"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, February 3, 2012

Blowout Jobs Report; The Colonel's Friday Thoughts on Gold

350,000,000 Years Ago - Devonian seabed, Devil's Gate, Eureka, Nevada

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 = $1,753.1/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 94.79 (rising gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,545.7
COMEX - VAGP = $207.7/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels

Morning Miners!

It is 5:51 AM. Have a hot cup of Raine's Red Label TGIF and checkout today's job report. The ole Colonel turned on CNBC business News at 5:30 AM to catch the U.S. Labor Department's monthly employment numbers - what a surprise...

Blowout Jobs Report

The employment data for January was expected to slow to 125,000 jobs from December's 200,000 with an unemployment rate steady at 8.5%. Instead nonfarm payrolls rose by 243,000 last month and the jobless rate fell to 8.3%, the lowest it is has been since February 2009. Importantly, the private sector added 257,000 jobs, offsetting the 14,000 in job cuts by the public sector.

Not too bad, pardner. So much for the expert's predictions, I may say the same for my recent thoughts on gold...

The Colonel's Friday Thoughts on Gold

My input to the Weekly Kitco Gold Survey:

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

A. Up slightly - $1,760/oz target

Q. Why?

A. Although welcome news, the exceptionally strong U.S. jobs report this morning throws a monkey wrench into forecasting gold prices for next week. The consensus that stagnant job growth in 2012 would spur the Federal Reserve to engage a third round of quantitative easing (QE3) is now in question. QE3 is generally bullish for gold and commodities going forward; markets without monetary stimulus return to the fundamental forces of supply and demand. Gold value relative to key commodities oil, copper and (to a lesser extent) silver has been falling since October but experienced a dramatic reversal to the upside this week. This is a potentially bullish development for gold and a bearish indication for copper and oil. A favorable domestic employment report, improving conditions in Europe but slowing demand in China for raw materials gives a mixed picture that could blunt this reversal resulting in only a small positive bias for gold prices next week (see notes).

For $1,760/oz gold we can expect to see oil (WTI) in a range of $96-$100/bbl; silver, $33-$35/oz; and copper, $3.7-$3.9/lb.

Background Notes:

1) The Eureka Miner’s Gold Value Index© (GVI) equals 94.79 this morning down 13.8% from the Oct. 4 high of 109.97 but up 4.4% from the Jan. 19 low of 90.81
2) The GVI, which has been below its 1-month moving average for many weeks, crossed strongly to the upside this week (94.79 vs 92.51 average)
3) If this reversal is temporary, a bullish environment should remain in place for copper and silver. Gold is presently gaining the most value relative to oil (oil bearish).
4) If gold value trends higher from here; copper could weaken further similar to oil. Oil is still negatively correlated to the yellow metal (3-month correlation = -0.11, a typically bearish condition)

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $48.86 down 1.95%
Newmont (NEM) $61.16 down 1.81%
McEwen Mining (MUX) 5.74 down 1.03% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.99 up 2.57%
Thompson Creek (TC) $9.17 up 1.66%
Freeport-McMoRan (FCX) $45.99 up 1.05% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.11 up 0.13%
Timberline Resources (TLR) $0.53 down 3.64%

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

ArcelorMittal (MT) $21.54 up 1.08% - global steel producer
POSCO (PKX) $93.63 up 0.66% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is above-par at 232.36, up from last report's 206.91 and above the 1-month moving average of 150.09. 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.

Gold & Silver Report

This morning's...

COMEX gold is down $6.2/oz at $1,753.1/oz (April contract, most active)

COMEX silver is down $0.110/oz at $34.065/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.463 oz/oz

Silver 1-month CRS© is 3.16% (bullish level); weak convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 94.79, down from last report's 95.33 and above its 1-month average of 92.51. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,545.7/oz which is $207.7/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 $0.0620/lb at $3.8430/lb (March contract, most active)

The gold-to-copper ratio is 456.18 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 2.59% (bullish level); stalled divergence (Cu neutral)

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

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

Ryan's Notes Average:
As of January 31, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):

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 $96.73
ICE North Sea Brent crude $113.50
Spread (ICE- NYMEX) = $16.77 (last report, $15.39)

Here are the May contracts* with a narrower spread:

NYMEX light sweet crude $97.70
ICE North Sea Brent crude $112.91
Spread (ICE- NYMEX) = $15.21 (last report, $13.82)

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

NYMEX WTI 1-month CRS© is 4.43% (bearish level); divergent (Oil bearish)

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 76.1 down from last report's 80.1. 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 up 140.96 to 12,846.37; the S&P 500 is up 16.49 points at 1342.03

The Eureka Miner's Grubstake Portfolio is down 0.09% at $1,619,644.08 (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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