"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, March 30, 2012

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

Eureka, Nevada seen from South Ranch

Latest Nevada Gas Prices (click this link)

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 & Gold, “Situation Normal…” (03/26/2012)

My latest Kitco commentary: Copper Bids Adieu to Gold and Silver (3/19/2012)

This morning's...
COMEX Gold price = $1,669.5/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.90 (gold value pause from trending down)
Value Adjusted Gold Price© (VAGP) = $1,569.2/oz
COMEX - VAGP = $100.3/oz; gold is trading at a small premium to key commodities; the gold-to-copper ratio remains below its 3-month average, compression stalling (Cu neutral)



Morning Miners!

It is 5:51 AM. Have an end-of-quarter TGIF cup of Raine's delicious Red Label. What a ride.

Copper (orange) has beat gold (blue) this quarter but both remain positive for the year-to-date; copper up 11% to gold's 6%.


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

Here is my morning's input to the Weekly Kitco Gold Survey:

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Up, $1,690 per ounce target assuming no major geopolitical shocks.

Q. Why?

A. We continue to witness a major re-pricing exercise between precious and base metals to a global outlook in flux: better-than expected domestic recovery, lower-than-expected Chinese demand for raw materials and a Europe that has stabilized but moves forward with serious challenges. Lacking a geopolitical shock, the technical charts don’t favor gold but short-term dollar weakness and a resumption of physical demand in India may give the yellow metal a boost next week. Gold-to-silver and gold-to-copper ratios are uncommonly stable with the former near historical norms. There may be some weakness in copper next week but the trend is intact for the gold-to-copper ratio to bullishly fall below 400 pounds per ounce in late spring/early summer.

For $1,690 per ounce gold we can expect to see silver in a range of $32-$34 per ounce; and copper, $3.7-$3.9 per pound.


Background Notes:

1. Gold may move up to its 200-day moving average next week but will probably not break it with any conviction. My target is therefore $1,690 per ounce.

2. My Gold Value Index© (GVI) equals 88.90 this morning down 19.2% from the Oct. 4 high of 109.97, and at levels of early August, 2011.

3. The GVI trend lower has slowed and may trend side-ways in the short-term which is a bearish to neutral indication for key commodities.

4. The gold-to-copper ratio today is 434.77 pounds per ounce and below its 3-month moving average of 447.23 pounds per ounce. Remaining below this average and heading for the 400 pounds per ounce level is bullish for copper in the near-term. 3-month rolling correlation is +0.65, relative volatility is 1.23X gold and price sensitivity (beta) is 0.80. Importantly, the 1-month correlation has returned positive at +0.31 after a brief bearish sojourn into negative territory.

5. The gold-to-silver ratio is near historical norms at 51.3; 3-month rolling correlation is +0.89, relative volatility is 1.95X gold and price sensitivity (beta) is 1.73

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $43.45 up 0.74%
Newmont (NEM) $50.96 down 0.74%
McEwen Mining (MUX) 4.19 up 1.95% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.37 up 1.20%
Thompson Creek (TC) $6.75 down 1.03%
Freeport-McMoRan (FCX) $37.57 down 0.11% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.50 unchanged

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

ArcelorMittal (MT) $19.04 down 0.05% - global steel producer
POSCO (PKX) $83.72 up 0.56% - 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 173.56, up from last report's 150.56 and below the 1-month moving average of 185.80. The 1-month average is falling but still 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 $14.6/oz at $1,669.5/oz (June contract, most active)

COMEX silver is up $0.548/oz at $32.540/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.306 oz/oz

Silver 1-month CRS© is 1.50% (bullish level); bullish compression stalled (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.90, up from last report's 88.73 and just above its 1-month average of 88.04. Gold value is taking a pause from trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,569.2/oz which is $100.3/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 up $0.0.0435/lb at $3.8400/lb (May contract, most active)

The gold-to-copper ratio is 434.77 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 447.23 (Although still below its 3-month average, a Cu bullish trend has stalled in Price Domain B)

Copper 1-month CRS© is 1.59% (bullish level); very stable ratio; 1-month & 3-month < 3% (Cu bullish)

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

Metals Week Average:
US$14.00
As of March 26, 2012
(updated weekly)

Ryan's Notes Average:
US$14.00
As of Mar 27, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.13/lb

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

US$14.06/lb (US$31,000/metric ton)

Daily Oil Watch

Latest Nevada Gas Prices (click this link)

Understanding the Price of Oil (click this link for a quick overview on crude oil prices)

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 $103.44
ICE North Sea Brent crude $123.33
Spread (ICE- NYMEX) = $19.89 (last report, $19.02)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $104.47
ICE North Sea Brent crude $121.79
Spread (ICE- NYMEX) = $17.32 (last report, $16.57)

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

NYMEX WTI 1-month CRS© is 1.50% (bullish level); CRS© weak convergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $100+ NYMEX in July favoring high oil prices this spring into summer. A front-month spread between Brent and WTI >$20/bbl is a trouble sign, getting pretty close to scary.

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 is 72.0 down from last report's 77.9. A level above 200 is time for serious concern - we are now well below that level. The highest level recorded since inception was 271.0 Aug. 9, 2011; the lowest level is 65.1 on Mar. 13, 2012

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 49.34 to 13,195.16; the S&P 500 is up 4.61 points at 1,407.89

The Eureka Miner's Grubstake Portfolio is up 0.42% at $1,429,027.25 (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

Thursday, March 29, 2012

The Eureka Miner Sounds an Alarm; What about Palladium?

