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