Monday, October 31, 2011
The Report Says "Happy Trails" Until Mid-November
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 = $1,723.8/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 97.58
Value Adjusted Gold Price© (VAGP) = $1,476.0/oz
COMEX - VAGP = $247.8/oz; gold is trading at a premium to key commodities; the gold:copper ratio exceeds recession levels but continues to trend down (bullish move)
It is 5:39 AM. Have a cup of Pumpkin Seed java, it's really just Raine's Red Label with a few roasted pumpkin seeds thrown in the filter for autumn flavor. The Report will be going off the air until sometime mid-November - the ole Colonel needs a little R&R with his sweetheart who is coming home from Louisiana.
This is the five hundred and ninety ninth market report since we began in March 2009. If you think the markets are rough now just remember those days; the S&P 500 had just recovered from its bottom of 666.79, copper was under $2/lb and you could buy a share of General Moly for less than a buck!
Even though it appears we're headed for a down day today after a currency intervention by Japan, the Report is leaving the metals & miners in pretty decent shape for the remainder of 2011.
Checking our Indices
Japan intervened massively to weaken the yen and western markets reacted Sunday night. The last currency intervention was 4.5 trillion yen in August - this one is a whopping $7 trillion yen. The action strengthened the U.S. dollar, weakened the euro and sent gold prices south $40/oz. COMEX gold has recovered some now trading down $23.4/oz from Friday's close at $1,723.8/oz. Commodities suffered from the strengthening dollar; COMEX copper backed down to $3.5895/lb and NYMEX oil is down a buck fifty at $91.85/bbl. COMEX silver is presently trading at $34.410/oz.
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):
Friday's closing EMI (magenta line) decisively broke above the 100-level and out of its declining channel (dotted lines). Even though the miners are getting hit pretty hard this morning, the EMI is still above par at 101.36. The 1-month moving average has begun an uptrend but we need to get it above 100 to sustain a rally for the miners into the end of the year. This morning the average is at 54.46.
The Eureka Miner’s Gold Value Index© (GVI) is bullish for key commodities going forward. 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 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 below its 1-month average (dark line) and the EMI above. Presently, the GVI is 97.58 sitting underneath an average of 101.7 and down 11.3% from its 2010-2011 high of 109.97 set on Oct. 4.
To complete the picture, copper and gold have made a complete lap around the Report's correlation map from early August, when the wheels started coming off the U.S. and European debt wagons, to this Friday's close. We are back in positive correlation territory (green "+, +" quadrant) which is bullish for the metals & miners.
Have a happy Halloween and I'll be back soon!
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 101.36, down from Friday's closing 133.61 and above the 1-month moving average of 54.46. 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 we've broken out of the descending channel and the average continues its fifth 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 97.58, up from Friday's closing 96.56 and below its 1-month average of 101.70. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.Value Adjusted Gold Price© (VAGP) is $1,476.0/oz which is $247.8/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 163.0 up from Friday's closing 147.8. 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
Here are the key front-month contracts as of this morning:
NYMEX light sweet crude $91.85
ICE North Sea Brent crude $108.60
Spread (ICE- NYMEX) = $16.75 (last report, $17.29)
Here are the February contracts* with a narrower spread:
NYMEX light sweet crude $91.68
ICE North Sea Brent crude $107.45
Spread (ICE- NYMEX) = $15.77 (last report, $16.47)
* 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 remain on rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is below its 200-day moving average of $48.72(our new key level, 10/28 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 down $1.47 in early trading at $91.85 (November contract, most active); Gold is down $23.4 to $1723.8 (December contract, most active); Silver is down $0.878 to $34.410 (December contract, most active); Copper is down $0.1165 at $3.5895 (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 down 146.75 points to 12,084.36; the S&P 500 is down 17.52 points at 1,267.56
Miners are unhappy:
Barrick (ABX) $49.64 down 2.38%
Newmont (NEM) $66.57 down 2.80%
US Gold (UXG) $4.64 down 3.93%
General Moly (Eureka Moly, LLC) (GMO) $3.63 down 5.47%
Thompson Creek (TC) $7.15 down 6.04%
Freeport-McMoRan (FCX) $40.91 down 4.42% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $11.63 down 3.17%
Timberline Resources (TLR) $0.67 down 5.63%
The Steels are too (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $21.69 down 2.03% - global steel producer
POSCO (PKX) $85.84 up 1.66% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down 3.34% at $1,493,465.32 (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
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market