Gold Bounce, Gartman's Gold & Miners Rally

Tonkin Resevoir, Eureka County, Nevada

*** GENERAL MOLY NEWS ***

General Moly to Attend the John Tumazos Very Independent Research Metals & Mining Conference (10/10/2013)
General Moly Announces Implementation of Cost Reduction Program While Actively Pursuing Mt. Hope Financing (9/09/2013)

The latest General Moly briefing on the status of the Mt. Hope molybdenum project (with Webcast): General Moly - John Tumazos Very Independent Independent  Research Conference (10/16/2013)

See earlier March 22 and March 29 reports for a full chronology of the $665 million Hanlong loan suspension.

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:  Copper & Gold – The Long Ride from Lehman Brothers (10/08/2013)
Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday's AM prices used for this morning's analysis: 

COMEX Gold price = $1,315.4/oz (December contract most active)
COMEX Silver = $21.945/oz (December)
COMEX Copper = $3.3035/lb (December)
NYMEX WTI crude = $101.07/bbl (October)
ICE Brent crude = $109.52/bbl (November)


Eureka Miner’s Gold Value Index© (GVI) = 84.10 (gold value is trading at a small premium to oil and copper)
Value Adjusted Gold Price© (VAGP) = $1,306.9/oz
COMEX - VAGP = +$8.46/oz; gold is trading at a premium to key commodities.

General Moly (GMO) = $1.75 up 2.94%
Barrick Gold (ABX) = $18.50 unchanged
Newmont Mining (NEM) = $26.95 down 0.41%
S&P 500 = 1.739.6 up 0.37%

Morning Miners!

What a week! Last minute resolution of the recent U.S. debt debacle Wednesday has brought equities to new all-time highs and given gold a much needed bounce above $1,300 per ounce. Gold strength and U.S. dollar weakness may very well reflect that a second round of calamitous political wrangling awaits us early next year - stock markets appear less concerned.

The devil is always in the details. Although gold is presently trading 4% above last Friday's closing price, on Wednesday it had its weakest performance relative to the S&P 500 since July. The yellow metal fared better against key commodities, recovering lost ground to both oil and copper but is still in deep bear country in terms of the U.S. dollar price and relative valuations (see my input to the weekly Kitco Gold Survey below).

As explained in the survey input, gold rallies are probably capped around the $1,380 per ounce level and the yellow metal could go a lot lower from here. A pickup in Asia gold buying should put a floor in somewhere below $1,300 per ounce but I see more downside next year possibly testing the June low.

The Gartman Gold Bet

On July 22, Dennis Gartman of the renowned Gartman Letter accepted this wager from the ole Colonel:

I'll bet you a chunk of gold-bearing slag from Eureka's 1890s mining heydays (photo attached) for a cup of Virginia Beach sand that gold will test June's low ($1,179.4) before breaking May's high ($1,488.5)

Here's a picture of Mr. Gartman's prize if he wins:

By the way, don't get too excited about that 150,000 tons of slag at the north end of town - my gold content estimate is an average less than 0.0004 troy ounce per ton. Most of the gold from the Eureka smelters probably left town as trace quantities in lead and silver bullion many, many moons ago.

It's hard to bet against the Commodity King and for the sake of our local economy I hope I'm wrong - it's just hard to argue with the data! My latest Kitco commentary,  Copper & Gold – The Long Ride from Lehman Brothers, is a 5-year retrospective on copper and gold prices which both saw record highs and punishing lows during that turbulent time. It appears we are entering a time of less volatile metal prices that should return to the good old laws of supply and demand as global monetary easing begins to pull back next year. So far the red metal has proved resilient but gold may need to see $1,100 per ounce territory before sustainable price recovery is possible.

Miners Rally

Aside from gold's travails, miners have been enjoying better times lately. Copper giant and bellwether miner Freeport-McMoran (FCX) has enjoyed a 7-market-day rally, heading to higher prices even through the darkest days of the debt ceiling debate. This is an important miner to watch because Freeport produces prodigious quantities of gold and molybdenum in addition to the red metal. Even though gold may have its challenges, many market experts (including Dennis Gartman) are predicting a pickup ion the steel industry which should favor higher moly prices.

This morning, General Moly (GMO) is up 2.9%  to $1.75 per share; Barrick (ABX) is trading unchanged from yeaterday's close at $18.50 and Newmont (NEM) is down 0.4% at $26.95 per share.

