"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.

Friday, March 2, 2012

The Colonel's Friday Thoughts on Gold, Silver & Copper; GMO Follow-up

Big Sky Bow Tie

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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)

This morning's...
COMEX Gold price = $1,712.6/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 87.44 (gold value trending down)
Value Adjusted Gold Price© (VAGP) = $1,636.6/oz
COMEX - VAGP = $76.0/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio is falling away from its 3-month average (Cu bullish)

Morning Miners!

It is 7:56 AM and the ole Colonel just completed his weekly Kitco gold survey - some surveys are easier than others, given Wednesday's sell-off this one was a doozy. Let me pour you a welcome cup of Raine's delicious Red Label TGIF java.

One thing to note this morning is that the Report's Debt Crisis Index (DCI) is at its lowest level since its inception in late July, 2011 (see report below). That can't be all bad, pardner.

Have a great weekend and remember St.Patrick's Day is on a Saturday and only 15 days away, I'm Welsh-Irish-Norwegian...so...THREE CHEERS!

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

Here is my input to the Weekly Kitco Gold Survey:

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

A. Up a bit, $1,730+ per ounce target assuming no major escalation of Persian Gulf tensions for the time being.

Q. Why?

A. Wednesday’s dramatic sell-off of gold and silver has changed the landscape. Although both U.S. dollar prices for both have recovered some, lowered expectations for further quantitative easing in the U.S. and additional LTROs in Europe plus better-than-expected recovery in the United States have put pressure on gold prices. With the U.S. dollar now showing strength against both the euro and yen, gold prices will likely only ascend at a modest pace.

The significant remaining driver for gold is escalation of tensions in the Persian Gulf which could spike both precious metal and oil prices materially above present levels. Gold is presently losing relative value relative to oil, copper and silver, albeit modestly. Copper has shown good relative strength throughout the week stepping back from bearish trends. A key metric to watch is the gold-to-copper ratio; compression below the 400 pound per ounce level would be notably bullish for the red metal.

For $1,730/oz gold we can expect to see oil (WTI) in a range of $105-$109/bbl; silver, $33-$36/oz; and copper, $3.7-$4.0/lb.

Background Notes:

1. My Gold Value Index© (GVI) equals 87.44 this morning down 20.5% from the Oct. 4 high of 109.97, down from last week (GVI =90.63, 2/24/2012) and at levels not since early August, 2011.

2. The GVI, which has been oscillating up and down about its average, is now trending lower which is bullish for key commodities.

3. The gold-to-copper ratio today is 436.1 pounds per ounce and below its 3-month moving average of 460.3 pounds per ounce. Remaining below this average is bullish for copper going forward

GMO Follow-up

I haven't yet received an anticipated input from a faithful follower of this report on the General Moly's quarterly and year-end report but Editor Adella harding posted a nice summary in the Elko daily Free Press last night:

General Moly posts $2.9 million loss (ADELLA HARDING Mining Editor, Elko Daily Free Press, Posted: Thursday, March 1, 2012 3:51 pm)

As long as the CAT 793s are ordered and the BLM does indeed issue a record of decision in the third quarter - the ole Colonel isn't too worried about nut'in.

But if...aw, nuts - it's a Friday, pardner!

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $47.85 down 0.40%
Newmont (NEM) $59.17 down 0.84%
McEwen Mining (MUX) 5.34 down 2.20% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.60 up 1.69%
Thompson Creek (TC) $7.34 up 0.69%
Freeport-McMoRan (FCX) $42.65 down 0.61% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.17 up 0.07%
Timberline Resources (TLR) $0.56 unchanged

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

ArcelorMittal (MT) $21.11 down 1.12% - global steel producer
POSCO (PKX) $95.18 up 2.72% - 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 220.30, up from last report's 209.22 and below the 1-month moving average of 235.40. 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 $9.6/oz at $1,712.6/oz (April contract, most active)

COMEX silver is down $0.646/oz at $35.015/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 48.910 oz/oz

Silver 1-month CRS© is 2.04% (bullish level); CRS© weak convergence, ratio compression (Ag bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 87.44, down from last report's 87.63 and below its 1-month average of 91.88. Gold value is now 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 $1,636.6/oz which is only $76.0/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 $0.0045/lb at $3.9270/lb (May contract, most active)

The gold-to-copper ratio is 436.11 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is now falling away quickly from its 3-month moving average of 460.27 (Cu bullish in Price Domain B)

Copper 1-month CRS© is 1.87% (bullish level); CRS© weak convergence, ratio compression (Cu bullish)

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

Metals Week Average:
As of March 5, 2012
(updated weekly)

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

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

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

US$14.74/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 $108.10
ICE North Sea Brent crude $124.87
Spread (ICE- NYMEX) = $16.77 (last report, $16.10)

Here are the June contracts* with a narrower spread:

NYMEX light sweet crude $108.94
ICE North Sea Brent crude $122.94
Spread (ICE- NYMEX) = $14.00(last report, $13.29)

* 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 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 has a value of 74.8 down from last report's 80.3. 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 74.8 on Mar. 2, 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 18.77 to 12,961.53; the S&P 500 is down 3.03 points at 1,371.09

The Eureka Miner's Grubstake Portfolio is down 0.30% at $1,570,409.65 (what's this?).


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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