Miner's Unchained for 2012 or Another Brick in the Wall?

The Cask of Amontillado

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 = $1,720.5/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 93.22 (rising gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,542.2
COMEX - VAGP = $178.3/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 Monday cup of Edgar Allen Poe. The Colonel doesn't want to start the week in a dark mood but today's headline photo reminded me of Poe's scary tale, The Cask of Amontillado. The miners in 2011 were like Poe's unfortunate Fortunato chained in a dark chamber while his friend Montresor walled up the only exit with bricks and mortar. To complete the metaphor, the evil Montresor reminds me of the sovereign debt overhang in Western economies that has entombed commodity and broader markets for many months...

Miner's unchained for 2012?

2012 has been a welcome exception so far with miners breaking chains to rise above the 100-level as measured by this report's Eureka Miner's Index© (EMI). An EMI that sustains above the 100-level is bullish for miners; today its at a healthy 222.8 - October plumbed a multi-year low of 22.88. Local miners Barrick Gold, McEwen Mining (formerly US Gold) and General Moly have all enjoyed a substantial new year bounce:

Barrick (ABX) 45.25 (12/30) 49.07 (Friday's close, 2/03) up 8.4%
McEwen Mining (MUX) 3.36 (12/30) 5.76 (Friday's close, 2/03) up 71.4%
General Moly (GMO) 3.09 (12/30) 4.08 (Friday's close, 2/03) up 32.0%

...or another brick in the wall?

Last week it looked like a Greek debt deal to avoid a disorderly default on its debts next month was imminent. Markets rallied and were pushed even higher by an exceptionally good U.S. labor report Friday. Talks between the Greeks and their European partners, International Monetary Fund and private creditors has still resulted in no deal. This morning, 16 of 19 global markets are in the red with gold, silver and copper in retreat. Nuts, another brick in the wall.

But the mortar is still wet and a Greek deal followed by a comprehensive plan for European debt resolution would not only break the chains but blow bricks out the mineshaft. It would be terrific to return markets to good ole supply and demand fundamentals. A Europe fix, a U.S. congress that effectively addresses our own debt issues and reduced tensions with Iran could result in a very decent year for the mining sector. There is still plenty of global demand out there for raw materials we just need fewer evil Montresors.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $48.94 down 0.26%
Newmont (NEM) $60.75 down 0.72%
McEwen Mining (MUX) 5.67 down 1.56% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $4.03 down 1.23%
Thompson Creek (TC) $9.30 down 0.64%
Freeport-McMoRan (FCX) $46.25 down 0.49% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.04 down 0.40%
Timberline Resources (TLR) $0.53 unchanged

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

ArcelorMittal (MT) $21.15 down 2.71% - global steel producer
POSCO (PKX) $91.78 down 2.41% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is above-par at 222.76, down from last report's 238.19 and above the 1-month moving average of 156.57. 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.

Here is the Eureka Miner's Index© (EMI) through Friday's close (a larger more readable plot is near the bottom of the blog page):

Today's EMI is remains solidly above the 100-level. The 1-month moving average is above this key level also, a necessary condition for returning our miners to bull pasture. Any change in these trends will be monitored carefully, so far so good.

Gold & Silver Report

This morning's...

COMEX gold is down $19.8/oz at $1,720.5/oz (April contract, most active)

COMEX silver is down $0.409/oz at $33.340/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.605 oz/oz

Silver 1-month CRS© is 3.17% (bullish level); stalled convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 93.22, down from last report's 93.31 and above its 1-month average of 92.52. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,542.2/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.

The Eureka Miner’s Gold Value Index© (GVI) reversed its downward trend last week. Here is plot of the GVI at Friday's close (also near the bottom of the blog page):

To get the metals & miners firmly back on their feet, we need gold to give up more relative value to copper, oil and silver. Remember, the GVI and EMI typically (but not always) have an inverse relation; as the GVI falls, the EMI rises. After last week's GVI reversal, both the GVI and the EMI are now trending higher which is the exception to the rule - either the miners are due for a correction or the gold value reversal to the upside is temporary. Presently, the GVI at 93.22 is above an average of 92.52 and down 15.2% from its 2010-2011 high of 109.97.

Copper & Molybdenum Report

This morning's...

COMEX copper is down 0.0520/lb at $3.8490/lb (March contract, most active)

The gold-to-copper ratio is 447.00 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 2.95% (bullish level); weak divergence (Cu neutral)

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

Metals Week Average:
US$14.00
As of January 30, 2012
(updated weekly)

Ryan's Notes Average:
US$14.075
As of January 31, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.10/lb

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 $97.20
ICE North Sea Brent crude $114.59
Spread (ICE- NYMEX) = $17.39 (last report, $16.77)

Here are the May contracts* with a narrower spread:

NYMEX light sweet crude $98.18
ICE North Sea Brent crude $114.06
Spread (ICE- NYMEX) = $15.88 (last report, $15.21)

* 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 79.0 up from last report's 75.6. 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 down 43.25 to 12,818.98; the S&P 500 is down 3.76 points at 1341.14

The Eureka Miner's Grubstake Portfolio is down 0.83% at $1,614,846.28 (what's this?).

Cheers,

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