The Colonel's Second Warning on Copper; LME Moly UP

Blue Skies Behind Locked Doors?

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 = $1,782.0/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 92.84 (gold value weakly trending up)
Value Adjusted Gold Price© (VAGP) = $1,603.7/oz
COMEX - VAGP = $178.3/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels


Þūnresdæg
Morning Miners!

It is 6:04 AM. Have a cup of Thor's Thorsday Cold Lightning. Our favorite Norseman is making coffee as bad as Old Miner Woden lately, step into the shop and I'll pour you a better cup of Red Label. We need our dear Ruby, it's getting hard to put up with two market bears - I'm wondering if this bear flu is contagious...

The Colonel's Second Warning on Copper

The Report has focused on copper most of this week starting with my first warning on the red metal Tuesday, A Foreboding Alignment in the Copper-Gold Firmament (Kitco news, 2/21/2012). It is still a backbench position but I'm getting some company. This is what the Wall Street Journal said this morning:

Copper, which has been given the nickname “Dr. Copper” for being a bellwether for the health of the global economy, has quietly left the party early. The metal peaked on Feb. 9 after a failed attempt to break the $4-per-pound mark. It has since fallen about 5% to $3.81 a pound, while the Dow Jones Industrial Average has edged up 0.1% and earlier this week flirted with 13000. (Wall Street Journal, 2/23/20120)

Yesterday, the Report made a similar connection with the DOW and stated, "I'm running against the crowd on the near-term prospects for copper price (e.g., Gartman Cu bullish) but I think a correction is coming."

It is scary to run counter to the wisdom of the Commodity King who presently owns equal positions of gold and copper - at least Dennis Gartman stopped adding to his red metal position for the time being!

My thesis has been that the gold-to-copper ratio has been threatening to break its 3-month average from below which is a very bearish indicator in my world. Well pardner, it did this morning: 467.47 lbs of copper per ounce of gold versus an average of 465.82.

One point does not a trend make. The ratio needs to stay above its average for awhile to confirm a bearish condition going forward - nonetheless, a warning sign indeed. Here is an updated chart from my Tuesday Kitco commentary (a larger and more readable plot can be found near the bottom of the blog page):

Here are the key bearish indications updated for this morning's trading in both copper and gold:

1. The gold-to-copper ratio (red-brown triangles and interconnecting lines) is trading this morning at nearly the same level as Sept. 6, 2011 when COMEX gold made its record high of $1,923.7 per ounce (467 pounds-per-ounce versus 468)

2. After the September gold record, copper dropped a dollar in less than a month from roughly $4 per pound to a lowly $3.

3. The current gold-to-copper ratio just broke its 3-month moving average (solid red-brown line) to the upside as shown by the red arrow on the right. This is a bearish direction; 467 pounds per ounce versus an average of 466.

4. The last break from below the 3-month average on Aug. 2, 2011 (red arrow on the left) presaged the U.S. debt downgrade and worsening conditions in Europe followed by the calamitous crash in copper prices. Before the early August break, the gold-to-copper ratio enjoyed a return to levels of late November 2010; a halcyon period when gold- to-copper, -oil and -silver ratios returned to near historical norms after the churn of the 2008-2009 financial crises (e.g. dotted line depicting 363 pounds per ounce on Nov. 26, 2010).

As I said yesterday, "I don't think we are currently at that frightening market threshold [i.e. item 4 post-August 2011 calamity] but high crude prices are sobering and probably kept the DOW from breaking through 13,000 at the close."

This morning the DOW is up 17.56 points at 12,956.23 so it is possible that the DOW will close above the key 13,0000 psychological level today or tomorrow - even with Texas WTI at $106/bbl (global benchmark Brent cruse is presently trading at $123/bbl). COMEX gold is up $10.7 at $1,782.0 per ounce and COMEX copper is down just 2.15 cents at $3.8120 per pound, hanging in there so far.

I hope I'm wrong about the copper correction and continue to hold on to my Freeport-McMoran (FCX) position with both hands - let's see where we end at Friday's close. Stay tuned.

Please do your own research, the Colonel could be dead wrong.

LME Moly UP

Please note in the Copper & Molybdenum Report below that the LME 3-month seller contract added $1,000 per metric ton yesterday making up for some of its recent losses. It is presently at $33,000 per metric ton ($14.97 per pound) just ahead of western spot prices $14.80-$14.90 per pound - a bullish sign.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $49.60 up 0.34%
Newmont (NEM) $63.15 up 0.59%
McEwen Mining (MUX) 5.78 up 1.94% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.77 unchanged
Thompson Creek (TC) $8.96 unchanged
Freeport-McMoRan (FCX) $43.92 down 0.45% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.99 unchanged
Timberline Resources (TLR) $0.60 unchanged

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

ArcelorMittal (MT) $21.11 down 0.47% - global steel producer
POSCO (PKX) $91.39 down 0.49% - 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 246.50, up last report's 244.83 and above the 1-month moving average of 222.50. 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 $10.7/oz at $1,782.0/oz (April contract, most active)

COMEX silver is up $0.567/oz at $34.830/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.163 oz/oz

Silver 1-month CRS© is 0.67% (bullish level); CRS© convergence (Ag bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 92.84, up from last report's 91.93 and above its 1-month average of 92.62. 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 $1,603.7/oz which is $178.3/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 $0.0215/lb at $3.8120/lb (March contract, most active)

The gold-to-copper ratio is 467.47 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish, Price Domain B)

Copper 1-month CRS© is 1.83% (bullish level); CRS© weak convergence (Cu neutral)

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

Metals Week Average:
US$14.80
As of February 20, 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$(n/a)/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 $106.11
ICE North Sea Brent crude $123.48
Spread (ICE- NYMEX) = $17.37 (last report, $15.99)

Here are the June contracts* with a narrower spread:

NYMEX light sweet crude $107.15
ICE North Sea Brent crude $121.60
Spread (ICE- NYMEX) = $14.45 (last report, $13.28)

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

NYMEX WTI 1-month CRS© is 2.58% (bullish level); CRS© convergence (Oil bullish)

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 89.2 up from last report's 87.3. 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 and continuing into 2012.

Stock Market Morning Update

The DOW is up 17.56 to 12,956.23; the S&P 500 is down 1.05 points at 1,356.61

The Eureka Miner's Grubstake Portfolio is up 0.50% at $1,629,917.86 (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