"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 17, 2012

The Colonel's Friday Thoughts on Gold, Silver & Copper; GMO News

Lone Cloud

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 International Business Times commentary: Gold and Silver Move Uptown for 2012 (02/06/2011)

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

This morning's...
COMEX Gold price = $1,735.6/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 92.42 (gold value sideways, trend indeterminate)
Value Adjusted Gold Price© (VAGP) = $1,569.1/oz
COMEX - VAGP = $166.5/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels

Morning Miners!

It is 6:15 AM. Have a rewarding cup of Raine's Red Label TGIF. It appears the Greeks may be rewarded too with another bailout. A government spokesman said euro-zone ministers are expected to approve a new bailout package. Apparently, German officials are no longer pressuring Greece by withholding part of the bailout. The European Central Bank also plans to swap its present Greek debt holdings for new bonds once the debt-restructuring deal is complete. Euro can kickers to your mark...one...two...three...KICK!

The Eureka Miner's Index© (EMI) has bounced back from yesterday morning's low 189.5 to today's 244.14 placing it again above its 1-month average of 211.48 (bullish for miners, see below). One...two...three...KICK!

This report's Debt Crisis Index (DCI) has cooled down to 84.4 from yesterday's sizzling 96.4 (bullish for metals & miners, see below). One...two...three...KICK!

By the by, WTI crude broke $103/bbl today and Brent crude is nearly $120/bbl (see Daily Oil Watch below. Uh-oh.

The Colonel's Friday Thoughts on Gold, Silver & Copper

The uncommon stability of gold value and the tight trading range for gold price cause this week's prognostication to be virtually unchanged from last. Someday this will change! Here is 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 - $1,750/oz target

Q. Why?

Gold value with respect to key commodities oil, copper and silver remains uncommonly stable from mid-January after a steady decline that began last October. Gold value is presently oscillating up and down about its 1-month average driven by headlines from Europe or Iran against a backdrop of improving economic conditions domestically. Gold value is likely to pullout of this holding pattern, perhaps dramatically, in the coming weeks. Positive outcomes in the ongoing debt negotiations in Europe will cause relative value to decline, potentially a bullish condition for all four commodities. Escalating tensions in the Persian Gulf would be bullish for gold and oil; bearish for copper and silver with an overall rise in gold value (see notes). Next week’s outlook is biased for a slight rise in gold dollar price given expectations for improving conditions in Europe and little change in tensions with Iran.

For $1,750/oz gold we can expect to see oil (WTI) in a range of $100-$104/bbl; silver, $33-$34/oz; and copper, $3.7-$3.9/lb.

Background Notes:

1. My Gold Value Index© (GVI) equals 92.42 this morning down 16.0% from the Oct. 4 high of 109.97 but virtually unchanged from last week (GVI =92.64, 2/10/2012).

2. The GVI, which had been below its 1-month moving average for many weeks, is oscillating up and down about its average. Today it is slightly below (92.42 vs 92.46 average); last week, slightly above (92.64 vs 92.46 average, 2/10/2002); 4-weeks ago, slightly below (91.76 vs 92.74 average, 1/20/2002).

3. If this pause in overall value decline is temporary and gold value declines, a bullish environment should develop for copper and silver. Gold is presently losing value relative to oil (WTI) roughly balancing a gain in value relative to both copper & silver. The best environment for oil & metals is a gold value decline for all three.

4. If gold value trends higher from here, copper and silver could weaken more (Ag, Cu bearish). Oil is positively correlating with the yellow metal (3-month correlation = +0.13 trending more positive). If this correlation firms, gold and oil prices could rise together with increasing gold value (oil bullish).

5. Scenario (3) is thought to be more likely than (4). If oil continues to re-correlate positively with oil, a bullish price condition for all four could develop in the near-term (e.g., improving conditions in Europe). However, rising tensions with Iran could quickly make scenario (4) more likely – a bullish condition for gold and oil alone.

General Moly (GMO) News

It looks like General Moly has some money coming their way. This press release crossed the wires yesterday:

General Moly Receives Confirmation for $665 Million Term Loan from China Development Bank (Press release, 2/16/2012)

Bruce D. Hansen, Chief Executive Officer, said:

I am extremely pleased with the continued progress toward a loan facility with China Development Bank, supported by Hanlong. Confirmation of the basic loan terms by the Sichuan branch of CDB is an important step in our strategy to complete loan documentation and approval in parallel with the conclusion of the Mt. Hope permitting process. The terms confirmed by CDB remain favorable to the Company and its shareholders. We anticipate an interest rate of approximately LIBOR plus 4%, although the interest rate will remain subject to market conditions and Chinese government policy. We look forward to working with CDB, and Hanlong to finalize the loan terms through full documentation of this debt facility prior to the receipt of permits for the Mt. Hope project. We continue to target commencing construction at the Mt. Hope project later this year. (Press release, 2/16/2012)

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $47.40 down 1.60%
Newmont (NEM) $59.96 down 0.78%
McEwen Mining (MUX) 5.10 down 1.16% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.75 up 2.46%
Thompson Creek (TC) $8.82 down 0.90%
Freeport-McMoRan (FCX) $43.39 down 1.03% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.97 down 0.13%
Timberline Resources (TLR) $0.53 unchanged

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

ArcelorMittal (MT) $21.49 up 1.32% - global steel producer
POSCO (PKX) $91.56 up 0.54% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) was re-calibrated 2/8 to reflect current 200-day moving averages for benchmark miners.

The EMI is above-par at 244.14, up last report's 189.50 and above the 1-month moving average of 211.48. The 1-month average is safely 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 up $7.2/oz at $1,735.6/oz (April contract, most active)

COMEX silver is up $0.235/oz at $33.605/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.647 oz/oz

Silver 1-month CRS© is 1.32% (bullish level); weak convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 92.42, down from last report's 92.52 and below its 1-month average of 92.46. Gold value has stalled, and the trend is presently indeterminate. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,574.4/oz which is $165.9/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 down $0.0060/lb at $3.7805/lb (March contract, most active)

The gold-to-copper ratio is 459.04 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 1.58% (bullish level); weak convergence (Cu neutral)

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

Metals Week Average:
As of February 20, 2012
(updated weekly)

Ryan's Notes Average:
As of February 10, 2012
(updated twice weekly)

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

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

US$15.20/lb (US$33,500/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 $110/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 $103.11
ICE North Sea Brent crude $119.61
Spread (ICE- NYMEX) = $16.5 (last report, $17.97)

Here are the May contracts* with a narrower spread:

NYMEX light sweet crude $103.91
ICE North Sea Brent crude $118.67
Spread (ICE- NYMEX) = $14.76 (last report, $16.24)

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

NYMEX WTI 1-month CRS© is 2.49% (bullish level); ratio compression (Oil bullish)

Prices are off their crisis highs but we have $115+ Brent and $100+ NYMEX in May favoring high oil prices this spring. A front-month spread >$20/bbl is a trouble sign.

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 84.4 down from last report's 96.4. 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 28.84 to 12,932.92; the S&P 500 is up 2.03 points at 1,360.07

The Eureka Miner's Grubstake Portfolio is down 0.11% at $1,569,573.85 (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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