"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, October 12, 2011

Copper & Gold Back in the Saddle; American Vanadium Takes a Big Step

I'm back in the saddle again
Out where a friend is a friend
Where the longhorn cattle feed
On the lowly gypsum weed
Back in the saddle again
  Gene Autry

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)

This morning's...
COMEX Gold price = $1,684.7/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 101.18
Value Adjusted Gold Price© (VAGP) = $1,391.2/oz
COMEX - VAGP = $293.5/oz; gold is trading at a premium; key gold-referenced commodity ratios are at recessionary levels but trending down which is bullish (e.g., copper & oil)

Morning Miners!

It is 5:36 AM. Have a second cup of Bright Tomorrow. It's warmed up from yesterday but still tastes a whole lot better than Old Miner Woden's Cold Reality. I wouldn't let that cranky codger near the coffee pot this morning. He stormed out of the break room and the ole Colonel doesn't care. It's a full moon and we've got some positive things going on, I'm not starting this Wednesday with all his negativity...

Copper & Gold back in the Saddle Again

Slovakia's Parliament did vote "no" on the European Financial Stability Facility (EFSF) yesterday but the markets are betting a second vote will pass before the end of the week. It doesn't make sense that Europe's poorest country can realistically derail something that 16 of the 17 euro-zone countries favor. Additionally, European Commission President Jose Manuel Barroso is expected to lay out plans to recapitalize European banks later today. That's sounds more concrete than this weekend's Mer-Kozy plan-for-a-plan.

I checked last night and this report first discussed the Greek debt crisis Dec. 9, 2009 in the blog Timeo Danaos et Dona Ferentes. Europe's sovereign debt crisis has been a headwind for metals & miners ever since. I say we give it a rest, there will be more hoops and loops but things across the pond are at least moving in a positive direction.

One encouraging sign is that copper and gold appear to riding in the same saddle again. Their prices have been moving together more than apart lately - that's called "positive" correlation and a potentially bullish sign for the metals. The 1-month correlation is a very tight +0.9505 and the 3-month correlation is positive for its second day at +0.0540. To visualize what this means we look for where the "correlation trajectory" is headed by plotting the 3-month versus the 1-month:

Simply stated, you want to be in the "green" pasture of the upper right (+, +) quadrant. That's where both copper and gold prices are positively correlated; the situation we had nearly one year ago as shown by the blue diamond (Nov. 26, 2009). In early July we were in the "red zone" or lower left (-, -) quadrant. Things started looking up for both metals as the month progressed and by Aug. 1 the trajectory (blue line) was in the green and nearly returned to the blue diamond benchmark. The U.S. debt ceiling debacle, U.S. credit downgrade and escalating sovereign debt crisis changed this bullish direction dramatically. Like a crashing airplane we soon found ourselves in negative territory again with falling copper and rising gold prices. After a few zigs and zags the trajectory has gone full circle and is now headed higher in the "green" territory (as shown by blue arrow).

This morning copper spot prices were up nearly 3% and gold was made a 3-week high. Presently COMEX copper is up $0.1005/lb at $3.3910 and COMEX gold is up $23.7/oz at a respectable $1,684.7/oz.

The broader markets are now open and we have two more bullish indications: the downtrodden Eureka Miner's Index© (EMI) has just crossed above its 1-month moving average and the Debt Crisis Index (DCI) has moved slightly below the 200-warning level for the first time in 14-market days. The S&P 500 is also trading above the 1,200-level. you can read more about this in the Daily Market Report below, but first some more good local news...

American Vandadium Takes a Big Step

Mining Editor Adella Harding did a nice piece last night on American Vanadium (TSX:AVC.V) in the Elko Daily Free Press. They are taking a big step closer to future mining activity at the Gibellini vanadium properties in the southeast corner of our county:

American Vanadium releases report on proposed mine (ADELLA HARDING Mining Editor, Elko Daily Free press, October 11, 2011 4:14 pm)

American Vanadium expects to file a plan of operations with the U.S. Bureau of Land Management Battle Mountain District at the end of this month or in early November to permit the proposed operation. Skeptics may point to the exasperatingly long permit process for Eureka Moly's Mt. Hope project. There are , however, some key differences. The proposed Gibellini mine is a much smaller project and expects to test the "new, accelerated permitting program." American Vandadium claims also that there are no apparent environmental or water issues.

The ole Colonel wishes them the best of luck. Eureka's Louis Gibellini, who originally mined for base metals on the property, is probably smiling down from the heavens.

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 59.35, down from yesterday's 47.95 and above the 1-month moving average of 55.87. 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 101.18, down from yesterday's 102.48 and below its 1-month average of 102.53. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.Value Adjusted Gold Price© (VAGP) is $1,391.2/oz which is $293.5/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 199.8 down from yesterday's 213.5. 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 $86.05
ICE North Sea Brent crude $111.93
Spread (ICE- NYMEX) = $25.88 (last report, $23.70)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $86.37
ICE North Sea Brent crude $107.27
Spread (ICE- NYMEX) = $20.90 (last report, $19.62)

* 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. 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 up $0.24 in early trading at $86.05 (November contract, most active); Gold is up $23.7 to $1684.7 (December contract, most active); Silver is down $0.712 to $32.710 (December contract, most active); Copper is up $0.1005 at $3.3910 (December contract, most active)

Western Molybdenum Oxide (General Moly website) is $14.00; European Molybdenum Oxide (Bloomberg) is $13.48; LME cash seller is $13.61, LME moly 3-month seller's contract is $13.61

Stock Market Morning Update

The DOW is up 63.20 points to 11,479.50; the S&P 500 is up 10.01 points at 1205.55

Miners are happy except for Timberline:

Barrick (ABX) $48.18 up 0.68%
Newmont (NEM) $64.63 up 0.29%
US Gold (UXG) $4.20 up 3.70%
General Moly (Eureka Moly, LLC) (GMO) $3.04 up 1.33%
Thompson Creek (TC) $7.19 up 1.41%
Freeport-McMoRan (FCX) $36.73 up 4.35% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $10.52 up 2.00%
Timberline Resources (TLR) $0.67 down 2.90%

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

ArcelorMittal (MT) $19.84 up 4.15% - global steel producer
POSCO (PKX) $82.29 down 0.27% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.20% at $1,382,858.30 (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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