Thursday, October 6, 2011
Copper Bounce; All Quiet on the Western Front
My Latest International Business Times commentary: What is Up (or Down) with Silver and Gold?
My latest Kitco commentary:
What is the Value of Gold? India Beckons (10/03/2011)
COMEX Gold price = $1,641.9/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 105.31
Value Adjusted Gold Price© (VAGP) = $1,302.7/oz
COMEX - VAGP = $339.2/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. Help me make a fresh pot of joe, our favorite Norseman is sleeping on the job. No real storms in the markets today so Thor is on a long break. The Chinese are on holiday, The Europeans with all the alacrity of autumn squirrels are very busy doing nothing, the Senate is log-jamming on tariff legislation that could indeed thrust us into a second Great Depression and the world is sad to lose one its truly great creative forces, Steve Jobs. The next big headline will be tomorrow's jobs report but that's many hours away. Probably a good day to take an extended walk with the dog.
Ruby T is no doubt pleased that spot copper took a nice 4% pop this morning, COMEX copper futures are presently trading at $3.2245/lb. I believe the ole Colonel said a short while back that if copper dropped below $3.50/lb he was heading for the hills, so we're not out of the woods yet. The buzz is that when the Chinese return from their break, traders will hold back any serious buying until the red metal descends to $6,000 per metric ton ($2.72/lb). Reuters reported one investment bank has predicted $5,500 per metric ton ($2.49/lb) prices are possible. The consensus estimate is $7,000 per metric ton for the short-term ($3.175/lb) and I said $3.30/lb last Friday for this week's action which is at least close to this morning's number (always take credit before things fall completely apart). We are in a base metal bear market, pardner.
Copper miner Quadra FNX (TSE:QUX) is trading at $9.47 up 6.79%
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 41.71, up from yesterday's 32.08 and below the 1-month moving average of 65.88. 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 105.31, down from yesterday's 108.04 and above its 1-month average of 101.92. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011. The Value Adjusted Gold Price© (VAGP) is $1,302.7/oz which is $339.2/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 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 221.2 down from yesterday's 237.7. 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'>http://eurekaminer.blogspot.com/2011/02/new-record-for-copper-is-100-oil-next.html">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 $79.32
ICE North Sea Brent crude $101.86
Spread (ICE- NYMEX) = $22.54(last report, $23.92)
Here are the January contracts* with a narrower spread:
NYMEX light sweet crude $79.55
ICE North Sea Brent crude $99.35
Spread (ICE- NYMEX) = $19.80 yesterday, $20.73)
* 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 $95+ Brent and $75+ NYMEX in January favoring stabilizing oil prices throughout the late fall and 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 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 GREEN light is turned on our Fuel Gauge with oil below $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 $0.36 in early trading at $79.32 (November contract, most active); Gold is up $0.3 to $1641.9 (December contract, most active); Silver is up $0.373to $30.725 (December contract, most active); Copper is up $0.1185 at $3.2245 (December contract, most active)
Western Molybdenum Oxide (General Moly website) is $14.00; European Molybdenum Oxide (Bloomberg) is $13.85; LME cash seller is $14.06, LME moly 3-month seller's contract is $14.06
Stock Market Morning Update
The DOW is down 30.65 points to 10,909.30; the S&P 500 is down 4.48 points at 1139.56
Miners are mixed:
Barrick (ABX) $46.38 up 0.24%
Newmont (NEM) $62.69 down 0.51%
US Gold (UXG) $3.92 up 1.55%
General Moly (Eureka Moly, LLC) (GMO) $2.73 down 0.36%
Thompson Creek (TC) $6.79 up 2.41%
Freeport-McMoRan (FCX) $34.41 down 0.03% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.47 up 6.79%
Timberline Resources (TLR) $0.62 up 3.33%
The Steels are up (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $16.97 up 0.65% - global steel producer
POSCO (PKX) $75.41 up 0.75% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 0.80% at $1,293,895.00 (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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