"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 3, 2011

$1,675.90 Gold; Metals & Miners Weekly Roundup-Lite; GMO Reports



Wōdnesdæg
Morning Miners!

It is 5:39 AM. Have a hot cup of Hump Day Hurdles. Old Miner Woden couldn't be happier - gold is breaking records everyday and the markets are in the tank. Our break room market bear seems to have gained ground on poor Ruby T; good thing that she is in Elko at the dentist today. A little tooth pain is probably a lot easier for her than listening to just one Woden I-told-you-so. Let's see what market hurdles are out there today...

$1,675.90 Gold Record

COMEX gold got an early start at record-setting. At 03:15 ET it touched $1,675.90/oz and is presently trading at an impressive $1,669.8/oz. COMEX silver followed at 05:00 ET to make an intraday high of $41.46/oz and has since fallen back to $41.090/oz. The closely watched gold:silver ratio is 40.64 near the low-end of the 40-45 range we've seen since May 5th. In contrast, the gold:silver ratio plumbed low-30s in April when silver was on fire.

COMEX copper has dropped more than 4% form its August debut high of $4.540/lb trading presently at $4.3440/lb.

Metals & Miners Weekly Roundup-Lite

The debt ceiling debate upset the Report's routine when we went on a 7-day debt crisis watch. That's over but global and domestic sovereign debt concerns continue to underpin the surge in gold as a safe haven and the broad retreat in commodity and equity markets. I promised a postponed roundup today and it will be a "lite" version. The ole Colonel usually fires up his models and reads the tea leaves for our favorite metals and miners. There is now so much market churn, that I think it is useless to prognosticate until the dust settles some.

Instead, here is an outline of what I think is in the works:

1) Gold - I'll stick with my prediction that COMEX gold will break $1,700/oz before the end of the year; we're just a few bad headlines away from that level today. There could be some consolidations or even corrections in gold price if there is a pleasant surprise ahead (e.g., a better-than-expected labor report Friday). There is, however, enough trouble brewing to take out the $1,700/oz-level sometime before the ball drops in Times Square.

2) Gold Value - This reports measures the value of gold in relation to several key commodities and independent of currency (see below). Our Value Adjusted Gold Price (VAGP) just dropped below the actual price of gold for the first time since November 24, 2010 ($1,648.8/oz versus $1,669.8/oz). The VAGP is a level that supports current oil, copper & oil prices based on historical commodity norms. When the VAGP falls below gold price, gold is showing the first signs of being "over-valued" with respect to this basket of commodities. I plan to write an article for Kitco on this subject this weekend.

3) Silver - Silver has lost some of its luster but is gaining strength. We need to break to the downside of the present gold:copper 40-45 range to achieve an outstanding silver price. The math is pretty simple: if you believe in $1,700+/oz gold, a low-end ratio of 40 takes you to $42.5+/oz; a low-30 ratio (which was nearly achieved this spring) breaks the old Hunt Brother's record and puts you at $56+/oz territory. My britches are telling me this is a little too optimistic but a price above $45/oz is probably in the cards. Once my models settle out, I'll fine tune this into a silver prediction for the year's end.

4) Copper - The Colonel is on record as saying copper price will not drop below $4/lb this summer. I'll stick with this; there is still enough supply disruption and weak dollar concerns to put a floor under the red metal even if global demand estimates are reduced. One thing to watch is spreading labor unrest in copper mines. Escondida is still on strike and Freeport McMoran's giant Indonesian mine may be next. A significant supply disruption and moderate demand could bring new highs for copper in the remainder of 2011. This and 1,700+/oz gold were the topics of my last article for Kitco ($1,700+ Gold and a New Copper High by Year's End).

5) Moly Oxide - Spot moly prices looked like they were forming a bottom for the summer and set to trend back up in the August-September period. I had made a prediction we'd see $16/lb molybdenum before Halloween. The latest global growth jitters may put some overburden on that prediction.