Barren on Blue, Eureka, Nevada

Latest Nevada Gas Prices (click this link)

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 & Gold, “Situation Normal…” (03/26/2012)

My latest Kitco commentary: Copper Bids Adieu to Gold and Silver (3/19/2012)

This morning's...
COMEX Gold price = $1,663.2/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.73 (gold value pause from trending down)
Value Adjusted Gold Price© (VAGP) = $1,566.3/oz
COMEX - VAGP = $96.9/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio remains below its 3-month average, compression stalling (Cu neutral)



Þūnresdæg
Morning Miners!

It is 6:15 AM. Have a cup of Thor's Rumble in the Mineshaft - guaranteed to shake up your lower levels. Our favorite Norseman loves to hear alarm bells and there is one ringing loudly in our ears this morning...

The Eureka Miner Sounds an Alarm

No Chicken Little, the sky isn't falling but it is wise to not ignore alarm bells. Nineteen of nineteen global markets this report monitors are in the red this morning. The Wall Street Journal rather blandly describes the world's downbeat mood as our markets start the day, "U.S. stock opened lower, extending losses into a third straight day, as a domestic economic growth reading missed expectations and broad weakness in overseas markets kept investors on the defensive."

OK, not the end of the world. It may be a lot of end-of-month and end-of-quarter squaring of positions that has red ink flowing...and not everything is red. For the moment at least COMEX copper is up a penny at $3.8055 per pound and COMEX gold is up nearly 3 bucks at $1,663.2 per ounce recovering some of the losses this week. Maybe it's like today's headline picture; the leaves are off the rally but there is blue sky in the background for 2012 - more on that in a moment.

The thing that does have the Colonel's attention is our trusty Eureka Miner's Index© (EMI). As readers of this report know the EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County and surrounding areas. It includes three benchmark miners, interest rates and market volatility together with the prices of oil, gold, copper and silver. Here's a chart of the EMI from June 30 of last year to this morning (a larger and more readable plot can be found at the bottom of this blog page):


An EMI (magenta line) of 100 is the dividing line between hot and cold markets for what Eureka miners do above and below ground. On Oct. 4, 2011 we reached a very chilly, multi-year low temperature of 22.88. At the beginning of this year the EMI warmed quickly up above 100 and reached a high temperature of 322.3 on Feb. 8. Unfortunately the EMI has been trending cooler ever since.

The first sign of trouble was when the EMI fell below its 1-month moving average and plumbed 140.0 on March 6. That wasn't good news but at least the EMI didn't drop below the dotted blue trend line from the Oct. 4 low. Since then the EMI has skirted both the average and the trend but this morning it fell below both with conviction registering a chilly 150.6.

You may reasonably ask what's all the fuss? The EMI is still above the key 100-level and you may be right that once the new quarter clicks in gear we'll be back above the average and trend to reach new highs for the year.

Breaking lower multi-month trends is potentially very dangerous and is the reason the alarm bell ringing. As a wise market watcher once said, "why that's so is beyond our ken to know."

Let's hope the charts are wrong - after all another wise man said, "there are a lot of ships at the bottom of the sea and they all have chart rooms."

What about Palladium?

The Eureka Miner typically follows the popular minerals mined in Northern Nevada. I don't believe palladium exists out here in any abundance but it and platinum are a widely used in the automobile industry as autocatalysts to convert emissions into less harmful substances. For a little change of pace, checkout this excellent London Bloomberg News article authored by Nicholas Larkin and Debarati Roy and edited by Claudia Carpenter, a long standing friend of this report:

Palladium Seen Beating Gold With Record Car Sales: Commodities (By Nicholas Larkin and Debarati Roy, London Bloomberg News - Mar 29, 2012 5:35 AM PT)

The article is terrific because it not only educates the reader on palladium but also provides some forecasts for gold and silver that see $1,900 per ounce gold and $36 per ounce silver sometime in the fourth quarter of 2012. There are even two video clips with experts thrown in for good measure - maybe there is indeed some blue sky ahead for 2012!

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $42.61 down 1.25%
Newmont (NEM) $50.75 down 1.46%
McEwen Mining (MUX) 4.05 down 1.94% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.33 up 0.30%
Thompson Creek (TC) $6.67 down 0.15%
Freeport-McMoRan (FCX) $37.32 down 0.11% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.49 down 2.08%

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

ArcelorMittal (MT) $18.92 up 0.48% - global steel producer
POSCO (PKX) $82.79 down 0.40% - 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 150.56, down from last report's 173.97 and below the 1-month moving average of 187.44. The 1-month average is falling but still 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 $2.7/oz at $1,663.2/oz (April contract, most active)

COMEX silver is up $0.159/oz at $31.990/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.991 oz/oz

Silver 1-month CRS© is 1.82% (bullish level); bullish compression stalled (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.73, down from last report's 88.95 and just above its 1-month average of 88.04. Gold value is taking a pause from trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,566.3/oz which is $96.9/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 $0.0.0130/lb at $3.8055/lb (May contract, most active)

The gold-to-copper ratio is 437.05 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 447.58 (Although still below its 3-month average, a Cu bullish trend has stalled in Price Domain B)

