Metal Prices & Iveta Radičová; Moly Futures Drop

My Latest International Business Times commentary: What is Up (or Down) with Silver and Gold?
(10/6/2011)

My latest Kitco commentary:
What is the Value of Gold? India Beckons (10/03/2011)

This morning's...
COMEX Gold price = $1,667.6/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 103.17
Value Adjusted Gold Price© (VAGP) = $1,350.6/oz
COMEX - VAGP = $317.0/oz; gold is trading at a premium; key gold-referenced commodity ratios are at recessionary levels (e.g., copper & oil)


Morning Miners!

It is 5:34 AM. Have a welcome cup of Bright Tomorrow. The ole Colonel can't wait lately for Tuesdays to arrive, at least I'll have one optimist in the break room. Our market bull Ruby T rolled the morning in on schedule but her favorite metals lagged behind. Copper called in sick, down nearly 4%, and gold seems like it might be catching the same cold, off its nice rally yesterday by a few dollars. Silver has the sniffles too. What's going on now?

Metal Prices & Iveta Radičová

Copper is down today because Chinese traders have not been storming the exchanges with buy orders after their nice holiday. Why? They, like the rest of the world, have their eyes on Europe. It is wise to see how their biggest global customer is faring before restocking too aggressively on the red metal. Bloomberg News quoted Angus Staines, an analyst at UBS AG in London, “[Chinese] Traders are probably a bit nervous over potentially weaker export data, decelerating construction figures and a stronger-than-expected CPI read,” (Bloomberg News, 10/11/2011)

Two weeks ago I got my ears blasted by Old Miner Woden on the key euro-zone vote for the European Financial Stability Facility (EFSF), "Europe has to get 17 countries to sign on to this here 'Big Plan.' What are the chances of that? Here, have a few more ice cubes from hell with your coffee!"

Ruby T couldn't wait to throw that back at the old curmudgeon, 16 of 17 countries have signed on to date. Slovokia, the last in the process, is set to vote today and to Woden's glee they are expected to vote "NO!" The Chinese wish they were back on holiday; a lot of other market watchers wished they had a holiday.

The hold up is not due to Slovokia's charming prime minister, Iveta Radičová. She told an emergency meeting of reporters, "It is my sincere wish that the EFSF vote will pass, but in case our coalition partner refuses to change its mind, it will be inevitable to have a repeat vote." At least there is a second chance. This brave woman has linked the approval of the plan to a vote of confidence putting her political life on the line. Hopefully, Ms. Radičová can persuade rebels in her four-party coalition to back the bailout fund. Meanwhile it won't be supply and demand setting metal prices.

Moly Futures Drop

The day before Woden warned about the EFSF vote, molybdenum futures dropped on the London Metal Exchange. The 3-month sellers contract notched down to $31,000/metric ton ($14.06/lb) and euro-moly oxide spot prices followed the decline grabbing a 13-handle shortly thereafter. Two weeks later, the futures have dropped again. Yesterday, the 3-month seller contract dropped to $30,000/metric ton ($13.61/lb) and euro-moly oxide is selling at $13.70/lb as reported by Bloomberg News. Western moly oxide is still wearing a brave face at $14.00/lb (as reported on the General Moly website) but I wouldn't be surprised to see that number head south soon too. Molybdenum traders are probably less worried about the persuasive powers of Iveta Radičová and more about the overall global slowdown for steel producers. An example is today's special report in the Steel Business Bulletin (SBB):

SBB Special Report: European integrated producers cut output
Steel makers producing steel via the integrated route have cut back production sharply in the last six weeks, Steel Business Briefing notes.

ArcelorMittal has led the way in adjusting its output to changing market conditions, idling crude production at a number of sites around Europe, including the second blast furnace at Liège, in Belgium, and the idling of the second BF at Florange, in France. In Eisenhüttenstadt, in Germany, the company had earlier idled a BF. (SBB, 10/11/2011).

Nuts. Stay tuned, pardner.


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 47.95, down from yesterday's 49.83 and below the 1-month moving average of 57.07. 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 103.17, up from yesterday's 101.98 and above its 1-month average of 102.48. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.Value Adjusted Gold Price© (VAGP) is $1,350.6/oz which is $317.0/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 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 213.5 up from yesterday's 210.3. 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 $84.60
ICE North Sea Brent crude $108.30
Spread (ICE- NYMEX) = $23.70 (last report, $22.54)

Here are the January contracts* with a narrower spread:

NYMEX light sweet crude $85.00
ICE North Sea Brent crude $104.62
Spread (ICE- NYMEX) = $19.62 (last report, $19.12)

* 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 $0.81 in early trading at $84.60 (November contract, most active); Gold is down $3.2 to $1667.6 (December contract, most active); Silver is down $0.205 to $31.775 (December contract, most active); Copper is down $0.1190 at $3.3490 (December contract, most active)

Western Molybdenum Oxide (General Moly website) is $14.00; European Molybdenum Oxide (Bloomberg) is $13.70; LME cash seller is $13.61, LME moly 3-month seller's contract is $13.61

Stock Market Morning Update

The DOW is down 31.15 points to 11,402.03; the S&P 500 is down 1.99 points at 1192.90

Miners are unhappy except for Quadra FNX:

Barrick (ABX) $47.48 down 0.98%
Newmont (NEM) $64.70 down 0.87%
US Gold (UXG) $4.00 down 2.20%
General Moly (Eureka Moly, LLC) (GMO) $2.80 down 1.41%
Thompson Creek (TC) $6.87 down 2.14%
Freeport-McMoRan (FCX) $35.07 down 2.66% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.94 up 3.96%
Timberline Resources (TLR) $0.67 down 2.90%

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

ArcelorMittal (MT) $18.65 down 0.69% - global steel producer
POSCO (PKX) $82.04 down 0.33% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.95% at $1,341,357.41 (what's this?).

Cheers,

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