"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.

Friday, September 2, 2011

Goose Egg Jobs Report; $2,000/oz Gold before T-Day; GMO Followup on Moly Prices

My latest Kitco Commentary: Buy or Sell Gold Now? Check the VAGP First

This morning's...
COMEX Gold price = $1,877.3/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 100.70
Value Adjusted Gold Price© (VAGP) = $1,557.7/oz
COMEX - VAGP = $319.6.3/oz; gold remains overvalued relative to key commodities

Morning Miners!

It is 5:25 AM. Have a welcome cup of Raine's famous Red Label and hold on tight. The goose may have laid a COMEX golden egg this morning but for the domestic jobs front a "goose egg" means big fat zero. I think the ole Colonel can retire that metaphor after all that rhetorical abuse. Have a fun and safe Labor Day weekend.

A Goose Egg Jobs Report

I just watched the jobs report on CNBC News - what a bruiser. Zero nonfarm jobs added from last month; the last time we had a zero was apparently February, 1945. Chicago's CNBC bond market reporter and market skeptic Rick Santelli's estimate was "zero-thousands," he nailed it. The government sector continued to shed employees and the private sector added only 17,000 jobs. The headline unemployment number is 9.1%; the broader "U6" unemployment is a sobering 16.2%. Nuts.

COMEX gold is presently trading up $48.2/oz at $1,877.3/oz; COMEX silver is up $1.268/oz at $42.800/oz.

A troubling harbinger of worse times to come for the domestic economy is to see 1) NYMEX natural gas futures down on a day when a major tropical system is in the Gulf of Mexico and, 2) a widening spread (> $25/bbl) between domestic benchmark NYMEX crude oil and global benchmark ICE Brent crude oil futures (see Daily Oil Watch below).

$2,000/oz Gold by T-Day- The Colonel's input to the Weekly Kitco Gold Survey

Below is my weekly input to the Kitco gold survey. Given the latest news, I believe COMEX gold will break $2,000/oz before Thanksgiving:

Deepening domestic economy woes and an impending European banking crisis will provide continued headline support. From a commodity view, gold remains overvalued given key gold-referenced commodity ratios at recession levels (notably copper and oil). This is inconsistent with the slow-but-steady growth scenario - given today's employment number maybe we now understand why.

General Moly (GMO) Followup on Moly Prices

General Moly's Director of Investor Relations Seth Foreman provided a followup to yesterday's discussion on molybdenum prices for this Autumn:

"Definitely disappointing to see the LME price tick lower again this week, but just as a reference, both Metals Week and Ryan’s Notes, the two bi-weekly publications on Moly price (and the publications most Companies use to base transactions off) have been down in the $14.65 range for a week or two, so not all that surprising to see LME prices come off the $14.97 level."

This report said the spot $14.65/lb followed the LME down-tick but it seems the timing was vice-verse. I believe Infomine (this Report's source) uses a composite roll-up of spot prices and appreciate the more accurate and 'user-relevant' input from Seth. He added, "...we are still expecting the Autumn rally as demand picks back up following summer maintenance and holiday periods."

Seth provided this article he just received from Metals Week in support of his view looking forward:

S Korean FeMo plants start restocking for Q4

South Korean ferromolybdenum plants have started to seek spot moly oxide cargoes on expectations of demand from steelmakers picking up in the fourth quarter, market sources said Thursday. Earlier this week, spot trades into South Korea were scarce. But buying interest increased Thursday following the rebound in the London Metal Exchange metal prices, sources said. Korean buyers were mostly ferromoly plants, anticipating a price rise next week. Chinese traders, the major spot suppliers to South Korea, have offered $14.50/lb CIF Busan while buyers bid $14.30-14.40/lb. A 40 mt deal was heard done at $14.40/lb CIF Thursday, but Platts has not been able to confirm directly with the buyer. Most ferromoly plants in South Korea are operating at below 80% rates currently, plant sources said. They are hoping to lift their run rates as ferromoly orders from Europe may increase in the coming weeks for October-December consumption. Orders were thin, although contacts have become more frequent. “There were inquiries, but the Europeans were checking our numbers,” said one plant source. “The Europeans wanted to check our stock level. But no business done,” said a second source. Europeans had indicated buying ferromoly at $35.20/kg or below, in-warehouse Rotterdam basis, which they could not accept, the plant sources said. South Korean ferromoly imports into Europe have been duty-free since July 1. Meanwhile, three South Korean traders doing ferromoly tolling business have chosen to stay on the sidelines. “It is a bit shaky. There are positive signs today, but things may turn negative tomorrow,” said one trader.

Seth concluded,

"Still early in the game, but we are still expecting a positive price movement in September. Europe is a wild card here, but there is absolutely zero chance that China will let its economy enter a recession. They have too much firepower (in the form of USDs) and too many people demanding jobs, growth, homes, etc. to allow that to happen. Some pretty mixed economic data from the Western world, but I think more indicative of sluggish GDP growth, not GDP contraction."

This report thanks Seth Foreman for his data clarification and valuable insights into the fundamentals behind molybdenum pricing.

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 118.1, down from yesterday's 133.02 and above the 1-month moving average of 104.56. 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.

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 above-par at 100.70, up from yesterday's 96.33 and above its 1-month average of 97.10. The record high for 2011 was 102.71 set Friday, August 19th. Today's Value Adjusted Gold Price© (VAGP) is $1,557.7/oz or $319.6/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. It is showing signs of being a little "toppy" now that it is above 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 189.8 up from yesterday's 177.9. 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 but caution is in the air.

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 $86.07
ICE North Sea Brent crude $112.29
Spread (ICE- NYMEX) = $26.22 (Yesterday, $25.74)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $86.85
ICE North Sea Brent crude $110.85
Spread (ICE- NYMEX) = $24.00 (Yesterday, $23.69)

* 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 down $2.86 in early trading at $86.07 (October contract, most active); Gold is up $48.2 to $1877.3 (December contract, most active); Silver is up $1.268 to $42.800 (December contract, most active); Copper is down $0.0675 at $4.0930 (December contract, most active)

Western Molybdenum Oxide (Infomine) is $14.74; 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 up 30.20 points to 11,643.73; the S&P 500 is up 2.09 points at 1220.98

Miners are mixed:

Barrick (ABX) $52.92 up 2.42%
Newmont (NEM) $63.63 up 1.86%
US Gold (UXG) $6.22 up 1.97%
General Moly (Eureka Moly, LLC) (GMO) $3.83 down 0.52%
Thompson Creek (TC) $7.94 down 1.49%
Freeport-McMoRan (FCX) $45.40 down 2.26% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $12.74 down 1.03%
Timberline Resources (TLR) $0.80 up 1.27%

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

ArcelorMittal (MT) $20.32 down 4.51% - global steel producer
POSCO (PKX) $93.40 down 2.26% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.40% at $1,642,037.35 (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 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

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