Copper 1-month CRS© is 1.63% (bullish level); very stable ratio; 1-month & 3-month < 3% (Cu bullish)

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

Metals Week Average:
US$14.00
As of March 26, 2012
(updated weekly)

Ryan's Notes Average:
US$14.00
As of Mar 27, 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$14.06/lb (US$31,000/metric ton)

Daily Oil Watch

Latest Nevada Gas Prices (click this link)
Understanding the Price of Oil (click this link for a quick overview on crude oil prices)

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 $105.43
ICE North Sea Brent crude $123.93
Spread (ICE- NYMEX) = $19.02 (last report, $18.50)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $106.18
ICE North Sea Brent crude $122.75
Spread (ICE- NYMEX) = $16.57 (last report, $16.17)

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

NYMEX WTI 1-month CRS© is 1.66% (bullish level); CRS© weak convergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $105+ NYMEX in July favoring high oil prices this spring into summer. A front-month spread between Brent and WTI >$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 is 77.9 up from last report's 73.2. A level above 200 is time for serious concern - we are now well below that level. The highest level recorded since inception was 271.0 Aug. 9, 2011; the lowest level is 65.1 on Mar. 13, 2012

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 44.01 to 13,082.20; the S&P 500 is down 7.60 points at 1,397.94

The Eureka Miner's Grubstake Portfolio is down 0.40% at $1,410,812.02 (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

Wednesday, March 28, 2012

Shanghai Whacks Metals & Miners; Gold & Dollar Swap Places?

Paleozoic Beach Front Property, Devil's Gate, Eureka, Nevada

Latest Nevada Gas Prices (click this link)

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 & Gold, “Situation Normal…” (03/26/2012)

My latest Kitco commentary: Copper Bids Adieu to Gold and Silver (3/19/2012)

This morning's...
COMEX Gold price = $1,674.1/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.95 (gold value pause from trending down)
Value Adjusted Gold Price© (VAGP) = $1,572.6/oz
COMEX - VAGP = $101.5/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio remains below its 3-month average, compression stalling (Cu neutral)



Wōdnesdæg
Morning Miners!

It is 5:48 AM. Have a cup of Woden's awful Cold Reality coffee. The Colonel doesn't have a backup, Old Miner Woden hid our other coffee pot. Our market bear is unhappy this morning even though 15 of 19 global markets are in the red. You see, gold is taking a hit too and that puts the old codger in a dark mood...I guess there are market days when no one is all that chipper...

Shanghai Whacks Metals & Miners

Chinese traders bailed out of metal and mining stocks at the Shanghai exchange this morning. The Shanghai Composite suffered its biggest drop in four months as worries mount that a recovery in the domestic economy is not as rosy as many thought. A hard landing for the Chinese economy would probably be the worst situation for raw materials and mining companies globally. It hasn't happened and may well be averted but days like this remind everyone how tenuous the global recovery really is. Nuts.

Gold & Dollar Swap Places?

The next bit is probably what sent Woden packing to his cave with my spare coffee pot. There is technical evidence that gold and the U.S. dollar are trading places. Exhibit A is a comparison of 100-, 200- and 300-day moving averages. We'll use the popular SPDR Gold Trust (GLD) and PowerShares DB US Dollar Index Bullish Fund (UUP) for the analysis - the former tracks gold prices; the latter the US Dollar Index.

In terms of the GLD & UUP, here are the moving averages:

100-day GLD 164.53 UUP 22.17

200-day GLD 163.7 UUP 21.84

300-day GLD 156.3 UUP 21.82

Yesterday GLD closed at 163.24 below its 100- & 200-day averages.

Yesterday UUP closed at 21.96 above its 200- & 300-day averages.

An interesting symmetry of fortunes favoring the US dollar technically on a weakening yen and sloppy euro. Might be a rough road for gold if GLD falls below its 300-day & UUP rises above its 100-day in the coming weeks. Yesterday, I bought UUP to hedge a GLD position. Please do your own research, this could prove to be a dumb idea but...

Global Editor Debbie Carlson of Kitco News posted this market nugget:

Market Nuggets: Gold Remains Under Moving Averages, Could Stay Under Pressure – MKS Capital (Debbie Carlson, Kitco Market Nuggets, 3/27/20120)

Here are two one-year charts of GLD and UUP (blue lines) versus the 300-day support for gold and the 100-day challenge for the US dollar index (red lines).



If gold falls below and UUP rises above their respective red lines all havoc may break loose for gold prices.

Exhibit B is waning physical gold demand in India with another Carlson Nugget:

Market Nuggets: Indian Protests Over Gold Taxes Harms Metal's Price (Debbie Carlson, Kitco Market Nuggets, 3/27/20120)

Debbie's comment to the ole Colonel this morning puts it in a nutshell,"Technical factors aren't favoring gold. Neither is poor physical demand."

Amen.

By-the-by the Eureka Miner's Index© (EMI) is testing its October 4, 2011 lower trend line as I write this blog - not a good sign at all for miners going forward.

I think I'll join Woden in his cave today, my optimism for markets will surely return tomorrow...

Oh..here's something good - at least Goldman is upbeat on gold today!

