"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.

Wednesday, February 29, 2012

Yo-Yo Gold Drops $70; General Moly Places Haul Truck Fleet Order

CAT 793s out for a spin

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: Silver to Gold, “Whither Thou Goest…” (02/27/2011)

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

Latest Nevada Fuel Prices (click this link)

This morning's...
COMEX Gold price = $1,736.1/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 89.00 (gold value weakly trending down)
Value Adjusted Gold Price© (VAGP) = $1,629.9/oz
COMEX - VAGP = $106.2/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio is falling away from its 3-month average (Cu bullish)



Wōdnesdæg
Morning Miners!

It is 7:31 AM. Happy Leap Day! Have a cup of CAT 793 Java, you might need two hands to pick up that big yellow cup. Old Miner Woden and I have been been up for a long time trying to digest all the news that is pushing gold around like a yo-yo.

The European Central Bank announced their second Long Term Refinancing Operation (LTRO or "lee-tro") in the wee hours. These are more 3-year loans to firewall the European banks from sovereign debt Armageddon. A few hours later the Commerce Department revised higher its estimate for U.S. GDP in the fourth quarter last year to 3.0%, from an initial estimate of 2.8%. At least all appears quiet in the Persian Gulf for the time being as oil prices continue to fall.

Our last news event started at 7:00 AM PT when Federal Reserve Chairman Ben Bernanke began his semiannual 2-day testimony to the House Financial Committee. This is on CNBC Business News while I'm typing this report. Whatever he is saying seems to have turned another rally in the broader markets to the downside and gold in the can. Before we try to analyze all this let's start with some good news...

General Moly Places Haul Truck Fleet Order with Caterpillar

General Moly (GMO) announced yesterday afternoon that they placed an order for "18 Caterpillar 793 Haul Trucks (250 tons of payload capacity each) through Caterpillar's Nevada-based dealer, Cashman Equipment Company. All 18 trucks will be delivered to and commissioned at the Mt. Hope site beginning in late 2013 and early 2014 to complete mine pre-operation development. The total value of the Caterpillar order, including support equipment, is anticipated to be approximately $75 million."

Here's a link to the entire press release:

General Moly Places Haul Truck Fleet Order with Caterpillar (Press release, 2/29/2012)

If you want to appreciate the size and power of the CAT 793 monster truck, checkout this YouTube video presumably filmed in Australia:

Monster Truck

Pretty awesome, where did you park your pickup?

Gold Yo-Yo

This morning was a terrific example of what headlines do to the price of gold. There are two parts to this commentary:

PART I - Written before Bernanke testimony, this is what the Colonel observed:

Two events and one nonevent this morning tell the gold story:

1. ECB LTRO near consensus (529.5B versus 500B euros) wiggled gold but price swings ended up fairly neutral:

5:30 AM high $1,789.4/oz
LTRO announcement
5:45 AM low 1,782.2/oz
then roughly $1,787/oz which is where it was earlier in the morning trading

2. Better-than-expected U.S. GDP revision for 4Q11

8:30 AM gold drops to $1,779.5
then comes back to $1,783.2/oz within $4/oz of where it was after LTRO news settled out.

3. Nonevent = Persian Gulf relatively calm today

I continue to believe the Persian Gulf situation is the greatest potential gold driver driver and it has quieted down some with WTI & Brent off their highs.

Conclusion: Europe news is fairly gold neutral (so far); U.S. doing better is slightly gold negative

With respect to key commodities:

Silver continues to strengthen relative to gold
Copper no longer appears to be on the brink of bearish correction
Gold:oil rolling correlation is continuing to strengthen on a 3-month basis (+0.46) supporting my Persian Gulf thesis.

PART II - Written after Bernanke begins his testimony...

Chairman Bernanke started talking at 7:00 AM and COMEX Gold DROPPED $67/oz by 7:50 AM to $1,720.20/oz. He's still talking and gold has come up up a bit to trade presently at $1,736.1/oz. Silver took a pretty good hit presently down $1.225/oz at $35.980/oz (the Colonel's stop limit on silver triggered minutes after Bernanke began speaking fortunately preserving recent white metal profits).

So what is Uncle Ben saying? Apparently some market participants believe his comments so far have diminished greatly another round of quantitative easing (i.e. additional QE is generally perceived to be bullish for gold and commodities). The other force is end-of-month profit-taking that may have started regardless of the Fed chairman’s remarks. Personally, I haven't heard anything too earth shattering coming from the television other than he thinks gas prices will settle back down and the employment picture is getting better than expected.

Go figure...yo-yo gold on Leap Day. Looks like the miners are getting hammered too (see below). By-the-by, my observations above remain materially unchanged:

Gold with respect to key commodities:

Silver continues to strengthen relative to gold
Copper no longer appears to be on the brink of bearish correction
Gold:oil rolling correlation is continuing to strengthen on a 3-month basis (+0.45 vs 0.46 reported above)

Stay tuned, pardner. Let's go fire up a 793...

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $47.84 down 3.28%
Newmont (NEM) $59.66 down 3.77%
McEwen Mining (MUX) 5.42 down 4.75% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.50 down 1.69%
Thompson Creek (TC) $7.18 down 2.45%
Freeport-McMoRan (FCX) $42.72 down 2.15% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.18 up 0.13%
Timberline Resources (TLR) $0.58 down 3.33%

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

ArcelorMittal (MT) $21.15 down 2.40% - global steel producer
POSCO (PKX) $92.30 up 0.05% - 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 209.85, down from last report's 226.61 and below the 1-month moving average of 232.41. 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 $52.3/oz at $1,736.1/oz (April contract, most active)

COMEX silver is down $1.225/oz at $35.980/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 48.252 oz/oz

Silver 1-month CRS© is 1.83% (bullish level); CRS© divergent (bullish compression)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 89.00, down from last report's 90.37 and below its 1-month average of 92.38. Gold value is now weakly trending down after briefly trending up mid-month. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,629.9/oz which is $106.2/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 $0.0145/lb at $3.9070/lb (May contract, most active)

The gold-to-copper ratio is 444.36 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is now falling away from its 3-month moving average of 462.16 (Cu bullish in Price Domain B)

Copper 1-month CRS© is 1.67% (bullish level); CRS© convergence (Cu bullish)

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

Metals Week Average:
US$14.775
As of February 27, 2012
(updated weekly)

Ryan's Notes Average:
US$14.70
As of February 28, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.82/lb

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

US$14.82/lb (US$32,500/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 $120/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 $105.82
ICE North Sea Brent crude $122.07
Spread (ICE- NYMEX) = $16.25 (last report, $15.17)

Here are the June contracts* with a narrower spread:

NYMEX light sweet crude $106.71
ICE North Sea Brent crude $120.28
Spread (ICE- NYMEX) = $13.57(last report, $12.20)

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

NYMEX WTI 1-month CRS© is 3.19% (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 81.1 up from last report's 79.1. 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 40.41 to 12,964.71; the S&P 500 is down 3.94 points at 1,368.24

The Eureka Miner's Grubstake Portfolio is down 3.20% at $1,563,666.35 (what's this?).

Cheers,

Colonel Possum


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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