Tuesday, October 18, 2011
Copper and Gold, "What a Long Strange Trip It's Been"
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?
COMEX Gold price = $1,646.8/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 100.45
Value Adjusted Gold Price© (VAGP) = $1,369.9/oz
COMEX - VAGP = $276.9/oz; gold is trading at a premium; key gold-referenced commodity ratios are at recessionary levels (e.g., copper & oil)
It is 5:34 AM. Have a cup of Ruby's Bright Tomorrow. If it's a little cold, you can warm it up on the stove - I think we've got a heater coil going out on our global growth coffee maker. Our poor market bull just hasn't had much luck on the latest string of Tuesdays, Ruby looks plumb tuckered out...
Copper and Gold, "What a Long Strange Trip It's Been"
My latest Kitco commentary borrows a line from the Grateful Dead to describe the odyssey of copper and gold this year. Read it when you get a chance and it may help you understand these crazy markets lately.
Both metals have seen greater declines in the last volatile months but the drop is discouraging given the nice rally up last week. Dennis Gartman, publisher of the respected Gartman Letter, sounded the warning bell on gold this morning as reported in this Kitco News Nugget:
Market Nuggets: Gartman Describes Gold Chart As 'Worrisome' (Kitco News Nugget, 10/18/2011)
“Caution and some liquidation are in order before others beat us to the punch,” is his sober advice fearing a few hedge funds that have been bullish of both equities and gold may be in trouble. Tough year to make a buck in the markets.
Copper is feeling the heat from worse-than-expected data coming from China and Germany; the number one and number three top consumers of the red metal, the U.S is number two. China is seeing a downward trend is GDP data: 9.7% Q1 GDP dropping to 9.5% in Q2 then dropping to 9.1% in Q3. This is the slowest pace since 2009. Investor confidence in Germany has reached the lowest level in almost three years. Nuts.
On the positive side, the China data suggests a soft landing from unsustainable economic growth and at least copper and gold are moving in the same price direction. As I mention is my commentary, this is necessary to stabilize the gold-to-copper ratio which took a moonshot to elevated recession levels in early August. The one-month ratio stability is now 3.5% compared to a divergent 10.4% 3-month measure. The Colonel considers a ratio stability of less than 3% to be "very stable" so we're moving in the right direction (commodity ratio stability is defined as the ratio standard deviation divided by its mean over the time period in question).
Stay tuned, pardner. This is a long strange trip indeed.
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 42.20, down from yesterday's 54.22 and below the 1-month moving average of 48.74. 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 above-par at 100.45, down from yesterday's 101.23 and below its 1-month average of 103.16. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.Value Adjusted Gold Price© (VAGP) is $1,369.9oz which is $276.9/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 210.9 up from yesterday's 195.3. 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 $87.03
ICE North Sea Brent crude $109.65
Spread (ICE- NYMEX) = $22.62 (last report, $24.95)
Here are the February contracts* with a narrower spread:
NYMEX light sweet crude $87.28
ICE North Sea Brent crude $107.43
Spread (ICE- NYMEX) = $20.15 (last report, $23.67)
* 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 $49.92(our new key level, 10/13 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 $0.41 in early trading at $87.03 (November contract, most active); Gold is down $29.8 to $1646.8 (December contract, most active); Silver is down $0.776 to $31.045 (December contract, most active); Copper is down $0.0700 at $3.3080 (December contract, most active)
Western Molybdenum Oxide (General Moly website) is $14.00; European Molybdenum Oxide (Bloomberg) is $13.20; LME cash seller is $13.61, LME moly 3-month seller's contract is $13.61
Stock Market Morning Update
The DOW is down 76.74 points to 11,320.26; the S&P 500 is down 6.39 points at 1194.47
Miners are unhappy except for General Moly:
Barrick (ABX) $45.91 down 2.73%
Newmont (NEM) $64.77 down 2.16%
US Gold (UXG) $3.81 down 4.75%
General Moly (Eureka Moly, LLC) (GMO) $3.00 up 2.04%
Thompson Creek (TC) $6.76 down 2.73%
Freeport-McMoRan (FCX) $33.88 down 3.50% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.60 down 2.19%
Timberline Resources (TLR) $0.60 down 4.76%
The Steels are down (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $18.25 down 2.51% - global steel producer
POSCO (PKX) $78.87 down 1.23% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down 2.06% at $1,324,205.77 (what's this?).
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
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