A Journey in Space and Time

In September, we wrapped up an eight-part summer series on Mt. Hope. You can access the series with the links in the column to your right. We'll be back with a second series on Mt. Hope later this year or next. The second  road trip is longer (110 miles) and will include ranches of early settlers, a second portion of the Pony Express Trail and a challenging section of the old Eureka-Palisade Railroad. The photos today are from near the Tonkin Ranch - one of the many early Damele family ranches we will visit.

Loop # 1 (65 miles) was a fun trip - I hope you enjoyed the Mt. Hope journey in space and time and look forward to the next trip too!

Molybdenum Prices

Spot moly oxide prices remain stabilized above the $9 per pound-level. Here are the latest numbers compliments of moly benchmark miner  Thompson Creek (TC):

Metals Week Weekly Average: US$9.42 as of October 11, 2013 (updated weekly)

Ryan's Notes Average: US$9.50 as of October 15, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are just below spot prices on the 3-month contract. Remember that this is a thinly traded futures market and contract prices may reflect developments in Europe more than the global spot price averages above.

3-month seller's contract $20,700 per metric ton ($9.389 per pound)

15-month seller's contract $21,500 per metric ton ($9.7523 per pound)

The Colonel's Gold, Silver & Copper Prices for Next Week

Here is my weekly input to the Kitco Weekly Gold Survey:

10/18/2013 (10:30 AM CT)

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Down. My target price is $1,294 per ounce.

Q. Why?

Gold got a welcome bounce this week upon resolution of debt ceiling crisis and a falling U.S. dollar, presently trading nearly 4% up from last Friday’s close (see first table below). Stronger gold and weaker dollar are evidence that some investors fear a second debt debacle could resurface early next year. U.S. equities appear less concerned bullishly setting new record highs. As a consequence, gold registered a new value low relative to the S&P 500 Wednesday (see chart). Such is the give-and-take across gold, currency and equity markets.

The expectation that tapering QE3 has now been pushed out to sometime in the first half of next year will maintain low interest rates which is bullish for gold. However as QE3 carries on, oil and copper will get more lift from easy money, so gold value erosion relative to “real things” will continue. This puts a cap on future rallies - I don't believe the yellow metal will move above $1,380 per ounce in the intermediate term and could see a lot more downside next year as explained in my commentaries, Gold Trapped in a Value Wedge and Copper & Gold – The Long Ride from Lehman Brothers.

Based on prior quantitative easing cycles, this trend must reverse, “before a serious recovery in gold price is possible – typically, after or near the end of each QE program.”

My gold target for next week of $1,294 per ounce is the geometric mean of October’s high ($1,337.8) and this week’s low ($1,251.0) suggesting a near-term equilibrium between bullish and bearish influences on price.

For $1,294 per ounce gold we can expect to see silver in a statistically bounded range* of $20.9-$22.0 per ounce; and copper in a range of $3.13-$3.30 per pound. Silver is expected to have a positive bias with respect to a range mean of $21.466 per ounce; copper, a positive bias with respect to a range mean of $3.2158 per pound.

Copper presently trading at the top of this range at $3.30 per pound is bullish for the red metal and could be signaling a more accelerated appreciation relative to the yellow metal (bearish gold).

(* +/- 2-standard deviations, 1-month basis)

The S&P 500 has set new records this week upon resolution of the debt ceiling crisis; gold gained too but at a slower pace. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

The ratio was in a descending channel since mid-November as money rotated away from gold assets into the U.S. stock market. This trend bottomed July 5 although a slightly lower low was set this week on Wednesday: a loss of 41.6% of value relative to equities from the November peak (AUSP=1.2710). The relation is presently in a sideways channel (dashed lines). Today shows some relief from Wednesday’s low (0.7562 vs. 0.7418); breaking the lower boundary of this channel would be very bearish for gold.

This week, Comex gold is up 3.7% for the week but still 8% below August’s high ($1,434.0). The yellow metal gained value relative to oil and copper; oil also lost to copper. The chart below is a week-over-week valuation matrix. The first row is the current commodity price in the given currency. For all other rows, read “1 unit of row A buys X units of column B”; for example, “1 ounce of gold buys 398.2 pounds of copper.” Percentages are deltas over one week.

Since last November, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil and copper.

As measured by the Eureka Miner’s Gold Value Index (GVI, Ref 1), the value of gold relative to global commodities copper and oil and companion metal silver is 84.10, below the key-100 level but above 1-month moving average of 83.91. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,306.9 or an $8.46 discount below actual gold price (i.e. gold is trading at a slight premium to key commodities).

