Thursday, March 1, 2012
What a Bad Day It Was; Better Day & Copper Bullish; GMO Reports
NEW FORMAT for 2012
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)
Latest Nevada Fuel Prices (click this link)
COMEX Gold price = $1,714.3/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 89.00 (gold value weakly trending down)
Value Adjusted Gold Price© (VAGP) = $1,634.6/oz
COMEX - VAGP = $79.6/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)
It is 6:46 AM. Have a hot cup of Thor's famous Thunder Blunder. Our favorite Norseman's big blunder yesterday was missing all the market chaos; he loves calamity - pillage the village! Yesterday, it was pillage precious metal investors. Instead of joining in the terror, our semi-retired thunder god was up at Cashman's trying to convince the dealer to let him test drive a CAT 793. That would be calamity - fortunately he was shown the door instead.
What a Bad Day It Was
I started Thursday reading Dennis Gartman's daily, "The Gartman Letter." The Commodity King gets up even earlier than us folks in the break room, usually penning his eponymous market missives sometime past midnight eastern time to catch all the action in global markets well ahead of the U.S. open.
The King captures the terror of yesterday with the following quotes:
"A day few will forget; certainly we shall not" Gartman was sitting on a major gold/yen position
"Breath taking in its swiftness and violence" Gold and silver went down the mineshaft minutes after Fed Chairman Bernanke began his semiannual 2-day testimony to the House Financial Committee at 10:00 AM ET as reported yesterday. Gold dropped $90/oz, "...a true, unmitigated 2 x 4 to the head."
This report has been bullish on silver since Christmas and the opening Bernanke words fortunately triggered a sell order to protect profits. The iShares Silver Trust (SLV) lost a frightening 10% from a high at 9:56 AM ET to an intraday low at 11:28 AM ET.
So what caused all the chaos? The postmortem seems to be more about what the Chairman didn't say about the possibility of further quantitative easing, commonly referred to as QE III. In Europe, the consensus is that the second 530B euro Long Term Refinancing Operation (LTRO) was probably it, sufficient to firewall the banks at least in the near term and no more euro-style QE in the wings. The thought of monetary easing policies winding down caused panic selling in precious metals, notably gold and silver. The Wall Street Journal reported yesterday that:
At 10:48 a.m., a flurry of big sell orders came in. Almost 11,000 gold contracts worth $1.8 billion changed hands in about one minute, a large amount for such a short time frame. Gold ended the day down 4.3%, or $77.10 a troy ounce, the fourth-largest dollar loss in the metal's history, to $1,709.90. Silver tumbled 6.9%.
The declines triggered a halt in gold, silver and copper trading for 10 seconds. (JACOB BUNGE, MATT PHILLIPS and CAROLYN CUI, WSJ, 2/29/2012)
As Gartman said, "A day few will forget."
Better Day & Copper Bullish
After some of the smoke cleared this report picked up a few shares of SPDR Gold Trust (GLD) and Freeport-McMoRan (FCX) near their lows for the day. The Colonel's thoughts were that $1,700/oz was probably a pretty solid floor for gold price and I had heard from my colleague in Mumbai that he was buying gold. Debbie Carlson, my editor at Kitco News, also confirmed the floor and the extent of the end-of-the-month profit taking. Although down for the day copper showed considerable strength compared to the precious metals and I reversed my bearish stance on the red metal adding to an FCX position that I've been holding on to with dear life.
The ole Colonel plans to write a Kitco commentary this weekend on both silver and copper. This Reuter's report this morning appears to confirm copper's brighter prospects with a better-than-expected China PMI release this morning:
China Feb PMI rises as export orders bounce (Susan Thomas, Reuters London, 3/1/2012)
Currently this morning gold, silver and copper are all rebounding some after yesterday's carnage (see below reports). This report's Value Adjusted Gold Price© (VAGP) is $1,634.6/oz, only $79.6/oz below the current COMEX gold price. This is the first time this premium has fallen to double-digits since Aug. 4, 2011. The Eureka Miner’s Gold Value Index© (GVI) has also dropped below the 90-level for the second day (see below); the last time we were in the 80s was Aug. 5, 2011. A fall in gold premium and value is typically bullish for the metals & miners.
Please do your own research, the ole Colonel could be dead wrong about the future of precious and base metals. Reassuringly, Dennis Gartman bravely held on to his gold/yen position yesterday.
General Moly (GMO) Reports
General Moly (GMO) has just posted its 4Q and full year 2011 report. Quite honestly I've been too busy with the metals to read it yet. Fortunately, a faithful contributor and GMO investor has volunteered to editorialize on the data; I will plan to post it tomorrow:
General Moly Announces Fourth Quarter and Full Year 2011 Results (Press release, 3/1/2012)
Daily Market Roundup
This morning's mining stocks...
Barrick (ABX) $47.70 down 0.06%
Newmont (NEM) $59.66 up 0.39%
McEwen Mining (MUX) 5.47 up 4.59% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.71 up 2.77%
Thompson Creek (TC) $7.16 down 1.65%
Freeport-McMoRan (FCX) $42.96 up 0.94% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.18 down 0.07%
Timberline Resources (TLR) $0.58 up 1.75%
The Steels (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $21.12 up 0.14% - global steel producer
POSCO (PKX) $92.99 up 0.53% - 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 209.22, down slightly from last report's 209.85 and below the 1-month moving average of 234.09. 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
COMEX gold is up $3.0/oz at $1,714.3/oz (April contract, most active)
COMEX silver is up $0.303/oz at $34.945/oz (May contract, most active)
The gold-to-silver ratio (Au:Ag) is 49.057 oz/oz
Silver 1-month CRS© is 2.00% (bullish level); CRS© divergent (Ag neutral)
The Eureka Miner’s Gold Value Index© (GVI) is below-par at 87.63, down from last report's 89.00 and below its 1-month average of 92.12. Gold value is now strongly 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 $1,634.6/oz which is $79.6/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
COMEX copper is up $0.0560/lb at $3.9355/lb (May contract, most active)
The gold-to-copper ratio is 435.60 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 461.18 (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 February 27, 2012
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 $107.61
ICE North Sea Brent crude $123.71
Spread (ICE- NYMEX) = $16.10 (last report, $16.25)
Here are the June contracts* with a narrower spread:
NYMEX light sweet crude $108.41
ICE North Sea Brent crude $121.75
Spread (ICE- NYMEX) = $13.29(last report, $13.57)
* 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 >$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 80.3 down from last report's 81.1. A level above 200 is time for serious concern. We are now well below that level.
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 31.86 to 12,983.93; the S&P 500 is up 3.93 points at 1,368.99
The Eureka Miner's Grubstake Portfolio is up 1.25% at $1,581,426.58 (what's this?).
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market