"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.

Thursday, December 8, 2011

Blue Meanies and $125+ Oil for 2012?

Two Black Holes
Metallic Art by Mariana Titus

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 International Business Times commentary: Gold and Silver “Together Again” (12/05/2011)

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

This morning's...
COMEX Gold price = $1,719.0/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 95.94 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,497.1/oz
COMEX - VAGP = $221.9/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels but is trending down (Cu bullish)

Copper 1-monthCRS© is 2.48%; bullish level, slightly divergent (Cu bearish)

Oil 1-month CRS© is 2.88%; bullish level, converging stability (Oil bullish)

Morning Miners!

It is 5:56 AM. Have a cup of Thor's Chaos coffee. Be careful, all his cups have holes in the bottom. Our favorite Norseman couldn't be in finer spirits as the world awaits the outcome of the European Summit; market chaos or market bliss. That old thunder maker loves an threatening storm...

Blue Meanies and $125+ Oil for 2012?

The Colonel's normally optimistic outlook got the blue meanies this morning. I'm worried about Europe but not anymore than last week. The European politicians and ECB will say a lot of soothing things tomorrow; markets will bounce, copper and gold will get a lift and we will probably be right back where we are today when the power of positive talking fades in the shadows of looming sovereign debt and recession in Europe.

Hopefully we can dodge a recession here in 2012. If there is global slowdown in the works with both Europe and China calling in sick, we should at least have lower oil and fuel prices. Or will we? Quite honestly, I'm more worried about Iran than Europe lately. Escalating tensions in the Persian Gulf could easily trump slowing demand for the gooey stuff.

December 10 of last year here I made these predictions for 2011:

The following price events will occur prior to the Fourth of July 2011:
NYMEX light crude will break $100/bbl
COMEX gold will break $1570/oz
COMEX silver will break $36/oz

All came true.

Oil got ahead of the program and didn't wait for July sparklers. Brent crude broke $100/bbl February 1 and NYMEX WTI soon followed. The ole Colonel isn't ready to predict the price of gold and silver yet but my hunch is that we are more likely than not to see $125+/bbl oil in 2012.

Here's an unsettling fact - in early August, a barrel of WTI light sweet crude could buy 20 pounds of COMEX copper; today, nearly 30 pounds. The dollar price of the red metal over the same period has dropped about 13% (roughly $3.5/lb versus $4/lb this summer). That says a lot about the U.S. dollar and copper compared to oil.

I hope I'm wrong this year about oil prices. Maybe, it's just a case of the blue meanies.

Gold and silver predictions coming up soon.

Daily Market Roundup

Mining Report

This morning's mining stocks...checkout Quadra FNX...

Barrick (ABX) $49.87 down 2.56%
Newmont (NEM) $66.95 down 1.12%
US Gold (UXG) $3.81 down 2.31%
General Moly (Eureka Moly, LLC) (GMO) $3.48 down 0.57%
Thompson Creek (TC) $7.06 down 2.22%
Freeport-McMoRan (FCX) $39.74 down 1.68% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.54 unchanged
Timberline Resources (TLR) $0.60 down 4.76%

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

ArcelorMittal (MT) $18.44 down 3.25% - global steel producer
POSCO (PKX) $86.57 down 1.52% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is below-par at 76.40, down from last report's 84.04 and above the 1-month moving average of 69.73. 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 $25.8/oz at $1,719.0/oz (February contract, most active)

COMEX silver is down $0.587 at $32.040/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 53.625 oz/oz

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 95.94, down from last report's 96.18 and below its 1-month average of 98.25. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,497.1/oz which is $221.9/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 $0.0080/lb at $3.5480/lb (March contract, most active)

The gold-to-copper ratio (Au:Cu) is 484.50 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" but the ratio is now trending down (Cu bullish).

The latest molybdenum oxide spot and futures prices:

Metals Week Average:
As of December 5, 2011
(updated weekly)

Ryan's Notes Average:
As of Dec 06, 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 (click this link)

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 $100.30
ICE North Sea Brent crude $108.73
Spread (ICE- NYMEX) = $8.43 (last report, $9.07)

Here are the March contracts* with a narrower spread:

NYMEX light sweet crude $100.63
ICE North Sea Brent crude $108.35
Spread (ICE- NYMEX) = $7.72 (last report, $8.17)

* 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 $100+ 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 159.5 down from last report's 160.4. A level above 200 is time for serious concern. We are now 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 down 52.15 points to 12,097.98; the S&P 500 is down 8.80 points at 1,249.67

The Eureka Miner's Grubstake Portfolio is down 1.42% at $1,461,937.08 (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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