"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.

Tuesday, May 8, 2012

Gold Drops below $1,600; Thompson Creek (TC) Falling Knife

Window Sheet, Eureka Nevada

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: Are Gold and Silver Parting Ways? (5/07/2012)

This morning's...
COMEX Gold price = $1,602.6/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 91.46 (gold value gaps up, 5/4)
Value Adjusted Gold Price© (VAGP) = $1,464.0/oz
COMEX - VAGP = $138.6/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio remains below its 3-month average (weakly bullish condition, Cu overall bearish)



Morning Miners!

It is 5:55 AM. Have a lonesome cup of Ruby T's Blue Sky java - looks the Greeks put clouds in her brew this morning. Ruby called in sick and the ole Colonel just can't percolate much market optimism from her famous brew...

Gold Drops below $1,600; Thompson Creek (TC) Falling Knife

Some mornings you just can't write fast enough to follow market drops. When I started, COMEX gold had just plumbed a low of $1,608.8 per ounce at 5:00 AM PDT; an hour later gold dropped below $1,600 per ounce to $1,599.30 per ounce. Then I ran my morning calculations at 6:21 AM EDT and COMEX gold had rallied up a bit at $1,613.4 per ounce.

Things were changing to the downside so rapidly, the ole Colonel re-ran everything at 7:40 AM as COMEX gold traded at 1,602.6 per ounce - that's it for now. COMEX silver touched $29.25 per ounce before coming back up a bit to $29.325; COMEX copper is down more than a dime at $3.6650 per pound. Ouch!

Talk about catching falling knifes - our benchmark moly miner Thompson Creek (TC) is down nearly 9% at a scary $4.23 per share; General moly (GMO) is faring a little better down 2.8% at $2.77. To give that a sobering perspective TC closed at $9.03 on Feb. 8 and GMO closed at $4.08 on Feb. 3; now, down 53% and 32% respectively. Ouch-ouch!

Barrick gold is doing a little better trading down 3.2% today at $35.15 and our bellwether miner Freeport-McMoRan (FCX) is off 3.4% at $35.15. ABX is down 26% from its Feruary high and FCX is down 24% from its January peak - sometimes it's nice to be a big dog, at least relatively speaking.

Who's the culprit? The Greeks of course! U.S. markets followed Europe lower as worries increased about political turmoil in Greece even though we had a rise in U.S. small-business confidence this morning. The post-election fallout in Greece has many worrying that it will lead to expulsion from the countries that share the euro currency. Needless to say, euro down, U.S. dollar up and dollar-denominated metals in a tailspin of woe.

Oh, here's a ray of light - POSCO(PKX), South Korean steelmaker and 20% owner of the Mt. Hope molybdenum project, is one of the few stocks in the green today - up 0.62% at $82.78. Here's an upbeat assessment of the steel industry from steel giant ArcelorMittal ADS (MT):

ArcelorMittal sees 2012 steel use up 4 to 4.5 pct (LUXEMBOURG, Reuters, May 8,2012)

Nuts. The Colonel thinks this whole Greek thing is overdone (again) - I'm going to give Ruby a get well call.

Mining Report

This morning's mining stocks...

Barrick (ABX) $36.73 down 3.19%
Newmont (NEM) $44.78 down 2.95%
McEwen Mining (MUX) 3.02 down 5.63% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.77 down 2.81%
Thompson Creek (TC) $4.23 down 8.84%
Freeport-McMoRan (FCX) $35.15 down 3.43% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.39 unchanged

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

ArcelorMittal (MT) $15.99 down 4.19% - global steel producer
POSCO (PKX) $82.78 up 0.62% - 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 63.47, down from last report's 85.82 and below the 1-month moving average of 116.22. 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 $36.5/oz at $1,602.6/oz (June contract, most active)

COMEX silver is down $0.797/oz at $29.430/oz (July contract, most active)

The gold-to-silver ratio (Au:Ag) is 54.822 oz/oz

Silver 1-month CRS© is 1.66% (bullish stability level); very stable ratio; 1-month & 3-month < 3% but divergent trend is in place (Ag overall indicators bearish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 91.46, down from last report's 91.77 and above its 1-month average of 90.28. Gold value gaped up Friday, 5/4/2012, which could be a bearish indication for key commodities. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,464.0/oz which is $138.6/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

This morning's...

COMEX copper is down $0.1085/lb at $3.6650/lb (July contract, most active)

The gold-to-copper ratio is 437.27 lb/oz; ratios in excess of 400 lb/oz are indicative of a bearish price domain; the ratio is below its 3-month moving average of 443.22 (Cu weekly bullish condition in a bearishPrice Domain B)

Copper 1-month CRS© is 1.69% (bullish stability level); very stable ratio; 1-month & 3-month < 3% (overall indicators bearish)

The latest molybdenum oxide spot and futures prices (courtesy of Thompson Creek Metals):

Metals Week Average:
US$14.15
As of May 7, 2012
(updated weekly)

Ryan's Notes Average:
US$14.20
As of May 4, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.15/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 $110/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 $96.83
ICE North Sea Brent crude $111.46
Spread (ICE- NYMEX) = $14.63 (last report, $15.08)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $97.09
ICE North Sea Brent crude $110.86
Spread (ICE- NYMEX) = $13.77 (last report, $13.68)

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

NYMEX WTI 1-month CRS© is 1.82% (bullish stability level); CRS© divergence (Oil bearish overall)

Prices remain high for 2012 but have pulled back dramatically, we have $110+ Brent and $95+ NYMEX in August still favoring high oil prices this summer. A front-month spread between Brent and WTI >$20/bbl is a trouble sign.

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 79.7 up from last report's 79.1. 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 161.36 points to 12,847.17; the S&P 500 is down 17.52 points at 1,352.06

The Eureka Miner's Grubstake Portfolio is down 2.60% at $1,251,145.31 (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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