Europe Bounces Gold; Base Metals "Tread Water"

Next Stop Palisade

My latest Kitco Commentary: The Copper-Gold Conundrum (9/6/2011)

This morning's...
COMEX Gold price = $1,861.0/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 97.94
Value Adjusted Gold Price© (VAGP) = $1,587.7/oz
COMEX - VAGP = $273.3/oz; gold remains overvalued; key gold-referenced commodity ratios remain at recession levels (e.g., copper & oil)


Þūnresdæg
Morning Miners!

It is 6:20 AM. Have a cup of  Thor's Viking Vengeance. Our favorite Norseman wants to attack England this weekend. What that means is a trip to Illipah resevoir where the Colonel sits on the shore and watches Thor tread water and play with his toy viking ship. He'll have some company...

Europe Bounces Gold; Base Metals "Tread Water"

These markets can drive even the ole Colonel a little batty. Headlines drive prices and that's about it. Yesterday about this time, COMEX gold was down $59.6/oz as safe money sought riskier assets buoyed by the German Court's decision not to upset the EU bailout apple cart. This morning gold is back up $43.4/oz to $1,861.0/oz on news that Europe's growth estimates had been revised downward (no surprise there) and interest rates would remain unchanged. The European Central Bank (ECB) President Jean-Claude Trichet pointed to growing economic risks and presented "significant" cuts to euro-zone growth forecasts. The ECB now estimates growth for 2011 to be between 1.4% and 1.8%, down from a previous forecast of 1.5% to 2.3%. Growth expectations for 2012 were lowered too.

Remember when a gold price change greater than $20/oz was a time to sit up and take notice? We're not talking ancient history - how about just a few months ago? Now daily swings of $40+/oz are just part of the erratic heartbeat of an unsettled marketplace. Forget supply & demand fundamentals, this morning's London Metal Exchange (LME) headline says it all to me "Base metals quiet, treading water until Obama speech."

COMEX copper is obediently treading water presently down $0.0310/lb to $4.1010/lb. I didn't know the red metal watched so much 24-hour cable news.

Nothing more to report, pardner. Enjoy a beautiful September day.


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 126.50, up from yesterday's 114.47 and above the 1-month moving average of 102.41. The EMI set a new low for 2011 of 74.53 on August 9. It is troubling that the 1-month average is almost at the 100-level but today is a move up from yesterday.

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 to update mining equity norms in the EMI on a monthly basis.

Gold Value Index (GVI)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 97.94, up from yesterday's 96.81 and below its 1-month average of 98.39. The new record high for 2011, was set Tuesday, September 6th at 103.43. The Value Adjusted Gold Price© (VAGP) is $1,587.7/oz or $273.3/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 reversing the trend, moved sideways for a time and and headed back up recently with vigor. A sustained presence around the 100-level may be a recession warning for a second dip down in the economy.

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.

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 and GVI indices. Today, the DCI has a value of 174.3 down from yesterday's 183.1. 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 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 $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 $89.42
ICE North Sea Brent crude $115.96
Spread (ICE- NYMEX) = $26.54 (Yesterday, $26.02)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $89.85
ICE North Sea Brent crude $113.84
Spread (ICE- NYMEX) = $23.99 (Yesterday, $23.93)

* 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 $52.45 (our new key level, 08/31 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 $0.08 in early trading at $89.42 (October contract, most active); Gold is up $43.4 to $1861.0 (December contract, most active); Silver is up $0.824 to $42.455 (December contract, most active); Copper is down $0.0310 at $4.1010 (December contract, most active)

Western Molybdenum Oxide (Infomine) is $14.97; European Molybdenum Oxide (Bloomberg) is $14.70; LME cash seller is $14.74, LME moly 3-month seller's contract is $14.74

Stock Market Morning Update

The DOW is down 21.30 points to 11,393.56; the S&P 500 is down 3.92 points at 1194.70

Miners are mixed:

Barrick (ABX) $55.70 up 2.24%
Newmont (NEM) $65.73 up 3.01%
US Gold (UXG) $6.36 up 2.25%
General Moly (Eureka Moly, LLC) (GMO) $3.88 down 0.51%
Thompson Creek (TC) $8.46 down 1.74%
Freeport-McMoRan (FCX) $44.99 down 0.40% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $12.80 down 1.02%
Timberline Resources (TLR) $0.83 uop 2.47%

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

ArcelorMittal (MT) $19.43 down 1.72% - global steel producer
POSCO (PKX) $98.65 down 0.21% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.68% at $1,667,626.77 (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