"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Thursday, 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)

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:
As of March 26, 2012
(updated weekly)

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

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

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

US$14.06/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?).


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

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