Eureka Moly Goes Live! Will There be an Autumn Moly Rally?

My latest Kitco Commentary: Buy or Sell Gold Now? Check the VAGP First
(8/22/2011)

This morning's...
COMEX Gold price = $1,826.9/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 96.33
Value Adjusted Gold Price© (VAGP) = $1,584.6/oz
COMEX - VAGP = $242.3/oz; gold remains overvalued relative to key commodities


Þūnresdæg
Morning Miners!

It is 5:35 AM. Have a hot cup of Thor's Thunderblast, you might want to let it cool down for an hour or two. Our favorite Norseman is up to his old tricks - whatever that stuff is in the pot, it's not coffee. I think the break room's semi-retired thunder god is warming up for a stormy September...

Eureka Moly Goes Live!

General Moly's Zach Spencer just informed me that the Eureka Moly LLC website is making its debut today. Congratulations!

Check it out, it's a dandy:

http://www.eurekamoly.com/

Will There Be an Autumn Moly Rally?

On August 3rd the ole Colonel said this about spot 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. (The Eureka Miner's Market Report, 8/03/2011)

Hmm...maybe a lot of overburden. We still have two months to bump up from $14/lb territory but the London Metal Exchange (LME) 3-month molybdenum contact started its market week going in the wrong direction for a rally. Western spot prices (per Infomine) and the LME 3-month contract have been stuck just below $15/lb for a good part of August at $14.97/lb ($33,000/metric ton). Monday was a holiday for Londoners but on Tuesday, LME moly dropped to $32,300/metric tonne ($14.65/lb). Tuesday recovered some of the loss and moved the 3-month up to $32,500/metric ton ($14.74/lb).

Admittedly, these are small changes but were followed by a fall-off in Western spot to $14.65/lb. European moly oxide (per Bloomberg) should update today but it has been the laggard at $14.50/lb for some time. If futures and spot prices start migrating to the mid- or low-$14/lb range, an Autumn rally to $16/lb looks a lot less likely. Still early in the game, I need to ask General Moly's Seth Foreman what he thinks is down the road. Stay tuned.

In the meantime, here is a 3-month charts for the LME 3-month contract:

Remember, London dates are backwards (31/8/2011 vs 8/31/2011). Here is the companion chart for Western moly oxide spot prices as reported by Infomine:

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 133.02, down from yesterday's 138.12 and above the 1-month moving average of 108.83. 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

Gold Value Index (GVI)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 96.33, down from yesterday's 96.47 and just below its 1-month average of 96.37. The record high for 2011 was 102.71 set Friday, August 19th. Today's Value Adjusted Gold Price© (VAGP) is $1,584.6/oz or $242.3/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 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.

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 177.9 up from yesterday's 168.6. 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 and trending down.

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 $88.86
ICE North Sea Brent crude $114.60
Spread (ICE- NYMEX) = $25.74 (Yesterday, $25.71)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $89.50
ICE North Sea Brent crude $113.31
Spread (ICE- NYMEX) = $23.81 (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 up $0.05 in early trading at $88.86 (October contract, most active); Gold is down $4.8 to $1826.9 (December contract, most active); Silver is down 0.183 to $41.585 (December contract, most active); Copper is down $0.0535 at $4.1510 (December contract, most active)

Western Molybdenum Oxide (Infomine) is $14.65; European Molybdenum Oxide (Bloomberg) is $14.50; 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 up mostly:

Barrick (ABX) $51.10 up 0.69%
Newmont (NEM) $62.77 up 0.24%
US Gold (UXG) $6.19 unchanged
General Moly (Eureka Moly, LLC) (GMO) $4.04 up 1.76%
Thompson Creek (TC) $8.28 up 0.12%
Freeport-McMoRan (FCX) $47.58 up 1.00% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.44 up 1.00%
Timberline Resources (TLR) $0.79 unchanged

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

ArcelorMittal (MT) $21.75 down 1.00% - global steel producer
POSCO (PKX) $95.57 up 0.45% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.48% at $1,661,339.12 (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