Silver & Copper 2012 - A Tale of Two Metals; Miners in Trouble?

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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 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 = $1,708.2/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.46 (gold value trending down)
Value Adjusted Gold Price© (VAGP) = $1,613.5/oz
COMEX - VAGP = $94.7.0/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 6:09 AM. Have a cup of Monday Ether, time to start that diesel up. The Report will be off the air Tuesday and Wednesday but will return bright and early Thursday. The big news this week will be the globally monitored U.S. unemployment report on Friday - hopefully, the markets won't explode or implode during my brief hiatus. A downgrade of China's GDP from 9.0% to 8.5% has whacked the metals and miners this morning...

Silver & Copper 2012 - A Tale of Two Metals

Kitco posted my latest thoughts on silver and copper this morning, Silver & Copper 2012 - A Tale of Two Metals. It discusses some of the aftermath from last Wednesday's horrific sell-off of gold and the potential consequences for silver and copper.

Central to this analysis is the stability of their gold-referenced ratios, gold-to-silver (GSR) and gold-to-copper (GCR). Both the white and red metal appear to be on the verge of breaking an improving stability trend from October, 2011 to the close last Friday as shown in this plot:

Monday's COMEX data doesn't materially alter this thesis.

If your day is too busy for much reading, the Colonel's punch line is:

Although both ratios are presently still “very stable” at the 2%-level, each is poised to break above their respective trend lines (gray and red-brown arrows) suggesting divergence may soon return. If it is gradual and compressive, copper may yet return to bull territory...On the other hand, an escalating conflict in the Persian Gulf could send gold and oil prices soaring and trigger divergent behavior of both the GSR and GCR to bearish levels.

And,

In October 2011 when then CRS© showed high divergence, silver price was 2.5-to-3.2 times more volatile than gold on a 1-month basis. By Friday’s close, silver relative volatility returned to the 2.0-level from a more modest 1.4 recorded at week earlier. By contrast copper volatility scores a low 1.3. Given the resilience of copper price and persistent low volatility, I’m placing a bullish bet on the working class red metal but the aristocrats may be in for further trouble as markets price in a brighter future.


Miners in Trouble?

With bellwether Freeport-McMoRan (FCX) falling precipitously ($40.72 down 3.12%, this morning) below all its major trend lines (200-day, 400-day and 600-day moving averages), it is not unreasonable to wonder if other mining stocks will soon be headed down the mineshaft too. Here is a plot of the Eureka Miner's Index© (EMI) at the close last Friday (a larger and more readable chart can be found at the bottom of this blog page):

The index includes copper benchmark Freeport-McMoran as well as benchmark miners Barrick (ABX) for gold and Thompson Creek (TC) for molybdenum. As can be seen from the above plot, miners have done a great job this year rising above the key 100-level. Unfortunately the EMI has fallen below its 1-month moving average for several days and the average is now taking a turn south on this morning's data (see below).

As long as the EMI stays above the dotted lower trend line, it is not time to panic - it is time to tread carefully and closely monitor the EMI for further degradation.

The same can be said for gold prices as COMEX gold dipped to $1,695.50 per ounce in the wee hours before recovering. COMEX gold is presently down $1.6 at $1,708.2 per ounce.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $47.06 down 0.76%
Newmont (NEM) $58.57 down 0.66%
McEwen Mining (MUX) 5.10 down 2.30% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.45 up 1.47%
Thompson Creek (TC) $7.24 down 0.55%
Freeport-McMoRan (FCX) $40.72 down 3.12% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.07 up 0.07%
Timberline Resources (TLR) $0.53 unchanged

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

ArcelorMittal (MT) $20.48 down 2.24% - global steel producer
POSCO (PKX) $93.60 down 0.49% - 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 184.46, down from last report's 212.58 and below the 1-month moving average of 234.42. 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 $1.6/oz at $1,708.2/oz (April contract, most active)

COMEX silver is up $0.185/oz at $34.170/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 49.991 oz/oz

Silver 1-month CRS© is 2.05% (bullish level); CRS© divergent, ratio compression in question again (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.46, up from last report's 88.21 and below its 1-month average of 91.66. 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 $1,613.5/oz which is only $94.7.0/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 $0.0280/lb at $3.8750/lb (May contract, most active)

The gold-to-copper ratio is 440.83 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 459.53 (Cu bullish in Price Domain B)

Copper 1-month CRS© is 2.05% (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:
US$14.70
As of March 5, 2012
(updated weekly)

Ryan's Notes Average:
US$14.45
As of March 2, 2012
(updated twice weekly)

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

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

US$14.52/lb (US$32,000/metric ton)

Daily Oil Watch

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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 $107.15
ICE North Sea Brent crude $124.21
Spread (ICE- NYMEX) = $17.06 (last report, $16.77)

Here are the June contracts* with a narrower spread:

NYMEX light sweet crude $108.08
ICE North Sea Brent crude $122.44
Spread (ICE- NYMEX) = $14.36 (last report, $14.00)

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

NYMEX WTI 1-month CRS© is 3.83% (neutral level); CRS© 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 81.9 up from last report's 74.8. 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 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 47.34 to 12,930.23; the S&P 500 is down 6.77 points at 1,362.86

The Eureka Miner's Grubstake Portfolio is down 0.85% at $1,534,598.48 (what's this?).

Cheers,

Colonel Possum


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