"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.

Wednesday, September 28, 2011

Moly Futures Drop; Gold, Copper Pause

Trees grow slowly, time passes quickly.

My latest Kitco Commentary: Why is Gold More Volatile than Copper, Oil or Silver? (09-19-2011)

*** BREAKING NEWS *** The pause in gold and copper is beginning to look more like retreat (10:18 AM PDT). COMEX gold $1,624.7/oz down $27.8/oz; COMEX copper $3.2340/lb falling a full 6% (down $0.2055).

This morning's...
COMEX Gold price = $1,653.4/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 101.47
Value Adjusted Gold Price© (VAGP) = $1,361.5/oz
COMEX - VAGP = $291.9/oz; gold is trading at a premium; key gold-referenced commodity ratios are at or near recessionary levels (e.g., copper & oil)

Morning Miners!

It is 5:36 AM. Have a cup of Old Miner Woden's Cold Reality coffee. If it's too hot for you, there are some ice cubes in the frig. I'm starting to dread the middle of the week lately when this market curmudgeon rolls into town - Sweet Ruby T is just a lot more fun. Yesterday she brought us a cheery reversal in copper's fortunes and a nice uptick across the board for the metals & miners all buoyed by expectations for Europe's "Big Plan." I got an earful this morning as Woden jabbed my computer screen to point out a 2.4% drop in copper spot prices.

"Listen to me plain n' simple, Colonel! We've got two parties in this country, two-and-a-half if you throw in some tea leaves, and we can't agree on anything. Europe has to get 17 COUNTRIES to sign on to this here 'Big Plan.' What are the chances of that? Here, have a few more ice cubes from hell with your coffee!"

Looking at the markets today, that old geezer might have a point...

Moly Futures Drop

With all the recent volatility in the metals complex, molybdenum prices have been the exception. Although it seems we missed the anticipated August-September rally, spot prices have been pretty steady in the mid- to high-$14/lb territory; that may soon change to the downside.

This morning, on the General Moly (GMO) website, Western moly oxide is still posted at $14.50/lb and European moly has dropped a nickel to $14.30/lb. The problem is yesterday's price gaped down at the London Metal Exhange for moly futures: 3-month seller contract $31,000/metric ton ($14.06/lb) and 15-month seller contract $31,900/metric ton ($14.47/lb). The three-month seller has been in the range of $32,000-$34,000/metric ton ($14.51/b to $15.42/lb) since late June. The change from spot/futures contango to backwardation suggests near-term demand is holding but future price expectations are in decline. Watch for spot prices to fall below futures to re-establish a contango relation. Here is a 3-month chart of the LME 3-month seller's contract and yesterday's dip:

What's going on? This news snippet from today's Steel Business Briefing provides a few more ice cubes for your coffee:

Analysts: US flatrolled buyers frozen by economic fears - Continuing economic fears and excess production have US flatrolled buyers holding off until they can gain greater market clarity, two industry analysts say.

"We believe that weaker global steel pricing is being driven by increased economic fears, which is shaking confidence, resulting in push-back of buying decisions," Michelle Applebaum, managing partner at Steel Market Intelligence, says in a research note. "The overall uncertainty is delaying the seasonal demand rebound we typically see."
(SBB, 9/22/2011)

Molybdenum is a key alloy in many high-grade steels. Hang on, pardner.

Gold, Copper Pause

Old Miner Woden called me a "damn fool" for picking up a few shares of copper giant Freeport-McMoRan (FCX) last Wednesday. The price was $36.67/share with a 2.7% dividend. Today, FCX is $34.34/share rather ignominiously ending its 3-day rally. Bill O'Neill of Logic Advisors announced his intentions to buy copper this week so the ole Colonel has some company. On the other hand, old Miner Woden may be damn right. Please do your own research before piling into the red metal.

COMEX gold is presently up $0.9/oz at $1,653.4/oz; COMEX copper is down $0.0665/lb at $3.3730/lb. The gold:copper ratio remains at an elevated recessionary level of 490.2 lbs/oz.

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 43.43, down from yesterday's 53.05 and below the 1-month moving average of 89.81. The 1-month average is now below the 100-level putting us solidly in bear country..

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 new low set on 9/26/2011 is 30.23. 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 101.47, up from yesterday's 100.77 and above its 1-month average of 99.66. The Value Adjusted Gold Price© (VAGP) is $1,361.5/oz which is $291.9/oz below the current COMEX gold price.

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 with vigor. A sustained presence around the 100-level may prove to 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.

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 and GVI indices. Today, the DCI has a value of 211.7 up from yesterday's 201.1. Our benchmark is 100, a value of the DCI at a level above 200 is time for serious concern. We are now 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 $83.58
ICE North Sea Brent crude $106.45
Spread (ICE- NYMEX) = $22.87 (Friday, $22.97)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $84.19
ICE North Sea Brent crude $104.50
Spread (ICE- NYMEX) = $20.31 (Friday, $20.88)

* NYMEX futures contracts have rolled forward, we now show November and January for a 2-month look-ahead

Prices are off their crisis highs and we have $100+ Brent and $80+ NYMEX in January favoring high oil prices throughout the late fall and early winter although we may see further pressure to the downside. 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 seriously below its 200-day moving average of $51.92 (our new key level, 09/21 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The ORANGE light is turned on for Commodity Reflation with copper trading below $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 RED light is turned back on for Investor Confidence with investors very 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 $0.87 in early trading at $83.58 (November contract, most active); Gold is up $0.9 to $1653.4 (December contract, most active); Silver is down $0.071 to $31.465 (December contract, most active); Copper is down $0.0665 at $3.3730 (December contract, most active)

Western Molybdenum Oxide (General Moly website) is $14.50; European Molybdenum Oxide (Bloomberg) is $14.30; LME cash seller is $14.06, LME moly 3-month seller's contract is $14.06

Stock Market Morning Update

The DOW is up 86.96 points to 11,277.65; the S&P 500 is up 5.19 points at 1180.57

Miners are mixed:

Barrick (ABX) $47.69 up 0.10%
Newmont (NEM) $63.70 up 0.39%
US Gold (UXG) $4.56 down 1.72%
General Moly (Eureka Moly, LLC) (GMO) $3.13 up 0.32%
Thompson Creek (TC) $6.64 down 1.04%
Freeport-McMoRan (FCX) $34.24 down 1.67% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.76 up 1.32%
Timberline Resources (TLR) $0.63 down 4.55%

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

ArcelorMittal (MT) $16.94 up 1.68% - global steel producer
POSCO (PKX) $79.69 down 0.55% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.37% at $1,357,818.78 (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 photo 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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