Gold Drops; More Thoughts on Silver

Eureka December 2011

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.

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 = $1,573.3/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 92.97 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1414.0/oz
COMEX - VAGP = $159.3/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels but is trending down


Wōdnesdæg
Morning Miners!

It is 7:51 AM. Let the Colonel pour you a cup of Hump Day on a Short Week. This week feels even shorter. Old Miner should be in fine spirits today with the markets in a slump, lots of opportunity for one of his "I told you so." But he's grumpy as heck to see gold stumble with everything else...

Gold Drops; More Thoughts on Silver

Same-o, Same-o. Investors are skittish ahead of an Italian auction of longer-term government debt tomorrow. 18 of 19 global markets are in the red this morning - the euro has dropped below 1.30; 10-year US Treasuries are again below 2% and 30-years underneath 3%. Nuts.

COMEX gold is down a full $22.2/oz at $1,573.3/oz and more alarmingly COMEX silver dropped a buck-twenty-five to $27.490/oz. The only hero of the day in my world is a US dollar bounce which is adding pressure to the metals and miners in a clearly "risk-off" day.

Yesterday we talked a little bit about silver and I said, "...silver is starting to look interesting to the ole Colonel at present or lower prices." Yesterday morning COMEX silver was $29/oz, today we're looking at $27.5/oz.

Even more surprising today is a pop in the closely watched gold-to-silver ratio. Today it is 57.2; yesterday, 55.0 - a 4% move up. The ratio has been in an upward trend (silver bearish) since early November. Anything above 59 is a little scary and we're getting close to that threshold.

I haven't pulled the trigger on a silver purchase yet but it is now even more exciting to watch. I said yesterday that $23.50/oz was a reasonable floor for prices and $26.18/oz is our next level of support (set 9/26/2011). If gold drops below $1,562.50 (set 12/15/2011) there may be a lot more downside for both precious metals.

Please do your own thinking on this one but we're falling into some tempting territory for a nibble at the white metal.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $44.51 down 2.18%
Newmont (NEM) $60.43 down 1.53%
US Gold (UXG) $3.04 down 3.80%
General Moly (Eureka Moly, LLC) (GMO) $3.08 down 3.14%
Thompson Creek (TC) $6.75 down 1.03%
Freeport-McMoRan (FCX) $37.23 down 1.64% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.78 up 0.47%
Timberline Resources (TLR) $0.59 down 3.28%

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

ArcelorMittal (MT) $17.76 down 3.58% - global steel producer
POSCO (PKX) $82.15 down 1.69% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is below-par at 70.78, down from last report's 84.68 and below the 1-month moving average of 79.47. 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 $22.2/oz at $1,573.3/oz (February contract, most active)

COMEX silver is down $1.250/oz at $27.490/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 57.232 oz/oz

Silver 1-month CRS© is 1.93%; bullish level, very stable (Ag bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 92.97, up from last report's 92.53 and below its 1-month average of 95.50. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.
The Value Adjusted Gold Price© (VAGP) is $1,443.7/oz which is $155.1/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 $0.0180/lb at $3.3910/lb (March contract, most active)

The gold-to-copper ratio (Au:Cu) is 463.96 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish) but the ratio is trending down (Cu bullish).

Copper 1-month CRS© is 2.46%; bullish level, converging stability (Cu bullish)

The latest molybdenum oxide spot and futures prices:

Metals Week Average:
US$13.35
As of December 26, 2011
(updated weekly)

Ryan's Notes Average:
US$13.40
As of December 23, 2011
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$13.55/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 narrowing 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 $100.17
ICE North Sea Brent crude $108.35
Spread (ICE- NYMEX) = $8.18(last report, $7.85)

Here are the April contracts* with a narrower spread:

NYMEX light sweet crude $100.40
ICE North Sea Brent crude $107.26
Spread (ICE- NYMEX) = $6.86 (last report, $6.43)

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

NYMEX WTI 1-month CRS© is 2.97%; bullish level; divergent (Oil bearish)

Prices are off their crisis highs and we have $105+ Brent and $100+ NYMEX in April favoring high oil prices throughout the winter and 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 111.5 up from last report's 109.3. A level above 200 is time for serious concern. We are now well 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 85.56 points to 12,205.79; the S&P 500 is down 10.24 points at 1255.19

The Eureka Miner's Grubstake Portfolio is down 2.61% at $1,325,521.65 (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