Monday, October 24, 2011
"Europhoria", China & CAT Lift Metals & Miners
*** BREAKING NEWS *** COMEX copper is up 6.95% at $3.4470/lb, Freeport-McMoRan (FCX) is up 7.63% at $39.37/share (9:36 AM PT)
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 = $1,658.7/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 99.98
Value Adjusted Gold Price© (VAGP) = $1,385.6/oz
COMEX - VAGP = $272.4/oz; gold is trading at a premium; the gold:copper ratio exceeds recession levels but is trending down again (bullish move)
It is 5:38 AM. Have a cup of Europhoria, drink it quickly - it won't stay hot very long. I wish Ruby T were here, it looks like a good day in the markets for our miners and favorite metals...
"Europhoria", China & CAT Lift Metals & Miners
A 3-way convergence of happy events will no doubt benefit those things we hold dear in this report. Unfortunately, some of these factors may prove fleeting. Over the weekend the thirteenth emergency summit of European leaders did show some progress in their plan-for-a-plan to rescue Europe from its sovereign debt crisis. I listened to an excellent analysis of how to best understand this process by Principal Global Investors Jim McCaughan on CNBC Business News. Here is the video link to the interview, McCaughan has a terrific Scottish accent:
Principal Global Investors Jim McCaughan on the Europe Debt Crisis (CNBC Business News, 10/21/2011)
His view is that good progress is being made but only a small percentage of a total plan has been achieved. There will be a follow-up meeting to add a few more pieces Wednesday. We're two years into this mess across the pond and by his view, there will be at least two more to go with a real possibility of bringing the currency presses back online at some future stage - both euro and U.S. dollar (the latter brought up by the CNBC interview panel). If you ever needed an argument to hold on to your gold and silver this may be it.
Nonetheless, there is enough bubbly from the weekend meeting to lift both gold and commodities which have been running side-by-side lately. COMEX gold is up $22.5/oz at $1,658.2/oz. COMEX copper got a better than 3% pop in the spot market and is trading up $0.1045/lb at $3.3275/lb. Part of this lift is also coming from China's manufacturing sector which expanded moderately in October breaking three months of contraction. The data points to a resilient and robust domestic demand but is tempered by slower growth due to tighter credit conditions.
The third piece of good news comes from Caterpillar (CAT) which reported better-than-expected earnings and a fairly upbeat forecast. The broader markets are now open and copper giant Freeport-McMoRan (FCX) and Caterpillar are both up more than 5%. Not a bad morning for the metals & miners and industrial stocks.
Checking our Indices
Here is the Eureka Miner's Index© (EMI) through Friday's close (a larger more readable plot is near the bottom of the blog page):
This morning the EMI (magenta line) is above its 1-month average (blue line) and poised to break out of the declining channel (dotted lines). The EMI and average are still solidly below the 100-level; the dividing line between cold and hot markets. Friday's closing EMI was 48.25 and today we're at 56.13 above an average of 43.68. The EMI needs to break out of its declining channel and move above 100 before this ole Colonel drinks any European champagne.
The Eureka Miner’s Gold Value Index© (GVI) tells a similar tale. Here is the companion plot to the EMI (also near the bottom of the blog page):
To sustain a rally for the metals & miners, we need gold to give up some relative value to key commodities copper, oil and silver. Remember, the GVI and EMI typically (but not always) have an inverse relation; as the GVI falls the EMI rises. It is good then to see the GVI just below its 1-month average (dark line) and the EMI just above. Presently, the GVI is 99.98 sitting underneath an average of 103.08 and down 9.1% from its 2010-2011 high of 109.97 set on Oct. 4.
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 56.13, up from Friday's close 48.25 and above the 1-month moving average of 43.68. 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 99.98, down from Friday's close 100.62 and below its 1-month average of 103.08. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.Value Adjusted Gold Price© (VAGP) is $1,385.6/oz which is $272.4/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 is bearish but no longer necessarily recessionary.
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 190.3 down from yesterday's 197.9. 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 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 $88.29
ICE North Sea Brent crude $110.44
Spread (ICE- NYMEX) = $22.15 (last report, $22.91)
Here are the February contracts* with a narrower spread:
NYMEX light sweet crude $88.35
ICE North Sea Brent crude $108.34
Spread (ICE- NYMEX) = $19.99 (last report, $20.49)
* 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 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 ORANGE light is turned back on for Investor Confidence with investors slightly less 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 $0.89 in early trading at $88.29 (November contract, most active); Gold is up $22.5 to $1658.2 (December contract, most active); Silver is up $0.402 to $31.595 (December contract, most active); Copper is up $0.1045 at $3.3275 (December contract, most active)
Western Molybdenum Oxide (General Moly update) is $13.50/lb to $14.20/lb; European Molybdenum Oxide (Bloomberg) is $12.95/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 48.44 points to 11,857.23; the S&P 500 is up 6.52 points at 1244.77
Miners are happy:
Barrick (ABX) $45.55 up 2.15%
Newmont (NEM) $63.02 up 0.64%
US Gold (UXG) $4.02 up 1.01%
General Moly (Eureka Moly, LLC) (GMO) $3.19 up 1.92%
Thompson Creek (TC) $7.02 up 3.08%
Freeport-McMoRan (FCX) $38.67 up 5.71% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $10.63 up 3.88%
Timberline Resources (TLR) $0.65 unchanged
The Steels are too (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $19.58 up 3.16% - global steel producer
POSCO (PKX) $80.20 up 1.39% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 2.12% at $1,385,003.79 (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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