Cheers,

Colonel Possum

Photos by Mariana Titus

Please checkout bayoutales.com for books and book orders

Paintings by Mariana Titus, The Three Anas, are presently at Lafitte Guest House & Gallery, New Orleans
 
Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

A Market ROLAIDS® for the Day

ROLAIDS® Spells Fast Relief!


Þūnresdæg
Morning Miners!

It is 6:07 AM. Have a cup of Thor's Market Thunder and a ROLAIDS®. There are enough storms in the markets lately to keep our semi-retired thunder god amused and absent from throwing real thunderbolts around town as he did in May. For that, the ole Colonel is thankful...

Stormy Weather

I'm less thankful for all the stormy weather in the markets. It was more fun keeping track of new record metal prices earlier this year. Records are still around but are not metallic; the U.S. dollar is having its biggest rally in 10-months and the 10-year U.S. Treasury is at its lowest yield (i.e. highest price) for 2011, presently 2.949%.

The broader markets are now open and the S&P 500 is up 0.4% from yesterday's debacle trading at 1,270.38 but the Eureka Miner's Index(EMI) has just set another new low for 2011 with our first sub-200 score for the year (see below). The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County and we're headed for more chilly temperatures, pardner.

A lot of the old gremlins are at work: sovereign debt concerns have resurfaced in Europe as Greeks riot in the streets and their government dissolves and the U.S. economy faces a troubling mix of higher prices and weaker growth. Underlying inflation rose to its highest level in nearly three years in May and U.S. factories are showing signs of contraction.

What's a Colonel to do?

Market ROLAIDS®: Buy Gold and the U.S. Dollar Index


In late April Dennis Gartman, respected author of the Gartman Letter, turned bullish on gold. More recently he has advised folks to guy gold in terms of the euro and the pound sterling anticipating that things are only going to get worse in Europe. In the present environment this strategy gives the investor a little more bang for his buck.

Earlier this month we reported:

When Gartman says he is buying gold in euro or pound terms he is actually buying U.S. dollar gold in an exchange traded fund like the SPDR Gold Trust (GLD) and then shorting the euro and/or pound sterling. This is clever but probably a little tricky for the average investor. (Eureka Miner, 6/10/2011)

Last April, I suggested a similar approach that's a little easier to do and avoids direct involvement in forex (currency) markets:

What to do? Here's my idea. I bought equal U.S. dollar amounts of gold (SPDR Gold Trust - GLD) today and the U.S dollar Index (DB US Dollar Index Bullish Fund - UUP) yesterday. This takes some of the sting off buying $1,500/oz gold in today's marketplace. This trade favors gold but gives some protection if things reverse (i.e., Gartman caution on shorting the dollar). We'll watch this combo as the weeks progress. (Eureka Miner, 4/21/2011)

My approach is effectively a "soft short" on the euro and pound sterling since taken together these two currencies comprise 70.5% of the U.S. Dollar Index. Let's see how we are doing so far, here is a hypothetical example of the technique:

Last April:

4/21 buy 10 shares of GLD @$146.74 for $1,467.40
4/20 buy 69 shares of UUP @$21.32 for $1,471.08
Total investment = $2,938.48

At this morning's prices:

10 shares of GLD is valued at $1,483.80 ($148.38/sh.) for a $16.40 profit
69 shares of UUP is valued at $1,493.86 ($21.65/sh.) for a $22.77 profit
Total value = $2,977.65 with a profit of $39.17 or 1.33%

We'll keep track of this trade as the European crisis unfolds, so far so good. The bottom line is that we've made a bit more money than a pure gold investment and have a built-in hedge if the dollar and gold move in opposition. Let's say the U.S. economy is better-than-expected for the second half and the euro doesn't crash. Presumably, the former would strengthen the U.S. dollar but improving conditions in the U.S. and Europe may cause a healthy drop in gold price. For this case, a loss in the gold position is mitigated somewhat by a rise in dollar.

If our own debt problems accelerate, the dollar index could dive but gold would most likely spike. In this event, one's gold profit is reduced by the dollar-side investment. For a long term gold bull, this simple approach takes some of the volatility out of a pure gold investment. If the U.S. dollar actually crashes all bets are off - sell UUP and head for the hills.

