"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.

Tuesday, April 3, 2012

The 2012 Copper & Gold Conundrum; General Moly (GMO) Hearing Today

Bluer Skies for the Red Metal

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 Kitco commentary: The 2012 Copper & Gold Conundrum (4/02/2012)

My Latest International Business Times commentary: Silver & Gold, “Situation Normal…” (03/26/2012)

This morning's...
COMEX Gold price = $1,680.9/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.0 (gold value pause from trending down)
Value Adjusted Gold Price© (VAGP) = $1,596.0/oz
COMEX - VAGP = $84.9/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio remains below its 3-month average, compression resuming (Cu bullish)

Morning Miners!

It is 5:50 AM. Have a cup of Ruby T's famous Blue Skies java. Our favorite market bull has double copper bracelets on her arms this morning. Not to put a damper on Ruby's enthusiasm, I just noticed the front month price spread between Brent crude and West Texas intermediate has crested the $20/bbl "oh-oh" threshold. This could be a market sign that things are brewing again in the Persian Gulf region (see Oil Watch below) - need to do some checking on this [9:34 AM, $20/bbl spread today may be more about recent domestic pipeline issues than new Iran concerns]

The 2012 Copper & Gold Conundrum

My latest Kitco commentary: The 2012 Copper & Gold Conundrum presents a case for bluer skies for the red metal and also a puzzle:

The good news is that a consistent trend to lower levels [for the gold-to-copper ratio] should revive copper mining equities and support a gradual increase in copper prices. However, this may be at the expense of gold prices – breaking the psychologically important $4 per pound level implies a lower gold price of $1,600 per ounce if the bull/bear threshold is achieved. Even with further quantitative easing (e.g., QE3), it is unlikely that copper prices would exceed $4.5 per pound in 2012 implying a $1,800 per ounce ceiling for the yellow metal by the same line of reasoning. A geopolitical shock may spike gold to $1,900+ per ounce but the red metal would surely respond with bearishly lower prices – a real puzzle for both metals to solve in the months ahead. (Richard Baker, Kitco News Commentary, 4/02/2012

Have a good read and see if you agree with the ole Colonel. COMEX copper is certainly feeling chipper for this new quarter - up a penny more from yesterday's rally at $3.9310 per pound. Reuters carries a good piece on how better China and U.S. manufacturing data has given the red metal some new color:

METALS-Copper steady near 2-month high on China, U.S. data (Susan Thomas and Manolo Serapio Jr, Reuters, Tue Apr 3, 2012 9:56am GMT)

One sobering data point is a halt in the decline of London Metal Exchange (LME) warehouse stocks as shown in this 30-day chart:

I'm not too worried since China's over-stocked warehouses are starting to see demand and the LME number is nearly half what it was several years ago. Supply restriction against a backdrop of moderate demand is not a bad story for 2012. Go copper, go metals, go miners!

General Moly (GMO) Hearing Today

Today at 9 AM Eureka County and General Moly will be at the Nevada District Court hearing at the Eureka County Courthouse for another round of water rights with Judge Papas. The ole Colonel has his ears on the ground...stay tuned.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $43.77 down 1.00%
Newmont (NEM) $51.13 down 1.88%
McEwen Mining (MUX) 4.41 down 2.43% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.35 down 2.90%
Thompson Creek (TC) $6.83 down 1.44%
Freeport-McMoRan (FCX) $38.78 down 0.84% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.50 unchanged

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

ArcelorMittal (MT) $18.80 down 2.03% - global steel producer
POSCO (PKX) $84.35 down 0.76% - 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 185.58, up from last report's 183.74 and above the 1-month moving average of 183.63. 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 $1.2/oz at $1,680.9/oz (June contract, most active)

COMEX silver is down $0.143/oz at $32.955/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.06 oz/oz

Silver 1-month CRS© is 1.18% (bullish level); convergence (Ag bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.0, down from last report's 89.19 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 $1,596.0/oz which is $84.9/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 $0.0.0100/lb at $3.9310/lb (May contract, most active)

The gold-to-copper ratio is 427.00 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 446.34 (a Cu bullish trend has resumed in Price Domain B)

Copper 1-month CRS© is 1.65% (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 April 2, 2012
(updated weekly)

Ryan's Notes Average:
As of Mar 30, 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 $104.77
ICE North Sea Brent crude $125.41
Spread (ICE- NYMEX) = $ (last report, $18.24)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $105.84
ICE North Sea Brent crude $124.28
Spread (ICE- NYMEX) = $ (last report, $17.24)

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

NYMEX WTI 1-month CRS© is 1.50% (bullish level); CRS© weak convergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $100+ 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; we just got there - let's see what shakes out tomorrow [9:34 AM, $20/bbl spread today may be more about recent domestic pipeline issues than new Iran concerns].

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 71.0 down from last report's 73.0. 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 17.07 to 13,247.42; the S&P 500 is down 2.57 points at 1,416.47

The Eureka Miner's Grubstake Portfolio is down 1.04% at $1,445,252.97 (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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