Wednesday, October 26, 2011
New Moon Rising: Gold $1,721.4/oz, Copper breaks $3.50/lb
*** BREAKING NEWS *** COMEX gold rallied $1,727.30/oz at 12:45 PM ET on growing uncertainty about the latest Euro-plan and political drama in Italy
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 = $1,656.4/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 96.27
Value Adjusted Gold Price© (VAGP) = $1,467.2/oz
COMEX - VAGP = $249.8/oz; gold is trading at a premium; the gold:copper ratio exceeds recession levels but is trending down (bullish move)
It is 5:36 AM. Have a hot cup of Diwali Delight - today's a new moon and Indian New Year! Festivals in India have brought new life to physical gold buying and Europe jitters will lend price support to the yellow metal for many months to come. Our gold bull and market bear couldn't be happier to see glitter pass into $1,700/oz territory again. Old Miner Woden is doing a New Year's jig around the wood stove singing Old My Darling Clementine. Ruby T would be happy too, copper is back over $3.50/lb.
New Moon Rising: Gold $1,721.4/oz, Copper breaks $3.50/lb
COMEX gold spiked to a 4-week high at $1,721.40/oz in the wee hours and silver followed at $33.910/oz. Both precious metals have have backed down some, trading presently at $1,717.0/oz and 33.580/oz respectively. The closely watched gold-to silver ratio is 51.13 close to historical norms. Bargin hunting, good physical demand from the East and a return to safe-haven buying have put a strong bid under prices.
With all the debt problems in Europe and the United States there are many that believe that quantitative easing (QE) will return in some form to both sides of the pond (the U.K. has already started). The fear of resulting inflation further down the road has lifted gold and QE expectations appear to be lifting commodity prices like copper. Freeport-McMoRan has declared force majeure at the world's second largest copper mine in Indonesia exacerbating the red metal's supply-side problems. COMEX copper is presently trading at $3.5390/lb; the copper-to-gold ratio is still at recession levels (>400 lb/oz) at 485.2 lb/oz but has been trending down from its high of 538.3 on Oct. 3, 2011.
A new moon, pardner. Let's see what Europe's leaders come up with today after their second go at a new-new Big Plan in less than a week.
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 60.48, up from yesterday's 53.35 and above the 1-month moving average of 45.94. 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 keeping 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 97.78, up from yesterday's 96.27 and below its 1-month average of 102.37. 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. A sustained presence around the 100-level is bearish but no longer necessarily an indication of domestic recession.
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 184.4 down from yesterday's 186.0. 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 $92.87
ICE North Sea Brent crude $110.73
Spread (ICE- NYMEX) = $17.86 (last report, $17.38)
Here are the February contracts* with a narrower spread:
NYMEX light sweet crude $92.63
ICE North Sea Brent crude $108.72
Spread (ICE- NYMEX) = $16.09 (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 $100+ 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 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 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 down $0.30 in early trading at $92.87 (November contract, most active); Gold is up $16.16 to $1717.0 (December contract, most active); Silver is up $0.528 to $33.580 (December contract, most active); Copper is up $0.1185 at $3.5390 (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 125.98 points to 11,832.60; the S&P 500 is up 8.76 points at 1,237.81
Miners are happy:
Barrick (ABX) $48.00 up 1.69%
Newmont (NEM) $66.18 up 2.07%
US Gold (UXG) $4.50 up 3.21%
General Moly (Eureka Moly, LLC) (GMO) $3.26 up 3.16%
Thompson Creek (TC) $6.99 up 2.95%
Freeport-McMoRan (FCX) $38.86 up 1.70% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $10.80 up 3.32%
Timberline Resources (TLR) $0.59 up 3.51%
The Steels are too (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $19.57 up 0.82% - global steel producer
POSCO (PKX) $80.98 up 1.36% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 1.86% at $1,433,479.05 (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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