"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.

Thursday, October 27, 2011

Europe Opens Bull Pasture Gate; Barrick Reports - GMO, Quadra FNX Charge

Barrel Top Autumn

*** BREAKING NEWS ***  COMEX gold touches 1,750.2/oz (1:45 PM 10:45 AM PDT)

*** BREAKING NEWS ***  Not to miss the party, COMEX gold pops $18.7/oz to $1,742.2/oz after a slow start (9:20 AM PDT)

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?

This morning's...
COMEX Gold price = $1,723.0/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 95.96
Value Adjusted Gold Price© (VAGP) = $1,500.3/oz
COMEX - VAGP = $222.7/oz; gold is trading at a premium; the gold:copper ratio exceeds recession levels but continues to trend down (bullish move)

Morning Miners!

It is 5:47 AM. Have a cup of Thor's Distant Thunder. Our Favorite Norseman has a pretty good sense of hearing, he thinks that rumble over the canyon may be a bull stampede...

Europe Opens Bull Pasture Gate; Barrick Reports - GMO, Quadra FNX Charge

After a late night session it appears that European leaders have pretty much "kitchen-sinked" the new-new Big Plan - there's something for everyone even the possibility of Chinese participation. The Greek bond haircut is expected to be 50%; experts were hoping for something in the 40% to 60% range. The firepower of the euro zone's European Financial Stability Facility (EFSF) has been up-gunned from .22 caliber to .45-70 providing guarantees for $1.4 trillion; experts were hoping for something in the $1 to $2 trillion range. The so-called Tier 1 capital ratios for large banks will be raised to 9% - just about what the experts had wanted.

The new deal has put all 19 global markets that this report monitors in the green. COMEX gold takes a pause at $1,723.0/oz as safe-haven buying eases but copper on the London Metal Exchange (LME) hit a 5-week high breaking $8,000/metric ton ($3.6288/lb) and COMEX copper is presently trading up 5.1% at $3.6995/lb. Everyone loves the red metal again, even Barrick Gold (ABX) which reported an excellent third quarter supported not only by higher gold but higher copper prices (Barrick expects to produce 450 million to 460 million pounds of red at total cash costs of $1.60 to $1.70/lb in 2011):

Barrick Gold Third-Quarter Earnings Rise On Higher Bullion Prices (Allen Sykora, Kitco News, 10/27/2011)

The broader markets are now open and Freeport-McMoRan (FCX) bounced 9% on the open falling back a tad to $41.99/lb; General Moly (GMO) is up a decent 5.1% at $3.52; POSCO (PKX) is pouring steel, up 7.3% at $87.02; Quadra FNX (TSE:QUX) is up 10.09% at $12.05.

The DOW Jones has broken that mercurial 12,000 level presently at 12,105.25; the S&P 500 blew away the Fibonacci 1,257 hurdle currently posting 1,269.40.

What's not not to like? At the end of the day money is in short supply to support all this "firepower" so as trader Brian Kelly said on CNBC News yesterday, "Someone, somehow, somewhere, sometime is going to have to print a lot of money!"

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 83.53, up from yesterday's 60.48 and above the 1-month moving average of 47.42. 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 but today's pop breaks out us of the descending channel and the average continues its third day of upward trend.

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 95.96, down from yesterday's 97.78 and below its 1-month average of 102.15. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.Value Adjusted Gold Price© (VAGP) is $1,467.2/oz which is $249.8/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. Recent moves down below the 100-level are bullish for key commodities.

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 155.5 down from yesterday's 184.4. A level above 200 is time for serious concern. We are now below 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 ongoing crises 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 $93.56
ICE North Sea Brent crude $112.35
Spread (ICE- NYMEX) = $18.79 (last report, $17.38)

Here are the February contracts* with a narrower spread:

NYMEX light sweet crude $93.48
ICE North Sea Brent crude $110.62
Spread (ICE- NYMEX) = $17.14 (last report, $15.71)

* 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 $110+ Brent and $90+ 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 YELLOW light is turned on for Commodity Reflation with copper trading around $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve phased out buying Treasurys June 30 (aka QE2) but will maintain low interest rates until mid-2013. Presently they are engaged in a bond program called "Operation Twist" to control long interest rates.

The YELLOW light is turned back on for Investor Confidence with investors less adverse to commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90

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 $3.36 in early trading at $93.56 (November contract, most active); Gold is down $0.5 to $1723.0 (December contract, most active); Silver is up $0.540 to $33.850 (December contract, most active); Copper is up $0.1795 at $3.6995 (December contract, most active)

Western Molybdenum Oxide (General Moly update) is $13.50/lb to $14.20/lb; European Molybdenum Oxide (Bloomberg) is $12.85/lb; LME cash seller is $13.15/lb, LME moly 3-month seller's contract is $13.15/lb

Stock Market Morning Update

The DOW is up 236.21 points to 12,105.25; the S&P 500 is up 27.40 points at 1,269.40

Miners are happy except for Newmont:

Barrick (ABX) $48.46 up 1.27%
Newmont (NEM) $65.30 down 0.74%
US Gold (UXG) $4.49 up 2.51%
General Moly (Eureka Moly, LLC) (GMO) $3.52 up 5.07%
Thompson Creek (TC) $7.29 up 3.70%
Freeport-McMoRan (FCX) $41.99 up 6.84% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $12.05 up 10.09%
Timberline Resources (TLR) $0.64 up 1.59%

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

ArcelorMittal (MT) $21.24 up 8.48% - global steel producer
POSCO (PKX) $87.02 up 7.26% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 3.27% at $1,483,925.21 (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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