The Red, the Black and the Shiny Ones Give Back

Devil's Hawk - Devil's Gate, Eureka

NEW FORMAT for 2012

Morning Commentary
Daily Market Roundup
- Gold & Silver Report
- Copper & Molybdenum Report
- Oil Watch
- Debt Crisis Watch
- Stock Market Morning Update
- Eureka Miner's Million Dollar Grubstake Portfolio

My latest Kitco commentary: Copper and Gold Plan Their 2012 World Tour (01/30/2012)

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

This morning's...
COMEX Gold price = $1,731.2/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 93.47 (WARNING - possible gold value trend reversal, see below)
Value Adjusted Gold Price© (VAGP) = $1,547.6/oz
COMEX - VAGP = $183.6/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels

Morning Miners!

It is 6:07 AM. Have a cup of Monday morning Devil's Gate Java. There are certainly a lot of little devils at work in the markets this morning. My latest Kitco commentary: Copper and Gold Plan Their 2012 World Tour just posted this morning too.

The Red, the Black and the Shiny Ones Give Back

For starters the ole Colonel would like to thank Debbie Carlson of Kitco News and Adella Harding of the Elko Daily Free Press for carrying this report's Friday thoughts on gold's direction this week:

METALS OUTLOOK: Gold’s Rally Expected To Continue Next Week (Debbie Carlson, Kitco News, 1/27/2012)

Gold prices at seven-week high (Adella Harding, Elko Daily Free Press, 1/27/2012)

I predicted Friday that a gold price of $1,750 was in the cards, oil will be roughly $99 to $101 per barrel, silver will be $33-$34 an ounce and copper will be between $3.70 per pound and $3.90.

OK, here we are. This morning 19 of 19 global markets are in the red as a world audience frets about deteriorating conditions in the European sovereign debt drama. Restructuring talks in Greece are struggling and Portuguese bond yields are surging; the 10-year yield jumped over 16% on Monday, anything greater than 7% is time for grave concern. Nuts.

There is always a quote that stands out in the morning market summaries. Today Kitco news reported that Janet Mirasola, managing director of R.J. O’Brien & Associates, said:

"Commodity baskets are facing some risk reduction trading this morning as the Red (copper), the Black (oil) and the Shiny Ones (gold) all give back some of last week’s gains in reaction to the fall of the euro/USD…back below $1.3200 and risks a re-test of $1.3000 if nothing is resolved shortly..." (Market Nuggets: R.J. O'Brien: Copper, Gold Ease With Global Markets In 'Sea Of Red', Kitco News, 1/30/2012)

Will today's retreat just be a correction to January's run-up or are we setting the stage for a "February Flop" as coined by another news agency?

So far things are not crazy. With respect to my predictions, COMEX gold is presently trading down to $1,731.2/oz or about $19/oz below my target for the week. NYMEX WTI is at $98.59 on the low-side of the report's $99/bbl to $101/bbl range, COMEX silver is presently $33.300/oz inside the $33/oz-$34/oz along with COMEX copper at $3.8305/lb, comfortably between $3.70-$3.90/lb.

However, here are three troubling signs this morning as January winds down:

1) Both 10-year & 30-year U.S. Treasury yields are below 2% and 3% again at 1.834% and 2.974% respectively. Lower yields mean higher prices and therefore greater safe-haven demand.

2) This report's Eureka Miner’s Gold Value Index© (GVI) may be reversing its declining trend. Friday the GVI crossed above its 1-month average and today the average ticked up after declining since mid-October. Generally a declining GVI is bullish for the mining sector (see Gold & Silver Report below).

3) The S&P Volatility Index sometimes referred to as the "fear index" is courting the 20-level again after being in the low-18s just a week ago. Bigger number equals greater market apprehension. This report uses 25 as a threshold for scary; Oct. 4 hit a really scary 46+ level - at least we're quite a way below that.

Not time to run for the exits but there is a whiff of smoke in the global theater. Maybe it's only that European finance minister smoking in the balcony seats. Stay tuned.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $48.49 down 2.04%
Newmont (NEM) $60.59 down 1.50%
McEwen Mining (MUX) 5.82 down 2.51% (formerly US Gold)
General Moly (Eureka Moly, LLC) (GMO) $3.66 down 0.81%
Thompson Creek (TC) $8.59 down 1.94%
Freeport-McMoRan (FCX) $45.29 down 1.82% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.88 down 0.40%
Timberline Resources (TLR) $0.53 unchanged

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

ArcelorMittal (MT) $20.66 down 5.01% - global steel producer
POSCO (PKX) $92.06 down 1.89% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is above-par at 172.36, down from last report's 202.30 and above the 1-month moving average of 126.20. The new record low for 2010-2012 was set Oct. 4, 2011 at 22.88. The 1-month average is currently above the key 100-level.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record 2010-2012 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 is still solidly above the 100-level. The 1-month moving average is fortunately above this key level also, a necessary condition for returning our miners to bull pasture. Any change in these trends will be monitored carefully.

Gold & Silver Report

This morning's...

COMEX gold is down $4.2/oz at $1,731.2/oz (April contract, most active)

COMEX silver is down $0.490/oz at $33.300/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.988 oz/oz

Silver 1-month CRS© is 3.46% (bullish level); weak divergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 93.47, up from last report's 92.52 and above its 1-month average of 92.12. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,547.6/oz which is $183.6/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) may be reversing its downward trend. Here is plot of the GVI at Friday's close (also near the bottom of the blog page):

To get the metals & miners firmly back on their feet, we need gold to give up more 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. It is bullish for miners then to see the GVI 1-month average (dark line) continue to trend down - this morning the average started to move up, a bearish signal. Presently, the GVI at 93.47 is below an average of 92.52 and down 15.0% from its 2010-2011 high of 109.97.

Copper & Molybdenum Report

This morning's...

COMEX copper is down $0.0585/lb at $3.8305/lb (March contract, most active)

The gold-to-copper ratio is 451.95 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 2.61% (bullish level); divergent (Cu bearish)

The latest molybdenum oxide spot and futures prices (courtesy of Thompson Creek Metals):

Metals Week Average:
US$14.00
As of January 30, 2012
(updated weekly)

Ryan's Notes Average:
US$14.00
As of January 27, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.05/lb

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

US$14.29/lb (US$31,500/metric ton)

Daily Oil Watch

Latest Nevada Fuel Prices (click this link)

On February 1st, 2011, we identified North Sea Brent crude oil as a good barometer for the crises in the Middle East and North Africa (MENA). The next conflict could be in the Persian Gulf. Brent remains above $100/bbl maintaining a spread above 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 $98.59
ICE North Sea Brent crude $111.03
Spread (ICE- NYMEX) = $12.44 (last report, $11.70)

Here are the May contracts* with a narrower spread:

NYMEX light sweet crude $99.44
ICE North Sea Brent crude $110.56
Spread (ICE- NYMEX) = $11.12 (last report, $10.47)

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

NYMEX WTI 1-month CRS© is 3.81% (neutral level); weak divergence (Oil neutral)

Prices are off their crisis highs and we have $110+ Brent and $95+ NYMEX in May favoring high oil prices this 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 83.0 up from last report's 81.7. 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 and continuing into 2012.

Stock Market Morning Update

The DOW is down 100.09 points to 12,560.37; the S&P 500 is down 12.60 points at 1303.74

The Eureka Miner's Grubstake Portfolio is down 1.50% at $1,587,489.92 (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