Market Nuggets: Goldman Maintains Its 12-Month Gold Price Forecast Of $1,940/Oz (Debbie Carlson, Kitco Market Nuggets, 3/27/20120)

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $43.56 down 0.55%
Newmont (NEM) $52.37 down 0.23%
McEwen Mining (MUX) 4.13 down 2.59% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.37 down 0.30%
Thompson Creek (TC) $6.87 down 0.72%
Freeport-McMoRan (FCX) $37.82 down 2.40% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.50 up 2.04%

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

ArcelorMittal (MT) $19.23 down 1.23% - global steel producer
POSCO (PKX) $83.19 down 2.14% - 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 173.97, down from last report's 201.15 and below the 1-month moving average of 190.90. The 1-month average is falling but still 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 $10.8/oz at $1,674.1/oz (April contract, most active)

COMEX silver is down $0.191/oz at $32.425/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.630 oz/oz

Silver 1-month CRS© is 1.82% (bullish level); CRS© convergence (Ag bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.95, up from last report's 88.26 and just above its 1-month average of 88.12. Gold value is taking a pause from trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,572.6/oz which is $101.5/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 $0.0.0765/lb at $3.8035/lb (May contract, most active)

The gold-to-copper ratio is 440.15 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 447.87 (Although still below its 3-month, Cu bullish trend has stalled in Price Domain B)

Copper 1-month CRS© is 1.85% (bullish level); very stable ratio; 1-month & 3-month < 3% (Cu neutral)

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

Metals Week Average:
US$14.00
As of March 26, 2012
(updated weekly)

Ryan's Notes Average:
US$14.00
As of Mar 23, 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$14.06/lb (US$31,000/metric ton)

Daily Oil Watch

Latest Nevada Gas Prices (click this link)
Understanding the Price of Oil (click this link for a quick overview on crude oil prices)

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 $105.43
ICE North Sea Brent crude $123.93
Spread (ICE- NYMEX) = $18.50 (last report, $18.48)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $106.47
ICE North Sea Brent crude $122.64
Spread (ICE- NYMEX) = $16.17 (last report, $16.06)

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

NYMEX WTI 1-month CRS© is 1.92% (bullish level); CRS© weak divergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $105+ NYMEX in July favoring high oil prices this spring into summer. A front-month spread between Brent and WTI >$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 is 73.2 up from last report's 70.2. A level above 200 is time for serious concern - we are now well below that level. The highest level recorded since inception was 271.0 Aug. 9, 2011; the lowest level is 65.1 on Mar. 13, 2012

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 1.09 to 13,196.64; the S&P 500 is down 0.90 points at 1,411.62

The Eureka Miner's Grubstake Portfolio is down 0.90% at $1,432,488.83 (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

Tuesday, March 27, 2012

Understanding the Price of Oil

Alaskite columnar formations, Devil's Gate, Eureka, Nevada

Latest Nevada Gas Prices (click this link)

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 & Gold, “Situation Normal…” (03/26/2012)

My latest Kitco commentary: Copper Bids Adieu to Gold and Silver (3/19/2012)

This morning's...
COMEX Gold price = $1,692.6/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.26 (gold value pause from trending down)
Value Adjusted Gold Price© (VAGP) = $1,602.4/oz
COMEX - VAGP = $90.2/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio remains below its 3-month average, compression stalling (Cu neutral)



Morning Miners!

It is 5:51 AM. Have a steaming cup of Ruby T's Bull Run Java, good to the last drop. On a week when the broader markets are up and away breaking multi-year highs, the Colonel hates to bring up a party-pooper subject. If you've just filled up your tank, you know what I'm talking about...

Understanding the Price of Oil

This report has carried a link to Nevada gas prices just below the headline photograph ever since prices started to head north earlier this year. Of course, the big culprit in the rise has been the price of crude oil. Prices have shot up with escalating tensions in the Middle East, notably Iran the and the fear that there could be an interruption in supply coming out of the Persian Gulf region. Let's break this down into pieces and understand what today's price of oil is really telling us.

First, here are the latest Nevada gasoline prices this morning:

Highest $4.66/gal Exxon, 217 Kingsbury Grade near US-50
Lowest $3.67/gal Shell, 710 W Front St near Circle Way, Battle Mountain

The average Nevada price is $3.962/gal compared to a national average of $3.820/gal. Ouch.

In recent years, the cost of crude oil has become an ever growing factor in the price of gasoline and other oil derivatives dwarfing, for example, refining costs. There are two popular benchmarks for crude oil prices: North Sea Brent crude on the ICE futures exchange and Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX. The former is considered a global benchmark and the latter, a price gauge for domestic production. Here's a 10-year chart of Brent crude oil prices:

On February 1st, 2011, we identified North Sea Brent crude oil to be a good barometer for the unfolding crises in the Middle East and North Africa (MENA). At the time all eyes were on Libya, today the next big conflict could be in the Persian Gulf.

Prior to the 2011 "Arab Spring" the two benchmarks were typically very close in price. Since then there has been a significant spread between Brent and WTI. This morning the most active ICE futures contract is trading at a sobering $125.71/bbl compared to NYMEX WTI at $107.23/bbl - a spread of $18.48/bbl. This report strikes the warning bell when the spread exceeds $20/bbl which occurred during the height of the Libyan crisis.

One way to understand the spread, which lately some call the "Iran premium", is to compare the price of crude to the price of gold. If we divide today's COMEX price of gold at $1,692.6 per ounce by the price of NYMEX WTI the ratio is 15.8 barrels per ounce of gold. Interestingly, this is very close to 16 barrels per ounce considered by many to be a "historically normal" value. Even though most folks think $107/bbl oil is an absurdly high price for the gooey stuff, its price relative to gold is fairly valued historically.

