"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.

Friday, December 9, 2011

The Colonel's Friday Thoughts on Gold & Silver; LME Moly above $14/lb

Two years ago...

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 = $1,712.7/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 96.77 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,478.8/oz
COMEX - VAGP = $233.9/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 2.60%; bullish level, slightly divergent (Cu bearish)

Oil 1-month CRS© is 2.64%; bullish level, converging stability (Oil bullish)

Morning Miners!

It is 5:59 AM. Have a cup of that delicious Raine's TGIF coffee. If she were in the break room, our market bull Ruby T would be calling the ole colonel one of those "damn flip-floppers" - I can hear her now, "You ought to run for office, Colonel flip-flopper for president!!"

I'm afraid the events of this week are pushing me closer to the Old Miner Woden bear camp. With all that is not happening in Europe and slowdowns in Asia, the Colonel is less optimistic about the near-term fate of markets than just a week ago. The initial news coming from the European Summit is predictably positive but a move to fiscal unity has been blemished by opposition from the U.K. Nonetheless, 17 countries of the euro zone formally agreed to run only minimal budget deficits in the future and other actions to stabilize the sovereign debt crises. This has lifted markets this morning but I'm afraid well be right back where we were yesterday as another Big Plan finds the same little devils in the details.


I hope I'm wrong - that Woden  Cold Reality coffee tastes horrible.

One bit of good news to close the week - LME moly is up (see Copper & Molybdenum Report below)!

The Colonel's input to the Weekly Kitco Gold Survey

Here is my weekly input to the Kitco gold survey, one of my rare bearish near-term assessments for gold although the long term bullish trend is intact:

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Down. Return to lower-than $1,700+/oz territory.


A. Gold remains positively correlated with key commodities copper, oil and silver. Although there is some relief this morning, all have been under considerable pressure given the latest developments in the European sovereign debt crisis and slowing demand in Asia. The strongest trends have been compression of both the gold-to-oil and silver-to-gold ratios since August.

Asking what the price of gold will be by year's end is akin to predicting the price of oil. For NYMEX WTI, the ratio is presently 17.5 bbl/oz trending to 16.5 bbl/oz; if you believe in $100/bbl oil, it is becoming difficult to justify gold prices above $1,700/oz. If oil prices continue to move lower, so will gold until this trend reverses; $95/bbl suggests a fall in gold price below $1,600/oz.

A year end gold-to silver ratio of 52 yields $32.7/oz silver for $1,700/oz gold; $30.8/oz for $1,600/oz gold which is just above a key level of support for COMEX silver ($30.74/oz).

As I said yesterday, escalating conditions in the Persian Gulf could easily send oil prices soaring above $125/oz and under those conditions gold and silver could recover their safe haven mojo. The present gold-to-oil ratios push gold prices above $2,000/oz for that scenario; above $38/oz for silver. For now gold in the $1,600/oz to $1,700/oz range looks like the game in town.

Daily Market Roundup

Mining Report

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

Barrick (ABX) $49.50 down 0.18%
Newmont (NEM) $66.58 up 0.79%
US Gold (UXG) $3.57 down 0.28%
General Moly (Eureka Moly, LLC) (GMO) $3.40 up 0.89%
Thompson Creek (TC) $7.13 up 1.86%
Freeport-McMoRan (FCX) $39.30 up 2.50% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.45 up 0.51
Timberline Resources (TLR) $0.62 unchanged

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

ArcelorMittal (MT) $18.71 up 4.47% - global steel producer
POSCO (PKX) $85.91 up 0.35% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is below-par at 81.45, up from last report's 76.40 and above the 1-month moving average of 69.09. 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 $0.7/oz at $1,712.7/oz (February contract, most active)

COMEX silver is up $0.477 at $32.015/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 53.497 oz/oz

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 96.77, up from last report's 95.94 and below its 1-month average of 98.13. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,478.8/oz which is $233.9/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 up $0.0220/lb at $3.5220/lb (March contract, most active)

The gold-to-copper ratio (Au:Cu) is 486.29 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" but the ratio is now trending down (Cu bullish).

Yesterday, LME moly futures moved above $14/lb for the first time in a long while; spot prices remain around the mid $13.50/lb level.

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$14.06/lb (US$31,000/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 $97.81
ICE North Sea Brent crude $107.80
Spread (ICE- NYMEX) = $9.99 (last report, $8.43)

Here are the March contracts* with a narrower spread:

NYMEX light sweet crude $98.22
ICE North Sea Brent crude $107.39
Spread (ICE- NYMEX) = $9.17 (last report, $7.72)

* 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 149.6 down from last report's 159.5. 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 up 134.56 points to 12,132.26; the S&P 500 is up 14.91 points at 1,249.26

The Eureka Miner's Grubstake Portfolio is down 0.87% at $1,448,445.27 (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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