"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.

Thursday, February 9, 2012

Greeks Lift Gold & Copper; Red Metal 2012 Revival?

When I get older losing my hair,
Many years from now,
Will you still be sending me a valentine
Birthday greetings bottle of wine?

If I'd been out till quarter to three
Would you lock the door,
Will you still need me, will you still feed me,
When I'm sixty-four?
Paul McCartney - 1966

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 = $1,747.6/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 92.07 (gold value resumes declining trend)
Value Adjusted Gold Price© (VAGP) = $1,585.9
COMEX - VAGP = $161.7/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels

Morning Miners!

It is 6:18 AM. Have a little uzo in Thor's Euro Thunder java. Things may be looking up a bit across the pond...

Greeks Lift Gold & Copper; Red Metal 2012 Revival?

News that Greek leaders agreed on an austerity package to comply with demands set by international creditors for another bailout deal hit the wires at 5:55 AM PT. COMEX gold went from $1,736.40/oz to $1,748.90/oz by 6:20 AM PT; COMEX copper from $3.920/lb to a new 2012 high of $3.9710/lb; euro is trading up at $1.328, the U.S.dollar is down.

These are not huge price moves but they illustrate two important facts about today's headline driven markets: 1) good news for Europe is positive for the euro and gold - negative for the U.S. dollar and, 2) gold continues to run with the base metals (rolling 3-month gold-copper correlation is 0.40 and rising).

Although copper has nearly returned to the psychologically important threshold of $4/lb, unexpectedly high inflation data today from China has capped its bounce. As Reuters reports this morning, year-on-year inflation for January jumped to 4.5%:

METALS-Copper gains on Greece, strong euro (Reuters, Feb 9, 2012)

Another sobering fact is that the gold-to-copper ratio, although improving, is still a lofty 441 lbs/oz. Ratios above 400 lbs/oz are considered by this report to be at recession levels based on recent history. The red metal market is telling us that although things are picking up in the U.S., Europe will probably not escape a recessionary period and China demand has softened. The pecking order for world copper demand is China (roughly 40 percent of refined copper demand last year) followed by the U.S. and then Europe (dominated by German demand).

Copper still appears a good story for 2012 with supply rebounding but still facing deficits in 2012 as reported by Allen Sykora of Kitco news:

Market Nuggets:Barclays: 2012 Copper-Mine Supply To Rebound After Decline In 2011 (Allen Sykora, Kitco News, 09 February 2012, 8:16 a.m. ET)

Improving times for the red metal are evidenced by the healthy 26.5% rise of copper giant Freeport-McMoran (FCX) share price from the end of 2011 to yesterday's close. FCX is trading up an additional 21 cents this morning at $46.74. FCX pays a 2.15% dividend, sure beats a bank CD.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $49.64 up 1.16%
Newmont (NEM) $61.16 up 0.76%
McEwen Mining (MUX) 5.58 up 1.09% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $4.00 up 0.25%
Thompson Creek (TC) $9.34 unchanged
Freeport-McMoRan (FCX) $46.74 up 0.45% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.12 up 0.07%
Timberline Resources (TLR) $0.51 unchanged

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

ArcelorMittal (MT) $23.42 up 0.21% - global steel producer
POSCO (PKX) $91.90 up 0.77% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) was re-calibrated last night to reflect current 200-day moving averages for benchmark miners. This has the effect of lifting the EMI from yesterday's mid-200 level to +300-levels.

The EMI is above-par at 316.78, up down last report's 322.31 (after re-calibration) and above the 1-month moving average of 182.75. 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 up $16.3/oz at $1,747.6/oz (April contract, most active)

COMEX silver is up $0.586/oz at $34.290/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 50.965 oz/oz

Silver 1-month CRS© is 2.72% (bullish level); weak convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 92.07, down from last report's 92.26 and above its 1-month average of 92.44. The declining gold value trend is re-established. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,578.5/oz which is $164.4/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 0.0510/lb at $3.9605/lb (March contract, most active)

The gold-to-copper ratio is 441.26 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 1.94% (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 6, 2012
(updated weekly)

Ryan's Notes Average:
As of February 7, 2012
(updated twice weekly)

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

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

US$14.79/lb (US$32,600/metric ton)

Daily Oil Watch

Latest Nevada Fuel Prices (click this link)

A faithful friend of this report in Mumbai sent this insightful article on China, Iran and oil:

China buys up Saudi, Russian oil to squeeze Iran (Published on Wed, Feb 08, 2012, Reuters)

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 $99.90
ICE North Sea Brent crude $118.33
Spread (ICE- NYMEX) = $18.43 (last report, $16.57)

Here are the May contracts* with a narrower spread:

NYMEX light sweet crude $100.81
ICE North Sea Brent crude $117.46
Spread (ICE- NYMEX) = $16.65 (last report, $14.79)

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

NYMEX WTI 1-month CRS© is 3.62% (bearish level); convergence (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 83.8 up from last report's 78.6. 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 35.12 to 12,919.07; the S&P 500 is up 2.01 points at 1,351.97

The Eureka Miner's Grubstake Portfolio is up 0.56% at $1,628,307.23 (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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