General Moly's Seth Foreman e-mailed me the other day with this comment and extracted commentary :

"Metals week daily publication yesterday, they raised their Mo price (barely, but still the right direction) for the first time in a while…"

Platts Dealer moly oxide price at $14.55-14.85/lb

Platts Dealer molybdenum oxide was assessed Thursday at $14.55-14.85/lb, up from $14.50-14.80/lb a week earlier. The price assessment is based on 34 mt of business, all of it in Europe. The dealer oxide price assessment represents “repeatable” dealer-to-consumer business for material with a 57% minimum moly content, in drums or equivalent, in-warehouse European ports, in-warehouse US and CIF Japan main ports. The Platts moly oxide transaction assessment is $14.55-14.95/lb, up from $14.50-14.80/lb the previous week. That assessment is based on 516 mt of business -- 466 mt in Europe, 30 mt in India and 20 mt in South Korea. The oxide transaction price assessment represents “repeatable” dealer-to-consumer, producer-to-consumer, producer-to-dealer and/or dealer-to-dealer spot business for material with a 57% minimum moly content, in drums or equivalent, in-warehouse European ports, in-warehouse US, CIF Japan main ports, delivered dutyunpaid South Korean ports and CIF Nhava Sheva/Mumbai, India.


Stay tuned.

General Moly (GMO) Reports

Speaking of General Moly, they have just announced their second quarter results. The ole Colonel hasn't had a chance to digest it all but there are good updates on the Mt. Hope molybdenum project with respect to financing, permitting and water rights. Give it a good read:

GENERAL MOLY ANNOUNCES SECOND QUARTER 2011 RESULTS (Press Release, 8/03/2011)


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 212.20, down from yesterday's 224.09 and below the 1-month moving average of 284.92. 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 84.62, up from yesterday's 82.69 and above its 1-month average of 79.62. This is another new high for 2011 breaking above the old record of 82.69 set August 2nd. Today's Value Adjusted Gold Price (VAGP) is $1,648.8/oz or $21.0/oz below 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 Debt Crisis Watch

July 26th we introduced the Debt Crisis (DCI) Index to track the debt squabble in Washington and its impact on the bond, equity, currency and commodity markets. The Report will now carry it forward to track the bigger picture of domestic and global sovereign debt worries (note 2).

The DCI will be 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 133.4 up from yestrday morning's 118.9. 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.

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 $93.59
ICE North Sea Brent crude $115.48
Spread (ICE- NYMEX) = $21.89 (Yesterday, $22.00)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $94.40
ICE North Sea Brent crude $115.18
Spread (ICE- NYMEX) = $20.70 (Yesterday, $20.58)

* 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 $90+ NYMEX in November favoring high oil prices throughout the summer and into late fall 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 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 investors adverse to commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.20 in early trading at $93.59 (September contract, most active); Gold is up $25.3 to $1669.8 (December contract, most active); Silver is down $0.998 to $41.090 (September contract, most active); Copper is down $0.0510 at $4.3440 (September contract, most active)

Western Molybdenum Oxide is $14.25; 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 9.31 points to 11,857.31; the S&P 500 is down 0.64 points at 1,253.41

Miners are mixed:

Barrick (ABX) $49.52 up 1.91%
Newmont (NEM) $56.88 up 1.34%
US Gold (UXG) $6.86 up 2.24%
General Moly (Eureka Moly, LLC) (GMO) $4.50 unchanged
Thompson Creek (TC) $8.75 up 0.11%
Freeport-McMoRan (FCX) $51.14 down 0.58% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.30 down 0.94%
Timberline Resources (TLR) $0.75 unchanged

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

ArcelorMittal (MT) $28.37 down 0.91% - global steel producer
POSCO (PKX) $108.14 down 0.49% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.47% at $1,735,470.03(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. The quality of U.S. fiscal plans going forward will determine if there is a credit downgrade in the wings. 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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