"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.

Wednesday, March 28, 2012

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

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

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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 & 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)

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."


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:
As of March 26, 2012
(updated weekly)

Ryan's Notes Average:
As of Mar 23, 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) = $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?).


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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