"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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, April 23, 2012

Europe, China Weigh on Metals & Miners; EMI Plunges Below 100

Icicles on the Grill, 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 Kitco commentary: 2012 Copper and Gold - Is a Red Metal Crash Next? (4/16/2012)

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

This morning's...
COMEX Gold price = $1,627.5/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 90.57 (gold value may resume trending lower)
Value Adjusted Gold Price© (VAGP) = $1,501.4/oz
COMEX - VAGP = $126.1/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio remains just above its 3-month average (Cu bearish trend)


Morning Miners!

It is 6:00 AM. Have a cup of hot Kevlar Koffee - you may need it. It is always tough to start a market week with 19 of 19 global markets in the red; gold, silver and copper in the red and 30-year Treasury yields threatening to drop below 3%...

Europe, China Weigh on Metals & Miners; EMI Plunges Below 100

Who's the culprit behind this sea of red? Europe, of course, as French voters tilt towards socialist opposition candidate Francois Hollande and a budget crisis erupts in the Netherlands. Both events are interpreted to threaten the fragile stabilization of the European sovereign debt crisis - a potential retreat from austerity in France and collapse of austerity talks in Holland. Nuts.

If political uncertainty in France and the Netherlands weren't enough, Monday's woes deepened on news that the euro zone's private sector contracted the most in five months in April. The Europe Purchasing Manager's Index (PMI) fell to 47.4 in April from 49.1 in March - a PMI less than 50 indicates economic contraction.

Things appeared a little brighter in China with the release of the HSBC China flash April PMI which beat its March number but at 49.1 registers its sixth straight month of economic contraction. Nuts, no help from China.

COMEX gold is down $15.3 to $1,627.5 per ounce; COMEX silver lost a buck at $30.640 per ounce and our global bellwether COMEX copper is down nearly 10 cents at $3.6050 per pound. The most troubling metric for this report is the Eureka Miner's Index© (EMI) which just fell below the key-100 level sitting presently at 96.89 - a very bearish moment for the Metals & Miners in my view.

Here is a plot of the EMI through last Friday's close at a healthier 125.87 (a larger more readable chart can be found near the bottom of this blog page):


You may remember the ole Colonel sounded an alarm March 29 for worse things to come for the metals & miners:

The thing that does have the Colonel's attention is our trusty Eureka Miner's Index© (EMI). As readers of this report know the EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County and surrounding areas. It includes three benchmark miners, interest rates and market volatility together with the prices of oil, gold, copper and silver...

The first sign of trouble was when the EMI fell below its 1-month moving average and plumbed 140.0 on March 6. That wasn't good news but at least the EMI didn't drop below the dotted blue trend line from the Oct. 4 low. Since then the EMI has skirted both the average and the trend but this morning it fell below both with conviction registering a chilly 150.6.
(Eureka Miner, 3/12/2012)

Let me pour you another cup of Kevlar Koffee, pardner.

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $39.12 down 2.83%
Newmont (NEM) $45.90 down 2.86%
McEwen Mining (MUX) 3.40 down 2.86% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.00 down 1.64%
Thompson Creek (TC) $5.98 down 2.92%
Freeport-McMoRan (FCX) $36.46 down 2.95% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.43 down 6.52%

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

ArcelorMittal (MT) $16.19 down 4.88% - global steel producer
POSCO (PKX) $83.05 down 0.95% - 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 below-par at 96.89, down from last report's 125.87 and below the 1-month moving average of 148.59. 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 $15.3/oz at $1,627.5/oz (June contract, most active)

COMEX silver is down $1.011/oz at $30.640/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 53.117 oz/oz

Silver 1-month CRS© is 1.01% (bullish level); very stable ratio; 1-month & 3-month < 3% (Ag bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 90.57, up from last report's 89.27 and below its 1-month average of 89.38. Gold value is oscillating about its average. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,501.4/oz which is $126.1/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 0.0930/lb at $3.6050/lb (May contract, most active)

The gold-to-copper ratio is 451.33 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is above its 3-month moving average of 444.93 (Cu bearish trend in a bearishPrice Domain B)

Copper 1-month CRS© is 2.34% (bullish stability 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:
US$14.225
As of April 23, 2012
(updated weekly)

Ryan's Notes Average:
US$14.20
As of April 20, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.25/lb

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

US$14.29/lb (US$31,500/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 $115/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 $102.22
ICE North Sea Brent crude $117.45
Spread (ICE- NYMEX) = $15.23 (last report, $14.58)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $102.99
ICE North Sea Brent crude $116.90
Spread (ICE- NYMEX) = $13.91 (last report, $13.23)

* NYMEX futures contracts have rolled forward, we now show June and August.

NYMEX WTI 1-month CRS© is 1.62% (bullish level); CRS© stalled divergence (Oil neutral)

Prices remain high for 2012, we have $115+ 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're falling away from that now; latest spread is a mix of domestic pipeline bottlenecks and persistent but diminished 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 87.8 up from last report's 76.1. 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 159.12 points to 12,870.14; the S&P 500 is down 17.22 points at 1,361.31

The Eureka Miner's Grubstake Portfolio is down 2.11% at $1,330,457.30 (what's this?).

Cheers,

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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