"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 13, 2011

Humpty Dumpty Copper?

Humpty Dumpty sat on a wall.
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again!
  Nursery Rhyme

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 = $1,669.8/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 102.31
Value Adjusted Gold Price© (VAGP) = $1,363.8/oz
COMEX - VAGP = $306.0/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 5:29 AM. Have a hot cup of Thor's Humpty Dumpty. Thursdays are never dull in the break room when you have a semi-retired thunder god making breakfast for the crew. This morning our favorite Norseman stacked four mill site bricks on the stove top next to a frying pan filled with smoking oil. On top of his little brick wall were balanced a row of eggs. One by one he pushed them off; one cracked in the pan, two broke on the floor and three more rolled to the door...scrambled eggs à la Thor.

Humpty Dumpty Copper?

If Thor's egg scrambler is a proper metaphor for today's markets, copper is one of the eggs that has fallen off the wall. COMEX copper is presently trading at $3.3230/lb, more than 25% down from July's closing price. Whether all the king's horses and all the king's men can put the red metal back together again is the question for the remainder of the year. More than a few horses and men will come from China, the world's largest copper consumer accounting for nearly 40 percent of global demand. The signals are certainly mixed. Reuters reported this morning that Chinese imports of copper rose 11.8% in September to a 16-month high and there are expectations that the trend could continue for the rest of this year if "prices stay around current levels." (Reuters, 10/13/2011). The Chinese are smart shoppers.

On the other hand, China's trade surplus narrowed in September with imports and exports coming in lower than expected. This is yet another brick in the shaky wall of global economic weakness and Chinese domestic cooling that face policy makers in Beijing. The Reuters article quotes Robin Bhar, analyst at Credit Agricole, as saying "The fact that the trade surplus is down for the second month running is raising questions about whether China can decouple from the G3 (United States, Japan and Germany)...That is putting pressure on commodities and copper in particular." The next brick will be Chinese inflation data due on Friday. China has been tightening; a more accommodative monetary policy would be bullish for copper price going forward.

This report tracks copper closely because it has proven to be a reliable proxy for global growth. Yesterday, we noted that gold and copper prices are moving together again - typically a prerequisite for a more favorable red metal market. Whether copper cracked in the pan, broke on the floor or merely rolled to the door will tells us a lot about the fate of the metals & miners going forward. Those rollers can still make a good breakfast for hungry miners.

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 52.31, down from yesterday's 59.35 and below the 1-month moving average of 54.41. 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 102.31, up from yesterday's 101.18 and below its 1-month average of 102.73. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.Value Adjusted Gold Price© (VAGP) is $1.363.8/oz which is $306.0/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 COMEXVAGP, 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 200.6 up from yesterday's 199.8. 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 $84.38
ICE North Sea Brent crude $110.03
Spread (ICE- NYMEX) = $25.65 (last report, $25.88)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $84.58
ICE North Sea Brent crude $106.52
Spread (ICE- NYMEX) = $21.94 (last report, $20.90)

* 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 down $1.19 in early trading at $84.38 (November contract, most active); Gold is down $12.8 to $1669.8 (December contract, most active); Silver is down $0.742 to $32.065 (December contract, most active); Copper is down $0.0725 at $3.3230 (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 down 105.96 points to 11,412.89; the S&P 500 is down 12.72 points at 1194.53

Miners are unhappy except for Timberline:

Barrick (ABX) $46.96 down 2.55%
Newmont (NEM) $62.75 down 2.06%
US Gold (UXG) $4.11 down 3.97%
General Moly (Eureka Moly, LLC) (GMO) $3.10 down 1.27%
Thompson Creek (TC) $7.01 down 2.77%
Freeport-McMoRan (FCX) $34.87 down 2.81% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $10.48 down 2.54%
Timberline Resources (TLR) $0.67 up 1.52%

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

ArcelorMittal (MT) $19.24 down 2.06% - global steel producer
POSCO (PKX) $80.91 down 1.81% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.20% at $1,363,798.25 (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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