This is not so when we do the same math for Brent crude - that gold-to-oil ratio is 13.4 barrels per ounce, a full 16% below the norm. When oil prices peaked in April, 2011 the WTI ratio also approached these levels with a low of 13.1 barrels per ounce. If a geopolitical shock drives us down to this level again, our domestic benchmark could easily rocket to $129/bbl given today's price of gold (i.e. $1,692/13.1 = $129/bbl). Adding on the greater-than-$20/bbl "scary spread", we easily find ourselves in $150/bbl territory for the global benchmark.

If you believe as I do that an Iran conflict would give a bid to gold prices, the calculation gets even scarier. Let's say we retest 1,900+ per ounce gold, our ratios and spreads give us $145+/bbl WTI and $165+/bbl Brent. That's a big ouch.

The "Daily Oil Watch" below reports all these prices and spreads on a daily basis. We got your back covered, pardner.

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $44.45 down 0.09%
Newmont (NEM) $53.33 down 0.22%
McEwen Mining (MUX) 4.40 up 0.69% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.44 up 0.58%
Thompson Creek (TC) $7.08 up 1.14%
Freeport-McMoRan (FCX) $39.38 up 1.29% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.50 up 2.04%

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

ArcelorMittal (MT) $19.71 down 0.71% - global steel producer
POSCO (PKX) $85.27 up 0.39% - 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 201.15, up from last report's 199.77 and below the 1-month moving average of 193.45. The 1-month average is falling but still 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 $7.0/oz at $1,692.6/oz (April contract, most active)

COMEX silver is up $0.225/oz at $32.975/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.330 oz/oz

Silver 1-month CRS© is 1.76% (bullish level); CRS© convergence (Ag bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.26, up from last report's 88.07 and just above its 1-month average of 88.21. Gold value is taking a pause from trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,602.4/oz which is only $90.2/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 $0.0010/lb at $3.8865/lb (May contract, most active)

The gold-to-copper ratio is 435.51 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 448.25 (Cu bullish trend has paused in Price Domain B)

Copper 1-month CRS© is 2.21% (bullish level); convergence, compression stalling (Cu neutral)

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

Metals Week Average:
US$14.00
As of March 26, 2012
(updated weekly)

Ryan's Notes Average:
US$14.00
As of Mar 23, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.05/lb

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

US$14.06/lb (US$31,000/metric ton)

Daily Oil Watch

Latest Nevada Gas 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 $107.23
ICE North Sea Brent crude $125.71
Spread (ICE- NYMEX) = $18.48 (last report, $18.49)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $108.19
ICE North Sea Brent crude $124.25
Spread (ICE- NYMEX) = $16.06 (last report, $16.24)

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

NYMEX WTI 1-month CRS© is 2.40% (bullish level); CRS© weak divergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $105+ NYMEX in July favoring high oil prices this spring into summer. A front-month spread between Brent and WTI >$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 is 70.2 up from last report's 69.4. A level above 200 is time for serious concern - we are now well below that level. The highest level recorded since inception was 271.0 Aug. 9, 2011; the lowest level is 65.1 on Mar. 13, 2012

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 2.12 to 13,293.51; the S&P 500 is up 1.68 points at 1,418.19

The Eureka Miner's Grubstake Portfolio is up 0.42% at $1,467,817.95 (what's this?).

Cheers,

Colonel Possum

Headline photograph supplied by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Monday, March 26, 2012

Bernanke Breaks the Spell; Gold & Metals Up; Euro-Steel Update

Alaskite and Lichen, Devil's Gate, Eureka, Nevada

*** BREAKING NEWS *** The S&P 500 made a new multi-year high of 1,415.15 at 12:16 PM PT (see story below)

*** BREAKING NEWS *** COMEX gold moved higher to $1,689.50 per ounce at 11:50 AM PT further extending today's rally (April contract)

*** BREAKING NEWS *** COMEX gold touched $1,687.50 per ounce at 8:20 AM PT further extending today's rally (April contract)

Latest Nevada Fuel Prices (click this link)

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: Copper Bids Adieu to Gold and Silver (3/19/2011)

My Latest International Business Times commentary: Silver to Gold, “Whither Thou Goest…” (02/27/2011)

This morning's...
COMEX Gold price = $1,678.0/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.07 (gold value pause from trending down)
Value Adjusted Gold Price© (VAGP) = $1,519.9/oz
COMEX - VAGP = $86.1/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio remains below its 3-month average, compression stalling (Cu neutral)


Morning Miners!

It is 6:01 AM. Have a Monday cup of Accommodative Caffeine compliments of the Federal Reserve. It looks like Chairman Bernanke has broken the gold curse...

Bernanke Breaks the Spell; Gold & Metals Up

Starting on Leap Day and continuing into mid-March, you could bet that any comments from Federal Reserve Chairman Ben Bernanke would drop gold $50 to $100 per ounce. this morning he spoke and gold and our favorite metals are up - the spell has been broken! At 8:00 AM ET gold jumped from $1,658.7 per ounce to $1,684.0 in 45 minutes. Presently the yellow metal is trading down a bit at $1,678.0 per ounce but still a healthy $15.6 per ounce from Friday's settle price. COMEX silver and copper got a bid too trading now at $32.640 per ounce and $3.8515 per pound.

