"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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 24, 2012

The Colonel's Friday Thoughts on Gold, Silver & Copper; Euro-Moly Updates

Raine's Reflections

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: A Foreboding Alignment in the Copper-Gold Firmament (02/21/2012)

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

This morning's...
COMEX Gold price = $1,778.9/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 91.53 (gold value weakly trending up)
Value Adjusted Gold Price© (VAGP) = $1,624.0/oz
COMEX - VAGP = $154.9/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio is moving above its 3-month average (Cu bearish)



Morning Miners!

It is 6:04 AM. Have a welcome cup of Raine's Reflections. Scott Raine tells me that this coffee is his Red Label aged in the market cellar in barrels made of local piñon pine - talk about a tasty brew! Have a good weekend.

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

Although gold has pulled back some today and copper is higher, I believe this is just a pause in a gold-higher/copper-lower environment as flagged in Tuesday's Kitco commentary. I felt some reassurance to learn that Dennis Gartman, editor and publisher of The Gartman Letter, is preparing to change equal positions of copper and gold - swapping copper for more gold.

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 - $1,810+/oz target

Q. Why?
A. Increasing tensions with Iran could send both oil and gold much higher and copper lower. Given present trends, $135 per barrel Brent crude is compatible with $120 per barrel WTI crude, $2,000+ per ounce gold and $40+ per ounce silver. Copper could dip to $3.25 per pound but probably not much lower given supply tightness. We will likely get to these levels in steps so next week may only take out the next resistance level for gold putting us in $1,810+ territory. With some irony, May 2008 was the last “DOW 13,000” period and Brent crude was $135 per barrel for very different reasons; gold was $950 per ounce giving some measure of the gold-friendly environment of late.

The gold-to-copper ratio crossed its 3-month average to the upside yesterday, a noticeably bearish development for the red metal. Favorable resolution of the Iran situation could quickly reverse all these present trends.


For $1,810/oz gold we can expect to see oil (WTI) in a range of $108-$110/bbl; silver, $35-$38/oz; and copper, $3.6-$3.8/lb.

Background Notes:

1. My Gold Value Index© (GVI) equals 91.53 this morning down 17.0% from the Oct. 4 high of 109.97 and slightly down from last week (GVI =92.70, 2/17/2012).
2. The GVI, which has been oscillating up and down about its average is beginning to weakly trend higher which is bullish gold, bearish key commodities (except for oil).
3. The gold-to-copper ratio today is 465.86 pounds per ounce and above its 3-month moving average for a second day (today’s average is 464.98 pounds per ounce), the red metal has entered bear country.

Euro-Moly Update

For the moly watchers of this report, you may have noticed that there haven't been any updates on euro-moly oxide prices recently. The link to the Bloomberg site appeared broken so the ole Colonel contacted Editor Claudia Carpenter of London Bloomberg News. Claudia follows this report is my very favorite observer of markets across the pond. She is having their IT folks look into it and kindly provided this update for February:

Euro-moly in US$ per pound (date, price, change, % change):

2/22/12 14.95 --

2/17/12 14.95 --

2/15/12 14.95 --

2/10/12 14.95 +.55 +3.82%

2/ 8/12 14.40 +.30 +2.13%

2/ 3/12 14.10 --

2/ 1/12 14.10 +.05 +0.36%

General Moly (GMO) on European Stainless Producers

I asked General Moly's Investor Relations Director Seth Foreman to comment on European stainless producers (big users of molybdenum as an alloy) given a note I read in Steel Business Briefing (SBB). Below is the discussion, thanks Seth!

EM: Any thoughts on what this is all about?

New stainless giant could end alloy surcharge volatility - Steel Business Breifing (02/23/2012):

If approved by Europe’s competition authorities – and market sources think the merger will probably go through without too much of a mauling – the proposed Outokumpu/Inoxum stainless tie-up will give Europe a clear market leader in a field of three producers in flat rolled stainless. This could provide an opportunity to set a strong agenda on aspects like balancing European commodity stainless sheet supply with demand and pricing. (SBB, 2/23/2012)


GMO: European stainless producers have always suffered from overcapacity and have always struggled to be profitable. Outokumpu has always been a stainless co, but Inoxum is the ThyssenKrupp stainless division. In addition to those two players there is/was the ArcelorMittal APERAM unit as well as a few others that I am struggling to remember right now.

Anyhow, all these stainless guys are being spun out / merged in hopes that overall, as an industry, they can find a way to consolidate, reduce production, and get to a more sustainable market. So I think that is what they are talking about “ending volatility.”

EM: Nice to see the LME 3-month move back up to $33,000/tonne

GMO: Nice little run in the Mo price to start the year.

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $49.05 down 1.07%
Newmont (NEM) $62.24 down 2.54%
McEwen Mining (MUX) 5.75 down 0.69% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.82 down 0.78%
Thompson Creek (TC) $8.96 down 0.11%
Freeport-McMoRan (FCX) $44.47 up 1.58% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.98 up 0.07%
Timberline Resources (TLR) $0.60 up 5.26%

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

ArcelorMittal (MT) $21.63 up 1.50% - global steel producer
POSCO (PKX) $92.51 up 0.88% - 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 283.06, up last report's 256.99 and above the 1-month moving average of 229.04. 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 down $7.4/oz at $1,778.9/oz (April contract, most active)

COMEX silver is down $0.101/oz at $35.455/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 50.173 oz/oz

Silver 1-month CRS© is 0.87% (bullish level); CRS© weak divergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 91.53, down from last report's 92.84 and below its 1-month average of 92.63. Gold value is weakly trending up after moving sideways for most of this month. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,624.0/oz which is $154.9/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 $0.0125/lb at $3.8185/lb (March contract, most active)

The gold-to-copper ratio is 465.86 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is above its 3-month moving average of 464.98 (Cu bearish, Price Domain B)

Copper 1-month CRS© is 1.90% (bullish level); CRS© weak convergence (Cu neutral)

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

Metals Week Average:
US$14.775
As of February 24, 2012
(updated weekly)

Ryan's Notes Average:
US$14.90
As of February 21, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.95/lb

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

US$14.97/lb (US$33,000/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 $108.50
ICE North Sea Brent crude $123.71
Spread (ICE- NYMEX) = $15.21 (last report, $17.37)

Here are the June contracts* with a narrower spread:

NYMEX light sweet crude $109.27
ICE North Sea Brent crude $121.99
Spread (ICE- NYMEX) = $12.72 (last report, $14.45)

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

NYMEX WTI 1-month CRS© is 2.75% (bullish level); CRS© weak divergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $105+ NYMEX in June favoring high oil prices this spring into summer. A front-month spread >$20/bbl is a trouble sign, OK for now.

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 77.4 down from last report's 87.7. 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 up 17.86 to 13,002.55; the S&P 500 is up 4.4 points at 1,367.60

The Eureka Miner's Grubstake Portfolio is down 0.15% at $1,632,650.91 (what's this?).

Cheers,

Colonel Possum

Headline Photograph 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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