"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.

Tuesday, August 2, 2011

$1,643.70 Gold; Gold Value 2011 High; Day-7 Debt Watch

Eureka Townsite - can you guess what year?

*** BREAKING NEWS *** COMEX gold just hit $1,646.80/oz at 12:50 PM ET besting its morning record (December contract most active)

*** BREAKING NEWS *** COMEX gold just hit $1,645.00/oz at 11:15 AM ET besting its early morning record (December contract most active)

DEBT CRISIS INDEX = 130.3 (200-level is "Oh-oh" time; previous, 142.8)

Morning Miners!

It is 5:34 AM. Have a hot cup of Ruby's Blue Sky Joe - you may need it. It's hard to see too many blue skies in the markets lately but Sweet Ruby T is our intrepid bull. She said philosophically, "Maybe good is the best of bad these days..."

$1,643.70 Gold Record; Gold Value 2011 High

This week, it makes the ole Colonel a little nervous to wake up to a new gold record. At 5:30 AM PDT COMEX gold set a new nominal high of $1,643.79/oz. Silver followed 10 minutes later for an intraday high of $40.36/oz. Did the U.S. debt ceiling deal fall through? No, that's not a done deal yet but at least heading in the right direction for the markets. Remove the U.S. is-about-to-default fear and you just get all the other skeletons in the global recovery closet of horrors. Here's a short laundry list of the worries du jour: residual concern about an impending debt rating downgrade for the U.S. even with a deal, a worsening sovereign debt crisis in Europe and weak manufacturing readings in the U.S., China and the euro zone. Nuts.

Interestingly, gold value relative to oil, copper and silver marked a new high for 2011 as measured by this report's Gold Value Index (GVI) (see below). High gold price in currency terms and high value relative to commodities - not a bad set of circumstances for holders of glitter; not so hot for everyone else.

Ruby points out that copper, although under pressure, is still above the $4.25/lb level presently trading down $0.0235 at $4.3865/lb. Even though the red metal demand story has taken some hits; supply restrictions and a weak dollar have lent solid price support against a backdrop of gloom and doom. The broader markets are now open and it looks like the gold miners are happy too even though the S&P 500 is trading below its 200-day average (1.280.79 versus 1,285.41). Barrick Gold (ABX) is up 0.7% at $52.85.

Day-7 Debt Watch; That's all folks!

Last 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. Today marks Day-7 and concludes our headline watch unless something crazy happens with the Senate vote today.

The DCI is computed at the market close and reported the following morning. Yesterday, the DCI had a closing value of 130.3 down from Friday's 142.8. Our benchmark is 100, the value of the DCI on July 22nd, Day-0 of our countdown; 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.

My snapshot DCI calculation for the morning is 118.9 which is below yesterday's close.The DCI has been in decline for two-days, let's see where we close. I may continue the snapshot DCI (morning update) to keep tabs on the U.S and European debt issues going forward.

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 224.09, up from yesterday's 222.17 and below the 1-month moving average of 288.43. 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, trended up for awhile but is now trending back down.

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 82.69, up from yesterday's 79.99 and above its 1-month average of 79.31. This is a new high for 2011 breaking above the old record of 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,654.8/oz or $17.2/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, moved sideways for a time and and now appears to be heading back up.

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 $94.36
ICE North Sea Brent crude $116.36
Spread (ICE- NYMEX) = $22.00 (Yesterday, $21.17)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $95.32
ICE North Sea Brent crude $115.90
Spread (ICE- NYMEX) = $20.58 (Yesterday, $20.04)

* 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 ON - The miners are on back on rough roads; The VIX or "fear index" is just below 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is below its 200-day moving average of $52.88 and 150-day moving average of $53.29 (our new key levels, 07/28 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 up $2.51 in early trading at $98.21 (September contract, most active); Gold is down $11.9 to $1619.3 (December contract, most active); Silver is down $0.806 to $39.300 (September contract, most active); Copper is down $0.0030 at $4.4765 (September contract, most active)

Western Molybdenum Oxide is $14.97; European Molybdenum Oxide is $14.70; LME cash seller is $14.97, LME moly 3-month seller's contract is $14.97

Stock Market Morning Update

The DOW is down 41.28 points to 12,091.21; the S&P 500 is down 6.15 points at 1,280.79

Miners are mixed:

Barrick (ABX) $48.35 up 0.69%
Newmont (NEM) $55.33 unchanged
US Gold (UXG) $6.71 up 3.07%
General Moly (Eureka Moly, LLC) (GMO) $4.56 down 1.51%
Thompson Creek (TC) $8.93 down 0.33%
Freeport-McMoRan (FCX) $52.85 down 0.60% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $16.03 up 0.92%
Timberline Resources (TLR) $0.76 down 1.33%

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

ArcelorMittal (MT) $29.72 down 2.20% - global steel producer
POSCO (PKX) $111.14 up 0.49% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.59% at $1,741,382.42(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 through 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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