So what were the magic words? The Wall Street Journal reports Uncle Ben as saying,

“Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies...”

Nothing to it, forget supply and demand fundamentals - just say "continued accommodative policies" and markets will move. The broader markets are now open and moments ago the S&P500 came within less than 2 points of reaching a new multi-year high (1,412.06 versus 1,414.00 set March 19). Pardner, the stock market has not been in this pasture since May, 2008.

I think I'll go out and utter "continued accommodative policies" to Casper, my 1972 F-250. I bet she starts right up even with a dead battery.

I'm not going to analyze this further, let's just be happy Barrick Gold (ABX) has bounced 1.23% to $44.30 and bellwether miner Freeport-McMoRan (FCX) is up 1.01% at $38.87- a good start to the week!

Euro-Steel Update

Here's a bit more good news for moly watchers as reported by the Steel Business Briefing (SBB) this morning:

European steel consumption likely to improve in H2: analysts
Steel demand in Europe in the first quarter of 2012 remains soft, and is likely to be down on year-earlier levels, industry analysts told Platts Steel Business Briefing Friday. However, the slump in demand that some had feared has not occurred, and real activity and final demand have held up, observers said.

“Although demand in Europe overall is likely to be slightly lower, we see signs of improvement for the second half of the year,” an analyst at a medium-sized European steelmaker said.
(SBB, 03/26/2012)

Europe steel makers use molybdenum to produce high-strength steels.

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $44.30 up 1.23%
Newmont (NEM) $53.42 up 0.19%
McEwen Mining (MUX) 4.20 up 1.94% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.41 unchanged
Thompson Creek (TC) $7.05 up 0.86%
Freeport-McMoRan (FCX) $38.87 up 1.01% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.51 unchanged

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

ArcelorMittal (MT) $19.64 down 0.71% - global steel producer
POSCO (PKX) $84.18 down 0.72% - 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 199.77, up from last report's 188.71 and below the 1-month moving average of 196.24. The 1-month average is falling but still 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 $15.6/oz at $1,678.0/oz (April contract, most active)

COMEX silver is up $0.368/oz at $32.640/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.409 oz/oz

Silver 1-month CRS© is 1.72% (bullish level); CRS© weak convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.07, up from last report's 87.96 and just below its 1-month average of 88.32. Gold value is taking a pause from trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,591.9/oz which is only $86.1/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 $0.0430/lb at $3.8515/lb (May contract, most active)

The gold-to-copper ratio is 435.67 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 448.73 (Cu bullish trend has paused in Price Domain B)

Copper 1-month CRS© is 2.43% (bullish level); convergence, compression stalling (Cu neutral)

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

Metals Week Average:
US$14.00
As of March 26, 2012
(updated weekly)

Ryan's Notes Average:
US$14.00
As of Mar 23, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.05/lb

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

US$14.06/lb (US$31,000/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 $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 $105.56
ICE North Sea Brent crude $123.75
Spread (ICE- NYMEX) = $18.49 (last report, $18.19)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $106.58
ICE North Sea Brent crude $122.50
Spread (ICE- NYMEX) = $16.24 (last report, $15.92)

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

NYMEX WTI 1-month CRS© is 2.40% (bullish level); CRS© weak divergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $105+ NYMEX in July favoring high oil prices this spring into summer. A front-month spread between Brent and WTI >$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 is 69.4 down from last report's 71.0. A level above 200 is time for serious concern - we are now well below that level. The highest level recorded since inception was 271.0 Aug. 9, 2011; the lowest level is 65.1 on Mar. 13, 2012

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 103.84 to 13,184.57; the S&P 500 is up 12.06 points at 1,409.17

The Eureka Miner's Grubstake Portfolio is up 0.74% at $1,454,167.09 (what's this?).

Cheers,

Colonel Possum

Headline photograph supplied by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Friday, March 23, 2012

The Colonel's Friday Thoughts on Gold, Silver & Copper; Adella on GMO, MQ

Spring 2012 Mining Quarterly, Adella Harding, The Elko Daily Free Press

Latest Nevada Fuel Prices (click this link)

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: Copper Bids Adieu to Gold and Silver (3/19/2011)

My Latest International Business Times commentary: Silver to Gold, “Whither Thou Goest…” (02/27/2011)

This morning's...
COMEX Gold price = $1,656.3/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.56 (gold value pause from trending down)
Value Adjusted Gold Price© (VAGP) = $1,562.7/oz
COMEX - VAGP = $93.6/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio remains below its 3-month average, compression stalling (Cu neutral)



Morning Miners!

It is 5:46 AM. Have a fresh cup of Raine's up-and-at'em Red Label TGIF. Let's see what's brewing with our favorite metals and the latest at the Elko Daily Free Press...

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

Here is my morning's input to the Weekly Kitco Gold Survey:

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Down, $1,630 per ounce target assuming no major Geo-political shocks. My 2012 price floor of $1,615 per ounce remains unchanged.

Q. Why?

A. We are witnessing a major re-pricing exercise between precious and base metals to a global outlook in flux: better-than expected domestic recovery, lower-than-expected Chinese demand for raw materials and a Europe that has stabilized but moves forward with serious challenges. Lacking a Geo-political shock, gold and silver will continue to be under pressure next week.