That's your market ROLAIDS® for the day. Always do your own research, pardner - these are tricky times.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 193.35, down from yesterday's 215.88 and below the 1-month moving average of 260.14. The EMI is down from the high of January 4th and sets a new 2011 low at today's 193.35. The 1-month moving average continues a troubling downtrend.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 80.73, up from yesterday's 78.90 and above its 1-month average of 78.55. Today's GVI sets a new high for 2011. Today's Value Adjusted Gold Price (VAGP) is $1,581.2/oz or just $53.2/oz above current gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious 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 gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $95.24
ICE North Sea Brent crude $113.90
Spread (ICE- NYMEX) = $18.66 (Yesterday, $19.66)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $96.16
ICE North Sea Brent crude $113.50
Spread (ICE- NYMEX) = $17.34 (Yesterday, $17.40)

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

Prices are off their crisis highs but we still have $110+ Brent and $90+ NYMEX in September favoring high oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is still below its 200-day moving average of $51.15 (our new warning level, 06/13 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve will phase out buying Treasurys in June (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.43 in early trading at $95.24 (July contract, most active); Gold is up $1.5 to $1527.7 (August contract, most active); Silver is up 0.080 to $35.490 (July contract, most active); Copper is down $0.0555 at $4.0665 (July contract, most active)

Western Molybdenum Oxide is $16.56; European Molybdenum Oxide is $16.45; LME cash seller is $16.56, LME moly 3-month seller's contract is $16.56

Stock Market Morning Update

The DOW is up 56.68 points to 11,953.95; the S&P 500 is up 4.96 at 1,270.38

Miners are mixed:

Barrick (ABX) $43.39 down 1.23%
Newmont (NEM) $51.89 down 0.80%
US Gold (UXG) $5.75 down 1.88%
General Moly (Eureka Moly, LLC) (GMO) $4.33 up 0.93%
Thompson Creek (TC) $9.60 down 0.31%
Freeport-McMoRan (FCX) $47.97 down 1.15% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.37 down 0.90%

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

ArcelorMittal (MT) $31.58 up 0.29% - global steel producer
POSCO (PKX) $96.00 down 1.50% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.62% at $1,599,010.23 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

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

The Colonel's Metals Outlook; Metals & Miners Weekly Roundup

Morning Miners!

It is 5:49 AM. Have a cup of Monday Hooyah Java - give it a shout and let's get to work...

The Colonel's Metals Outlook

It's a tough way to start a week when you're wondering whether that rustle in the bushes is a bear or just a bull who has lost his way. That's the June markets, pardner. Does the bull find its way back to pasture this summer or are we headed for some serious bear country?

At Friday's close our trusty Eureka Miner's Index(EMI) dropped to a another new low for 2011 (see below). I keep waiting for the EMI to bottom so we can head back up the canyon; maybe today...maybe not. We'll check on that in a moment when the broader markets open.

Dennis Gartman, "Commodity King" and respected author of the Gartman Letter, has been a busy prognosticator lately. Last week he was very bullish on gold at least in terms of the euro or pound sterling. This morning, Mr. Gartman is sending up warning flares on base metals, especially copper, as reported in a Kitco Market Nugget:

Market Nuggets: Gartman: Copper, Other Base Metals On Defensive Amid Economic Worries (Kitco News, 13 June 2011, 08:54 a.m.)

You may have to do a little digging on this link because the Market Nuggets update frequently. Mr. Gartman ponders the fate of copper and base metal prices given worrisome signs about the economy in the U.S. and elsewhere:

“Copper’s history is that when long-term, well defined upward sloping trends are broken, long-term, definitive and oft times surprisingly large bear moves follow. A close today or this week below the psychologically and technically important $4/lb level shall make the case for $3.50/lb to follow hard upon...and even that support shall likely prove ephemeral we fear,” he says. “And we need to note here that it is not just copper that is showing signs of fatigue; so too are most other base metals.”

Nuts. Nuts...Nuts.

Copper has been our faithful canary in the global recovery mineshaft since the darkest days of March 2009. I dread finding our faithful friend feet-up one morning in the COMEX cage. This is just a Gartman warning - one I'll listen to, however.

This weekend the ole Colonel updated his own models of oil, gold, silver and copper to see what lies ahead. You may recall that I look at commodities in relation to a reference commodity (gold or oil) to determine fair value, ranges and trends. Here is an example of copper versus gold prices:



Each chart is a scatter plot of recent futures prices for a commodity (e.g. copper) versus the reference commodity (e.g. gold). I then update a model each month (magenta line) with 3-month data for each commodity pair. The aqua lines show a statistical boundary for current price variations (yellow wiggly line) from the model. The blue line is a 20-day moving average of the commodity pair price. You can find larger plots of copper versus gold, copper versus oil, oil versus gold and silver versus gold near the bottom of this blog page.

