, most active); Copper is up $0.0170 at $4.0130 (September contract, most active)

Western Molybdenum Oxide (Infomine) is $14.97; European Molybdenum Oxide (Bloomberg) is $14.55; LME cash seller is $14.97, LME moly 3-month seller's contract is $14.97

Stock Market Morning Update

The DOW is up 97.07 points to 11,273.83; the S&P 500 is up 11.41 points at 1173.76

Miners are mixed:

Barrick (ABX) $49.95 down 1.46%
Newmont (NEM) $60.97 down 0.46%
US Gold (UXG) $5.75 down 1.88%
General Moly (Eureka Moly, LLC) (GMO) $3.70 down 0.80%
Thompson Creek (TC) $7.62 unchanged
Freeport-McMoRan (FCX) $42.95 up 0.14% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $12.48 down 0.49%
Timberline Resources (TLR) $0.76 down 1.30%

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

ArcelorMittal (MT) $20.48 up 2.20% - global steel producer
POSCO (PKX) $90.00 down 1.92% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.79% at $1,575,331.76(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)

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

It is 5:38 AM.