"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.

Monday, March 12, 2012

Miners 2012 - What Happened? Spot Moly in Decline

Mariana Titus y La Loquita

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: Silver & Copper 2012 - A Tale of Two Metals (03/05/2012)

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

This morning's...
COMEX Gold price = $1,701.8/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 89.09 (gold value trending down)
Value Adjusted Gold Price© (VAGP) = $1,596.0/oz
COMEX - VAGP = $105.8/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio is below its 3-month average (Cu bullish)

Morning Miners!

It is 6:09 AM. have a cup of Good Morning Monday an Hour Earlier. Let's go wake up the markets...

Miners 2012 - What Happened?

This week the Report will look at our benchmark miners and their primary products - Barrick Gold (gold), Freeport-McMoran (copper, gold, molybdenum) and Thompson Creek (molybdenum) - to answer the question, "What happened?"

Since the darkest days of early October, the metals and miners rallied bravely into the first two months of 2012 but have clearly stalled in March - is this a merely a pause to greater heights or are the miners yelling at the broader markets to look out below.

Let's start this week's investigation by looking at a plot of the Eureka Miner's Index© (EMI) which includes the performance of all three benchmarks plus metal prices, fuel prices, market volatility and interest rates. The following chart takes us from December, 2010 to last Friday's close (a larger and more readable plot can be found at the bottom of this blog page):

Last year was mostly a rout for the miners as the EMI (magenta triangles and lines) fell from a multi-year high of 816.78 in early January 2011 to a multi-year low of 22.88 on Oct. 4. The decline was so severe, the Report switched from liner to a powers-of-two scale to capture the depth of the mineshaft. The 100-level is considered the range gate between bear and bull country. Although the trip back up was encouraging, the benchmark miners didn't reach the 100-level until Jan. 10. After that milestone it was pretty much up-up-and-away as the EMI stated above its one-month moving average (blue line) to make a year-to-date record of 322.31 on Feb. 8.

Unfortunately, before the end of February the miners stepped back into the down-elevator as the EMI descended below its average before heading back up again after March 6. The dotted line shows the "lower trend" connecting the October low with subsequent lows. This trend remains positive which is good but a future drop below it would be very bearish. To date we have touched the lower trend on these dates and EMIs:

Oct. 4, 2011 22.88
Nov. 28, 2011 42.63
Mar. 6,2011 140.10

The good news is that the EMI is headed back up towards its 1-month average, breaking it to the upside would be a bullish sign. This morning's EMI almost gets us there at 200.28, just a rock's throw from an average of 218.16.

We'll close this segment of our sleuth by looking at the Eureka Miner’s Gold Value Index© (GVI). The GVI gauges the value of gold in relation to oil, copper and silver independent of currency (see below). The following chart takes us from September, 2010 to last Friday's close (a larger and more readable plot can be found at the bottom of this blog page):

This report often says that gold value relative to key commodities (yellow triangles and lines) typically declines as the EMI rises and vice-verse. The last six market-days prove the exception as both the gold value and EMI 1-month moving averages are both in descent. As with the EMI, the GVI is presently ascending again with this morning's number at 89.09 compared to Friday's close of 88.69 both slightly below today's average of 90.62. In my view this synchronous movement is not sustainable and either the EMI soon heads higher with a falling GVI or lower with a rising GVI. The ole Colonel would much prefer the later bullish case for miners.

For gold enthusiasts, remember that gold dollar price can still rise with a descending GVI - it just doesn't rise as fast as say copper prices. In that state, the price strength of copper is higher relative to gold and one would assume a needed boost for sagging copper giant Freeport-McMoRan. Since gold price is rising in this scenario, Barrick should see some benefit to their share price and up the cooper and gold miners go in aggregate.

Let's leave the discussion here and look at some of the headwinds for miners tomorrow. The EMI and GVI in combination give us a powerful way to track the big picture.

Spot Moly in Decline

Although the price moves are small, European ($14.35 per pound) and Western spot moly prices ($14.30 to $14.40 per pound) are in decline and below the London Metal Exchange (LME) 3-month seller contract at $14.51 per pound. This combination is bearish for moly miners who had been enjoying a nice trek back towards $15 per pound pasture in February. Look for LME futures prices to drop (see report below).

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $45.53 down 0.61%
Newmont (NEM) $56.41 down 0.83%
McEwen Mining (MUX) 4.77 down 4.98% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.41 down 1.45%
Thompson Creek (TC) $7.11 down 0.28%
Freeport-McMoRan (FCX) $38.85 up 0.18% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.50 down 7.14%

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

ArcelorMittal (MT) $19.60 down 0.56% - global steel producer
POSCO (PKX) $88.33 down 0.84% - 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 200.28, up from last report's 186.94 and below the 1-month moving average of 218.16. 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 $9.7/oz at $1,701.8/oz (April contract, most active)

COMEX silver is down $0.372/oz at $33.840/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 50.290 oz/oz

Silver 1-month CRS© is 2.05% (bullish level); CRS© divergent, (Ag bearish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 89.09, up from last report's 88.69 and below its 1-month average of 90.62. 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 $1,596.0/oz which is only $105.8/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 $0.0300/lb at $3.8285/lb (May contract, most active)

The gold-to-copper ratio is 444.51 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 456.45 (Cu bullish trend emerging in Price Domain B)

Copper 1-month CRS© is 2.05% (bullish level); CRS© moving sideways (Cu neutral)

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

Metals Week Average:
As of March 12, 2012
(updated weekly)

Ryan's Notes Average:
As of March 9, 2012
(updated twice weekly)

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

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

US$14.52/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 $106.05
ICE North Sea Brent crude $124.37
Spread (ICE- NYMEX) = $18.32 (last report, $18.42)

Here are the June contracts* with a narrower spread:

NYMEX light sweet crude $107.00
ICE North Sea Brent crude $123.37
Spread (ICE- NYMEX) = $16.34 (last report, $16.54)

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

NYMEX WTI 1-month CRS© is 3.17% (neutral level); CRS© weak convergence (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 new record low at 68.2 down from last report's 76.2. 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 68.2 on Mar. 12, 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 14.91 to 12,936.93; the S&P 500 is down 1.81 points at 1,369.06

The Eureka Miner's Grubstake Portfolio is down 1.34% at $1,494,641.19 (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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