"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.

Tuesday, November 29, 2011

$1.6/lb Copper & $1,000/oz Gold?

NEW FORMAT for 2012

The Eureka Miner's Market Report has a new format. Three daily reports, "Mining", "Gold & Silver" and "Copper & Molybdenum" consolidate key morning market information for metals and mining relevant to Eureka County and surrounding areas with new expanded detail on moly prices.

The "Daily Market Roundup" also includes an "Oil Watch" and "Debt Crisis Watch" to monitor the impacts of global events on oil and fuel prices and the unfolding debt crises here and in Europe. Finally, "Stock Market Morning Update" provides the latest on the broader markets as well as the Eureka Miner's Million Dollar Grubstake Portfolio.

Have a good read and welcome back!

My latest Kitco commentary:
What does CRS© tell us about Gold, Copper & Oil? (11/28/2011)

This morning's...
COMEX Gold price = $1,712.9/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 98.45
Value Adjusted Gold Price© (VAGP) = $1,453.8/oz
COMEX - VAGP = $259.1/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels

Copper CRS© is 2.73%; bullish level, converging stability

Oil CRS© is 3.36%; bullish level, divergent

Morning Miners!

It is 5:53 AM. Have a cup of Black Swan Java. Ruby T is up in Elko at the dentist today so the ole Colonel had to fire up Tuesday by his lonesome. Let's go out and see what's floating in the pond of extreme possibilities...

$1.6/lb Copper & $1,000/oz Gold?

While we're walking make a note to checkout Adella Harding's article on Gold Bar when you get a chance:

US Gold plans to mine Gold Bar (Adella Harding, Elko Daily Free Press, 11/28/2011)

This adds some more information to our discussion yesterday.

OK, we're almost there. Read this Kitco Morning Market Nugget and we'll be at the edge of the pond:

Market Nuggets: Copper Market 'Tail-Risk' Consistent With Cash Costs – Goldman

(Kitco News) - In a “tail-risk” scenario, Goldman Sachs estimates that copper prices would fall to about the 90th percentile of the cash-cost curve, which is very close to current options market pricing, the firm says. In a “tail-risk” event, the copper market would move into surplus as end-use demand growth in China and Europe would slow and U.S. demand would fall back to 2009 levels. The options market give s a 5% probability to the likelihood that copper will fall as far as $3,700 a metric ton (about $7,400 a ton now), which is the 90th percentile of the cost curve and that is where the bank would expect prices to fall in a “tail-risk scenario.” (By Debbie Carlson of Kitco News, 29 November 2011)


I contacted Kitco's Debbie Carlson this morning with my reaction to the Goldman analysis:

The Goldman tail-risk nugget is a black swan indeed. $3,700/tonne ($1.68/lb) copper would place us in the darkest pool since 2008-2009 and would be scary for gold if any historical relations hold their ground.

Two thoughts:

1. The edge of the history envelope (most generous for gold price) applies the record high gold-to-copper ratio of Feb 20, 2009 and markets revisit $1,000/oz gold*
2. A new era for copper & gold with copper-to-gold ratios in excess of 1,000 lb/oz (present gold prices or higher + Goldman's black swan copper). I've thought about this some, a quantum mechanical shift.

Frightening possibilities. I'd rather follow Hans Christian Anderson back to the white swan park and leave both these ugly ducklings behind.

* Note: 2/20/2009 COMEX gold 1027.5/oz; COMEX copper $1.6545/lb gold-to-copper ratio record high = 621 lb/oz

She replied that this is a deflation scenario and there are some folks that believe this is the reason why gold hasn't rallied on the "eurozone wobbles."

Keep your powder dry, pardner. Our market bull Ruby T would have my scalp if she knew the ole Colonel was even thinking about less-than-two-buck copper. $1,000/oz gold isn't much of a happy for Old Miner Woden either.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $49.96 up 0.85%
Newmont (NEM) $65.87 up 0.97%
US Gold (UXG) $4.10 up 0.99%
General Moly (Eureka Moly, LLC) (GMO) $3.13 unchanged
Thompson Creek (TC) $6.38 up 1.27%
Freeport-McMoRan (FCX) $36.35 up 1.14% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.81 up 2.12%
Timberline Resources (TLR) $0.60 down 1.64%

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

ArcelorMittal (MT) $16.71 down 0.48% - global steel producer
POSCO (PKX) $80.90 up 2.41% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is below-par at 57.59, up from yesterday's 55.25 and below the 1-month moving average of 71.38. 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.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record 2010-2011 high for the EMI is 816.78 set 01/04/2011; the low was set 10/4/2011 at 22.88. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

Gold & Silver Report

This morning's...

COMEX gold is down $1.6/oz at $1,712.9/oz (February contract, most active)

COMEX silver is down $0.402/oz at $31.840/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 53.797 oz/oz

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 98.45, up from yesterday's 98.26 and below its 1-month average of 98.89. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,453.8/oz which is $259.1/oz below the current COMEX gold price.

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.

Copper & Molybdenum Report

This morning's...

COMEX copper is down $0.0035/lb at $3.3680/lb (March contract, most active)

The gold-to-copper ratio (Au:Cu) is 508.58 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" but the ratio is now trending down a bit (bullish).

Western molybdenum oxide (price per pound):

Metals Week Average:
As of November 28, 2011
(updated weekly)

Ryan's Notes Average:
As of Nov 22, 2011
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):

London metal Exchange (LME) molybdenum 3-month seller's contract:

US$13.83/lb (US$30,500/metric ton)

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 remains 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 this morning:

NYMEX light sweet crude $98.74
ICE North Sea Brent crude $110.09
Spread (ICE- NYMEX) = $11.35 (last report, $10.00)

Here are the March contracts* with a narrower spread:

NYMEX light sweet crude $98.92
ICE North Sea Brent crude $108.15
Spread (ICE- NYMEX) = $9.23 (last report, $7.92)

* NYMEX futures contracts have rolled forward, we now show January and March for a 2-month look-ahead

Prices are off their crisis highs and we have $100+ Brent and $95+ NYMEX in March favoring high oil prices throughout the winter and into spring.

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 182.3 down from yesterday's 187.3. A level above 200 is time for serious concern. We are now just below that level.

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.

Stock Market Morning Update

The DOW is up 93.51 points to 11,616.52; the S&P 500 is up 10.38 points at 1,202.93

The Eureka Miner's Grubstake Portfolio is up 0.50% at $1,383,805.52 (what's this?).


Colonel Possum

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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