Silver and copper are now losing value relative to gold on a short-term basis. The trend for the red metal should reverse to the upside in the near-term with the gold-to-copper ratio bullishly falling below 400 lb/oz later this spring. The gold-to-silver ratio remains stable and near historic norms. Industrial demand for silver gives the white metal price additional price support.

For $1,630 per ounce gold we can expect to see silver in a range of $30-$32 per ounce; and copper, $3.6-$3.8 per pound.

Background Notes:

1. The geometric mean of last week’s target ($1640/oz) and my 2012 price floor ($1615/oz) is $1,627.50/oz, reassuringly the intraday low for COMEX gold on Thursday ($1,627.50/oz). My target for next week is therefore $1,630/oz assuming we are approaching the floor in steps.

2. My Gold Value Index© (GVI) equals 88.56 this morning down 19.5% from the Oct. 4 high of 109.97.

3. The GVI trend lower has slowed and may trend higher in the short-term which is bearish for key commodities.

4. The gold-to-copper ratio today is 437.1 pounds per ounce and below its 3-month moving average of 449.2 pounds per ounce. Remaining below this average is bullish for copper in the near-term. 3-month rolling correlation is +0.78, relative volatility is 1.27X gold and price sensitivity (beta) is 0.99. Importantly, the 1-month correlation has returned positive at +0.28 after a brief bearish sojourn into negative territory.

5. The gold-to-silver ratio is slightly above historic norms at 52.2; 3-month rolling correlation is +0.93, relative volatility is 2.00X gold and price sensitivity (beta) is 1.86

Adella on General Moly (GMO), Mining Quarterly

Adella Harding, Mining Editor of the Elko Daily Free Press, added some good detail yesterday on Tuesday's rejection of the General Moly "Good Neighbor" offer which the Report has been tracking this week:

Eureka County rejects General Moly offer (Adella Harding, Mining Editor of the Elko Daily Free Press, Thursday, March 22, 2012 5:47 pm)

If you haven't had a chance, checkout Adella's Spring 2012 edition of the Mining Quarterly - it's a dandy! It has great articles and updates on the Barrick Cortez and Newmont gold mines, the Rochester silver mine, General Moly's Mt. Hope study, mining jobs and the upcoming Elko Mining Exposition.

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $43.75 up 1.56%
Newmont (NEM) $53.48 up 2.04%
McEwen Mining (MUX) 4.04 up 8.02% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.32 up 1.22%
Thompson Creek (TC) $6.96 up 1.16%
Freeport-McMoRan (FCX) $38.50 up 0.44% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.51 up 6.25%

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

ArcelorMittal (MT) $19.54 up 0.62% - global steel producer
POSCO (PKX) $84.23 up 0.08% - 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 181.11, up from last report's 170.24 and below the 1-month moving average of 198.49. The 1-month average is falling but still 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 $13.8/oz at $1,656.3/oz (April contract, most active)

COMEX silver is up $0.395/oz at $31.740/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 52.183 oz/oz

Silver 1-month CRS© is 1.80% (bullish level); CRS© weak convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.56, up from last report's 87.77 and just below its 1-month average of 88.57. Gold value is now trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,562.7/oz which is only $93.6/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 $0.0235/lb at $3.7890/lb (May contract, most active)

The gold-to-copper ratio is 437.13 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 449.18 (Cu bullish trend has paused in Price Domain B)

Copper 1-month CRS© is 2.76% (bullish level); convergence, compression stalling (Cu neutral)

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

Metals Week Average:
US$14.00
As of March 26, 2012
(updated weekly)

Ryan's Notes Average:
US$14.10
As of March 20, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.05/lb

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

US$14.06/lb (US$31,000/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 $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 $105.56
ICE North Sea Brent crude $123.75
Spread (ICE- NYMEX) = $18.19 (last report, $17.84)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $106.58
ICE North Sea Brent crude $122.50
Spread (ICE- NYMEX) = $15.92 (last report, $15.73)

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

NYMEX WTI 1-month CRS© is 2.40% (bullish level); CRS© weak divergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $105+ NYMEX in July favoring high oil prices this spring into summer. A front-month spread between Brent and WTI >$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 is 73.2 down from last report's 76.3. A level above 200 is time for serious concern - we are now well below that level. The highest level recorded since inception was 271.0 Aug. 9, 2011; the lowest level is 65.1 on Mar. 13, 2012

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 13.96 to 13,060.10; the S&P 500 is up 0.99 points at 1,393.77

The Eureka Miner's Grubstake Portfolio is up 1.94% at $1,433,467.47 (what's this?).

Cheers,

Colonel Possum

Headline photograph supplied by the Elko Daily Free Press

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Thursday, March 22, 2012

General Moly - A "No" to Good Neighbor; Lousy China PMI

Just down the road a piece...

Latest Nevada Fuel Prices (click this link)

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: Copper Bids Adieu to Gold and Silver (3/19/2011)

My Latest International Business Times commentary: Silver to Gold, “Whither Thou Goest…” (02/27/2011)

This morning's...
COMEX Gold price = $1,635.5/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 87.77 (gold value trending down)
Value Adjusted Gold Price© (VAGP) = $1,583.2/oz
COMEX - VAGP = $78.6/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio remains below its 3-month average and compressing (Cu bullish)



Þūnresdæg
Morning Miners!

