Monday, October 17, 2011
Slip & Slide Monday; General Moly (GMO) Update
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 = $1,686.7/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 101.24
Value Adjusted Gold Price© (VAGP) = $1,392.1/oz
COMEX - VAGP = $294.6/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)
It is 5:54 AM. Have hot cup of Monday ether and let's get to work....
Slip & Slide Monday
With Friday's S&P 500 close at 1,224.58 it looked as if we were poised to break out of a trading range the broader markets have been locked in since early August. That included two new intraday lows for the year on Aug. 9 and Oct. 4 plumbing 1,101.54 and 1,074.77 respectively. The catalyst for upside last week was improving hopes for resolution of the European sovereign debt crisis and better-than-expected domestic economic and earnings data.
Some of that glow dissipated this morning with squishy comments from a representative for German Chancellor Angela Merkel who said it will be impossible to resolve every sovereign-debt problem at a euro-zone summit on Oct. 23. There's probably no living soul that thought otherwise but it was fun to pretend Merkel and others were about to unveil a magic wand. Stating the obvious has somehow made everything seem a bit less magical. That wet sparkler and a mixed bank earnings report has tarnished our favorite metals although COMEX gold is holding it's head above Friday's close by $3.7/oz to trade at $1,686.7/oz.
COMEX copper is down 0.4% at $3.3940/lb, nothing shocking but not the follow-through miners need to reach higher levels in a rather deep shaft. A look at the Eureka Miner's Index© (EMI) tells the story (a larger more readable plot is near the bottom of the blog page):
The good news is that the EMI (magenta line) crawled above its declining 1-month average (blue line) last Friday. The not-so-good news is that the EMI and average are solidly below the 100-level; the dividing line between cold and hot markets. Friday's EMI was 90.98 and we've slipped back to 73.96 this morning just a bit above the average which is 51.67. The EMI needs to break out of its declining channel (dotted lines) and move above 100 before this ole Colonel breaks out the sipping whiskey.
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):
If you're sitting on a pile of gold, you can take delight that the value of gold is high (i.e. around the 100-level) relative to key commodities copper, oil and silver even though its dollar price is considerably off its Sept. 6 high of $1,923.7/oz. For everyone else, it would be nice to see the GVI (gold line) drop some on rising commodity prices. The GVI and EMI have this funny inverse relation; generally (but not always), as the GVI falls the EMI rises. It is not unexpected then to see the GVI now just below its 1-month average (green line) and the EMI just above. Presently, the GVI is 101.24 sitting underneath an average of 103.06 and down7.9% from its 2010-2011 high of 109.97 set on Oct. 4. Comme si comme ça.
Hang in there, pardner.
General Moly (GMO) Update
Last Friday, General Moly's Seth Foreman, Director of Investor Relations and Business Development, launched a new Investor Relations portion of their website, hosted by ThomsonReuters. One feature contained in the new site are selectable email alerts for the following:
End-of-Day Stock Quote Alert
Annual Report Alert
Sign-up is easy, just submit your e-mail address. Here's the link:
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 73.96, down from Friday's 90.98 and above the 1-month moving average of 51.67. 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 101.24, up from Friday's 100.83 and below its 1-month average of 103.06. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.Value Adjusted Gold Price© (VAGP) is $1,392.7/oz which is $284.8/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 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 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 195.3 up from Friday's 176.9. Our benchmark is 100, a value of the DCI at a level above 200 is time for serious concern. We are now below that level.
Daily Oil Watch
Latest Nevada Fuel Prices
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 $86.77
ICE North Sea Brent crude $111.72
Spread (ICE- NYMEX) = $24.95 (last report, $27.39)
Here are the January contracts* with a narrower spread:
NYMEX light sweet crude $87.13
ICE North Sea Brent crude $110.80
Spread (ICE- NYMEX) = $23.67 (last report, $23.43)
* 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 $110+ Brent and $85+ 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 $49.92(our new key level, 10/13 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 $0.03 in early trading at $86.77 (November contract, most active); Gold is up $3.7 to $1686.7 (December contract, most active); Silver is up $0.0.017 to $32.190 (December contract, most active); Copper is down $0.0145 at $3.3940 (December contract, most active)
Western Molybdenum Oxide (General Moly website) is $14.00; European Molybdenum Oxide (Bloomberg) is $13.20; LME cash seller is $13.61, LME moly 3-month seller's contract is $13.61
Stock Market Morning Update
The DOW is down 116.37 points to 11,528.12; the S&P 500 is down 12.18 points at 1212.40
Miners are unhappy:
Barrick (ABX) $47.68 down 1.16%
Newmont (NEM) $66.37 down 0.73%
US Gold (UXG) $4.17 down 3.25%
General Moly (Eureka Moly, LLC) (GMO) $3.11 down 4.01%
Thompson Creek (TC) $7.04 down 4.99%
Freeport-McMoRan (FCX) $34.98 down 4.87% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $10.03 down 2.02%
Timberline Resources (TLR) $0.68 down 1.45%
The Steels are down (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $19.20 down 3.90% - global steel producer
POSCO (PKX) $80.62 down 2.10% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down 1.87% at $1,379,598.35 (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 firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market