Base Metal Drama - It's Not All Greek to Dennis Gartman; EU Moly Drops

καθόλου - "according to the whole"

My latest Kitco commentary:
Copper and Gold, "What a Long Strange Trip It's Been" (10/17/2011)

My Latest International Business Times commentary: What is Up (or Down) with Silver and Gold?
(10/6/2011)

This morning's...
COMEX Gold price = $1,661.0/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 99.80
Value Adjusted Gold Price© (VAGP) = $1,390.7/oz
COMEX - VAGP = $270.3/oz; gold is trading at a premium; the gold:copper ratio exceeds recession levels


Wōdnesdæg
Morning Miners!

It is 6:20 AM. Have some Olive Branch Java, something new from Greece - I guess they are trying to boost their exports. It is a symbolic brew because Old Miner Woden and I have come to a truce. Our market bear has promised not to make anymore of that horrible Cold Reality coffee on Wednesdays and the Colonel has agreed listen to his early morning "I told you so" without running for the hi-bay. This morning, I got the copper price retreat "I told you so." It sure beats that lousy coffee.

Base Metal Drama - It's Not All Greek to Dennis Gartman

Followers of this report know that renowned trader and author Dennis Gartman is my favorite prognosticator in the commodity space. Yesterday, Gartman cautioned about impending declines in gold price and today in his "Gartman Letter" fired a warning shot for base metals. It was reported in a Kitco Market Nugget by Allen Sykora this morning:

Market Nuggets: Gartman: Patterns in Base Metals 'Boding Ill' For Global Economy

(Kitco News, 19 October 2011, 8:19 a.m.) - The tops being formed in some of the base metals could bode ill for the global economy, says investor and newsletter writer Dennis Gartman. The U.S. copper market is appearing to “roll over and forget yet another important interim top. And copper is not alone in its apparently bearish turn, for the other base metals too are turning lower,” Gartman says. He describes LME lead as under pressure since spring, trading to $2,950 a metric ton then, forging to an interim peak in early July near $2,725, forming another in early September near $2,550 and now trading around $2,000. Zinc has traced out a similar pattern, Gartman says. “With different prices of course, the pattern exhibited by tin and aluminum is that of copper, lead and/or zinc, boding ill in our opinion for the global economy in catholic terms.”

Dennis Gartman enjoys using the full extent of the English language to describe the small daily dramas of commodities but his use of the word "catholic" in this context was new to me. Other than its religious connotation, "catholic" can also mean "including a wide variety of things; all-embracing"

Since the Greeks are more important to metal prices than supply & demand lately, there is even clever irony in the Gartman remark. According to Wiki:

The word catholic (derived via Late Latincatholicus, from the Greek adjective καθολικός (katholikos), meaning"universal") comes from the Greek phrase καθόλου (kath'holou),meaning "on the whole," "according to the whole" or"in general", and is a combination of the Greek words κατά meaning"about" and όλος meaning "whole". (Wiki)

There you have it, pardner. Hold on to the saddle horn, this could get rougher before it gets better.

EU Moly Drops

Somewhat ominously, euro moly oxide dropped to a 12-handle yesterday pricing at $12.95/lb. Ouch, the LME 3-month contract remains at $13.61/lb.



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 48.42, up from yesterday's 42.20 and below the 1-month moving average of 47.05. The new record low for 2010-2011 was set Oct. 4, 2011 at 22.88. The 1-month average is currently below the 100-level putting us solidly in bear country for the metals & miners.

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. 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 99.80 for the first time in one month, down from yesterday's 100.45 and below its 1-month average of 103.15. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.Value Adjusted Gold Price© (VAGP) is $1,390.7/oz which is $270.3/oz below the current COMEX gold price.

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 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 price is less than 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 201.0 down from yesterday's 210.9. 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 $88.90
ICE North Sea Brent crude $110.91
Spread (ICE- NYMEX) = $22.01 (last report, $22.62)

Here are the February contracts* with a narrower spread:

NYMEX light sweet crude $89.21
ICE North Sea Brent crude $109.14
Spread (ICE- NYMEX) = $19.93 (last report, $20.15)

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

Prices are off their crisis highs and we have $100+ Brent and $85+ NYMEX in February favoring high oil prices throughout the late fall and winter.

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 $49.56(our new key level, 10/18 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 up $0.37 in early trading at $88.90 (November contract, most active); Gold is up $8.2 to $1661.0 (December contract, most active); Silver is up $0.179 to $32.010 (December contract, most active); Copper is down $0.0460 at $3.3140 (December contract, most active)

Western Molybdenum Oxide (General Moly website) is $14.00; European Molybdenum Oxide (Bloomberg) is $12.95; LME cash seller is $13.61, LME moly 3-month seller's contract is $13.61

Stock Market Morning Update

The DOW is up 31.49 points to 11,608.54; the S&P 500 is up 2.38 points at 1227.76

Miners are unhappy:

Barrick (ABX) $46.37 down 1.59%
Newmont (NEM) $64.27 down 1.88%
US Gold (UXG) $4.08 down 4.45%
General Moly (Eureka Moly, LLC) (GMO) $3.18 down 3.05%
Thompson Creek (TC) $6.97 down 2.11%
Freeport-McMoRan (FCX) $35.09 down 0.82% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $10.09 down 2.39%
Timberline Resources (TLR) $0.66 down 2.94%

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

ArcelorMittal (MT) $18.65 down 2.76% - global steel producer
POSCO (PKX) $80.85 up 0.25% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 1.84% at $1,366,819.88 (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 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