It is 6:09 AM. Have a cup of Thor's Dragon Breath - it's a little cold, our favorite Norseman tripped on the power cord this morning as he went outside to chop firewood with his battle axe. It looks like the Chinese dragon is losing a little fire in its breath too...

General Moly - A "No" to Good Neighbor

Thanks to a vigilant reader of this report the following is actually old news. The Colonel posted this bulletin Tuesday:

BREAKING NEWS: Words from a trusted source and friend of the Report, "[Eureka]County Commissioners rejected General Moly’s $12M water settlement offer just moments ago." (e-mail received 10:15 AM PST, 3/20/2012)

Yesterday at 1:51 PM, General Moly posted a formal press release with the details of the rejection of their Good Neighbor offer:

$12 Million Offer to Augment Existing Sustainability Trust Rejected (Press Release, 3/21/20120)

Chief Executive officer Bruce D. Hansen says in the release,

We reached out and made this offer to Eureka County and its residents as a Good Neighbor, with the goal of working together, to enhance the sustainability and properly manage water resources in both the Kobeh Valley and Diamond Valley water basins. Unfortunately, we are disappointed with the Eureka County commissioners’ decision to continue down the path of unnecessary spending on legal action which further deprives the community of an opportunity to positively impact a decades’ old severe over-pumping situation in the Diamond Valley water basin, which has no relationship to the Mt. Hope project. We are moving forward aggressively. As we have stated when the Good Neighbor Offer was presented on March 6th, we remain extremely confident the State Engineer's Ruling will be upheld. At the same time we will always discuss reasonable and rational concepts to resolve this situation.

The next step is the April 3rd hearing and subsequent ruling of the Nevada District Court with Judge Papas. His ruling could take several months.

A disappointing development for General Moly (GMO) investors and supporters indeed. However, General Moly share price has not been punished as much as one might expect. Today GMO is down 4% at $3.29 but most of the miners are down too on a lousy economic indicator from China (below). Investors throwing in the towel would have resulted in a much steeper sell-off Tuesday, Wednesday or today.

Keep hope alive for Mt. Hope.

Lousy China PMI

A lousy Chinese manufacturing survey has thrown a wrench at the metals & miners this morning. The preliminary HSBC purchasing managers index for March was 48.1, down from a final reading of 49.6 for February. Dennis Gartman of the respected Gartman Letter often wisely reminds his readers that the actual number is not as important as the fact that the index is below 50 (indicating contraction, not expansion).

Philosophically, I believe we are witnessing a major re-pricing exercise going on between precious and base metals to the emerging new-new realities: better-than expected domestic recovery, a slower-than-expected China and a Europe that has stabilized but moves forward with serious challenges ahead. I'm still bullish on copper (i.e copper price slowly transitioning from Price Domain B to Price Domain A) once the dust settles for reasons I'll elaborate on in tomorrow's gold, silver and copper report.

Keep the faith, pardner.

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $43.17 down 1.05%
Newmont (NEM) $52.65 down 0.98%
McEwen Mining (MUX) 3.79 down 2.82% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.29 down 4.08%
Thompson Creek (TC) $6.85 down 1.86%
Freeport-McMoRan (FCX) $38.72 down 2.71% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.50 down 1.96%

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

ArcelorMittal (MT) $19.70 down 3.43% - global steel producer
POSCO (PKX) $84.32 down 2.20% - 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 170.24, down from last report's 201.39 and below the 1-month moving average of 201.39. The 1-month average is falling but still 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 $14.8/oz at $1,635.5/oz (April contract, most active)

COMEX silver is down $0.607/oz at $31.620/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.724 oz/oz

Silver 1-month CRS© is 1.70% (bullish level); CRS© stalled convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 87.77, up from last report's 87.32 and below its 1-month average of 88.72. Gold value is now trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,556.9/oz which is only $78.6/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 $0.0800/lb at $3.7655/lb (May contract, most active)

The gold-to-copper ratio is 434.34 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 449.71 (Cu bullish trend emerging in Price Domain B)

Copper 1-month CRS© is 2.89% (bullish level); convergence, compressing ratio (Cu bullish)

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

Metals Week Average:
US$14.125
As of March 19, 2012
(updated weekly)

Ryan's Notes Average:
US$14.10
As of March 20, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.05/lb

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

US$14.52/lb (US$32,000/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 $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 $105.48
ICE North Sea Brent crude $123.32
Spread (ICE- NYMEX) = $17.84 (last report, $17.69)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $106.48
ICE North Sea Brent crude $122.21
Spread (ICE- NYMEX) = $15.73 (last report, $15.84)

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

NYMEX WTI 1-month CRS© is 2.53% (bullish level); CRS© divergent (Oil bearish)

Prices are near highs for 2012, we have $120+ Brent and $105+ NYMEX in July favoring high oil prices this spring into summer. A front-month spread between Brent and WTI >$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 is 76.3 up from last report's 70.8. A level above 200 is time for serious concern - we are now well below that level. The highest level recorded since inception was 271.0 Aug. 9, 2011; the lowest level is 65.1 on Mar. 13, 2012

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 45.97 to 13,078.65; the S&P 500 is down 6.87 points at 1,396.02

The Eureka Miner's Grubstake Portfolio is down 1.99% at $1,411,381.57 (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