"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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.

Monday, December 12, 2011

The Colonel is on the Road Again, Gold & Moly are not

Red Rock Canyon

*** BREAKING NEWS *** COMEX gold dropped to $1,660.30/oz at 10:20 AM ET

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 = $1,672.4/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 95.52 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,463.0/oz
COMEX - VAGP = $209.4/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 2.75%; bullish level, slightly divergent (Cu bearish)

Oil 1-month CRS© is 2.21%; bullish level, converging stability (Oil bullish)

Morning Miners!

It is 5:56 AM. Have a Monday cup of White Line Fever. The Colonel is on the road again and our next report will be bright and early one week from today on Dec. 19. I wish I could leave you with happier markets...

Gold & Moly are not on the road again...

Sometimes it is no fun being right. In my Friday gold report I said "...it is becoming difficult to justify gold prices above $1,700/oz." Presently COMEX gold is trading down $44.4/oz at $1,672.4/oz and there could be more downside to go as the day progresses.

The culprit is a lackluster conclusion to the European Summit that resulted in a new big plan that falls short of consensus expectations. This has put tremendous pressure on both raw commodities and gold since the lustrous metal has been running with that pack lately. The most compelling trend for me is the unrelenting decline in the gold-to-oil ratio since August. This morning NYMEX WTI light sweet crude is below $100 with a ratio of 17 bbl/oz which yields gold below $1,700/oz. If oil drops to $95 bbl/oz before this trend reverses, gold could drop to low-$1,600/oz territory, perhaps even lower.

Many safe haven investors are switching from gold to the U.S. dollar which continues to show strength against the the falling euro. Kitco's Debbie Carlson carried a "Market Nugget" on Dennis Gartman's latest views on gold and the euro currency:

Market Nuggets: Gartman: Cutting Position, But Still Bullish On Gold (Debbie Carlson, Kitco News, 12/12/2011)

The Colonel also remains long term bullish on gold but it could be a rough ride to year's end.

On Friday morning, one ray of light was a move up in molybdenum futures at the London metal exchange (LME) above the $14/lb level. That was short-lived as Friday trading beat the 3-month seller's contract down $1,000/metric ton to $30,000/metric ton or $13.61/lb. This is important since the future pricing sat at $30,500/metric ton ($13.83/lb) for many weeks. U.S. and European spot prices are presently in a range of $13.40-$13.45/lb. We'll see this week if they are the next to move lower.

See you in seven, have a good'un!

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $47.96 down 3.71%
Newmont (NEM) $64.73 down 3.30%
US Gold (UXG) $3.40 down 7.86%
General Moly (Eureka Moly, LLC) (GMO) $3.45 down 1.99%
Thompson Creek (TC) $6.86 down 5.38%
Freeport-McMoRan (FCX) $38.35 down 3.47% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.18 down 0.76%
Timberline Resources (TLR) $0.59 down 4.84

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

ArcelorMittal (MT) $17.75 down 5.64% - global steel producer
POSCO (PKX) $84.88 down 2.35% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is below-par at 75.30, down from last report's 90.21 and above the 1-month moving average of 69.42. 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.

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):


Today's EMI has fallen to just above its 1-month average. Presently the average is moving sideways in a 69-70 range; it need to go back above the 100-level before we can say the miner's have left bear country for safer pasture.

Gold & Silver Report

This morning's...

COMEX gold is down $44.4/oz at $1,672.4/oz (February contract, most active)

COMEX silver is down $1.033 at $31.220/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 53.568 oz/oz

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 95.52, down from last report's 95.88 and below its 1-month average of 97.84. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,463.0/oz which is $209.4/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.

The Eureka Miner’s Gold Value Index© (GVI) is presently declining. Here is plot of the GVI at Friday's close (also near the bottom of the blog page):


To get the metals & miners back on their feet, 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. Lately, both are falling together which is a bearish exception to the rule.

Copper & Molybdenum Report

This morning's...

COMEX copper is down $0.0890/lb at $3.4685/lb (March contract, most active)

The gold-to-copper ratio (Au:Cu) is 482.17 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish) but the ratio is trending down (Cu bullish).

Last week, LME moly futures moved above $14/lb on Thursday (as reported Friday); but Friday saw a fall back down to the $13.61/lb level ($30,000/lb), a bearish move for moly futures (3-month seller).

The latest molybdenum oxide spot and futures prices:

Metals Week Average:
US$13.40
As of December 12, 2011
(updated weekly)

Ryan's Notes Average:
US$13.45
As of Dec 09, 2011
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$13.40/lb

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

US$13.61/lb (US$30,000/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 $98.15
ICE North Sea Brent crude $107.66
Spread (ICE- NYMEX) = $9.51 (last report, $9.99)

Here are the March contracts* with a narrower spread:

NYMEX light sweet crude $98.50
ICE North Sea Brent crude $107.40
Spread (ICE- NYMEX) = $8.90 (last report, $9.17)

* 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 $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 144.2 up from last report's 142.4. 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 138.24 points to 12,046.02; the S&P 500 is down 18.10 points at 1,237.09

The Eureka Miner's Grubstake Portfolio is down 3.47% at $1,413,501.33 (what's this?).

Cheers,

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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