"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.

Monday, May 7, 2012

Miners Tumble; Are Gold and Silver Parting Ways?

Mining Memories, 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 = $1,638.3/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 91.77 (gold value gaps up, 5/4)
Value Adjusted Gold Price© (VAGP) = $1,491.6/oz
COMEX - VAGP = $146.7/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio remains below its 3-month average (Cu weakly bullish)

Morning Miners!

It is 6:00 AM. Have a strong cup of Monday Ether - you may need it to start your internal diesel this morning!

Miners Tumble

Leftist party victories in France and Greece have pummeled the euro and strengthened the U.S. dollar - the future of austerity policies in either country is weighing heavily on the markets as dollar-denominated commodities and commodity-sensitive stocks are being roughed up. Gold and copper are showing brave resilience; most miners are not.

Dennis Gartman of the well respected Gartman Letter tells his readers this morning, "Political chaos now prevails and the dollar is very strong as investors are fleeing Europe and are seeking any safer ports that might be available to them in this strong and strengthening political storm..."

COMEX gold shaved 7 dollars to trade at $1,638.3 per ounce this morning; COMEX silver dropped $0.237 to $30.195 per ounce. Surprisingly, COMEX copper is showing price strength compared to either staying in the green 0.6 cents to trade at $3.7270 per ounce. Even though the red metal is up, copper giant and bellwether miner Freeport-McMoRan (FCX)is headed to lows not seen since late-2011 down 1.4% at $35.91 per share. Benchmark moly miner Thompson creek (TC) is faring even worse falling nearly 9% at $5.06. Barrick Gold (ABX), following gold's resilience, is down only 0.2% at $37.82.

Not surprisingly, this report's Eureka Miner's Index© (EMI) is spending its second consecutive day below the key 100-level presently registering a very bearish 85.82 compared to Friday's disappointing 95.41. Ouch.

Are Gold and Silver Parting Ways?

Kitco News just posted my latest commentary, Are Gold and Silver Parting Ways?. If your Monday is too hectic to read the entire article, here are my concluding remarks:

As reported by Kitco News on April 27, TD Securities made a prescient warning that its outlook for the silver market was negative near-term and suggested that the headwinds of a recessionary Europe, softening Chinese demand, fading investor interest and high inventories could return the white metal to $29 per ounce. Last Friday, silver prices did indeed dip briefly below $30 per ounce.

The above analysis demonstrates that silver and gold have moved rather abruptly from a point of relative price equilibrium to an elevated ratio presently above 54 - silver price strength relative to gold is in decline. If the ratio were to rise to the 57 levels of late-2011 and gold tests its April low, silver could easily return to $28 per ounce territory (i.e. $1,613 per ounce/57 = $28.3 per pounce). However, GSR stabilities remain “very stable” so it is unlikely that silver prices are on the verge of crashing as in 2011.

My view is that precious and base metals should enjoy a better second than first-half for 2012 and TD Securities turns bullish on silver in the next three quarters. For the time being it appears gold and silver have parted ways. In any case, Commodity Ratio Stability© analysis offers a powerful technique to track the next wiggle in their relative performance.

The referenced analysis explains the chart below and others addressing the gold-to-silver ratio level and stability (a larger and more readable chart can be found near the bottom of this blog page):

If you have a chance, give it a read on your break - tough times lately for the white metal but there may be better times ahead.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $37.82 down 0.18%
Newmont (NEM) $45.85 down 0.67%
McEwen Mining (MUX) 3.27 down 1.80% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $2.88 down 0.69%
Thompson Creek (TC) $5.06 down 8.50%
Freeport-McMoRan (FCX) $35.91 down 1.35% (a bellwether mining stock spanning copper, gold & molybdenum)
Timberline Resources (TLR) $0.44 unchanged

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

ArcelorMittal (MT) $16.22 up 0.75% - global steel producer
POSCO (PKX) $81.55 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 85.82, down from last report's 95.41 and below the 1-month moving average of 119.82. 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 $6.9/oz at $1,638.3/oz (June contract, most active)

COMEX silver is down $0.237/oz at $30.195/oz (July contract, most active)

The gold-to-silver ratio (Au:Ag) is 54.257 oz/oz

Silver 1-month CRS© is 1.64% (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 91.77, down from last report's 91.78 and below its 1-month average of 90.12. 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 $1,491.6/oz which is $146.7/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 $0.0060/lb at $3.7270/lb (July contract, most active)

The gold-to-copper ratio is 439.58 lb/oz; ratios in excess of 400 lb/oz are indicative of a bearish price domian; the ratio is below its 3-month moving average of 443.33 (Cu bullish trend in a bearishPrice Domain B)

Copper 1-month CRS© is 1.91% (bullish stability level); very stable ratio; 1-month & 3-month < 3% (overall indicators weakly bullish)

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

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

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

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):

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

US$14.29/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 $97.74
ICE North Sea Brent crude $112.82
Spread (ICE- NYMEX) = $15.08 (last report, $14.16)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $98.43
ICE North Sea Brent crude $112.11
Spread (ICE- NYMEX) = $13.68 (last report, $12.41)

* 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 79.1 up from last report's 77.9. 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 31.22 points to 13,007.05; the S&P 500 is down 0.61 points at 1,368.49

The Eureka Miner's Grubstake Portfolio is down 0.86% at $1,290,165.86 (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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