Last month I predicted that COMEX gold prices would break $1,600/oz sometime before Labor Day. This would probably take a pretty scary headline to drive investors back to gold's safe haven but there are any number of possibilities these days (e.g., gridlock on raising the U.S. debt ceiling followed by a big hiccup in the bond market). One would expect commodities to suffer on such news and that is what the above plot suggests; as gold prices increase, copper prices fall consistent with Mr. Gartman's current thinking (i.e. gold bull, base metal bear).

Here is how copper, silver and oil fare in this scenario. For COMEX gold = $1,600/oz:

The fair value of COMEX copper is $4.0238/lb in a range of $3.7437/lb to $4.3039/lb
The fair value of COMEX silver is $44.751/oz in a range of $37.904/oz to $51.610/oz
The fair value of NYMEX oil is $108.13/bbl in a range of $98.54/bbl to $117.73/bbl

Today COMEX copper is trading very near the above fair value at $4.0270/lb. It could, however, fall below $3.75/lb as suggested by the lower limit. According these models, COMEX silver moves up with gold on scary news and could take another shot at breaking the Hunt Brother's all time record of $50.35/oz. I think this unlikely because silver will no doubt feel the headwinds of falling industrial demand in a downbeat economic scenario. Today COMEX silver is trading at $35.715/oz.

I'm less confident in the NYMEX oil numbers since the 3-month correlation of oil and gold just flipped negative (see below) this morning. Copper and oil are still showing a fairly tight positive 1- and 3-month correlation (both above 0.6) so it is likely that if copper falls, so will oil. Today NYMEX oil is trading down at $98.61/bbl.

Molybdenum spot prices are below $17/lb but remain fairly stable. Detailed prices and futures may be found below in the Weekly Molybdenum Roundup below.

The broader markets are now open with the S&P 500 and DOW up slightly from Friday's close. Let's see how our poor miners are feeling.

Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line shows the EMI; a composite of three benchmark miners, key oil and metal prices, the 10-year Treasury rate and market volatility (.VIX). A 1-month moving average is given by the blue line (a larger, more readable chart can be found near the bottom of the blog page):


This morning the Eureka Miner's Index(EMI) is above-par at 213.80, up from Friday's new 2011 low of 211.88 and below the 1-month moving average of 266.27. The EMI continues to be down from the high set on January 4th and the 1-month moving average has established a troubling downtrend.

The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 79.68 up from Friday's close of 79.08 and above the 1-month moving average is 78.45. Gold is gaining value. Today's Value Adjusted Gold Price (VAGP) is $1,601.2/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value 0f 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious 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 gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Below is a chart of the GVI at Friday's close. The magenta line shows the GVI, a 1-month moving average is given by the blue line and the dotted line represents a "fair value" for a commodity-based valuation based on historical data (a larger, more readable chart can be found near the bottom of the blog page):



Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $98.61
ICE North Sea Brent crude $119.96
Spread (ICE- NYMEX) = $21.35 (Friday $18.85)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $99.77
ICE North Sea Brent crude $118.88
Spread (ICE- NYMEX) = $19.11 (Friday $16.77)

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

Prices are off their crisis highs but we still have $110 Brent and $90+ NYMEX in September favoring high oil prices throughout the summer. Today's jump in spreads is notable. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners. With supply and demand fundamentals returning to the commodity space, diminishing correlations between key commodities are less alarming but trends should still be carefully monitored especially with spiking oil prices.

Here are the latest correlations given this morning's NYMEX/COMEX trading:

Oil/Au correlation +0.5572(1-month) -0.0338 (3-month)
Cu/Au correlation +0.6125 (1-month) -0.5505 (3-month)
Cu/Oil correlation +0.6831 (1-month) +0.6560 (3-month)

Here are the numbers from our last roundup (5/31/2011):

Oil/Au correlation +0.7892(1-month) +0.2439 (3-month)
Cu/Au correlation +0.7658 (1-month) -0.4468 (3-month)
Cu/Oil correlation +0.7342 (1-month) +0.5404 (3-month)

We now have two negative correlations with further deterioration in copper versus gold (1-month)and oil versus gold has just put a toe in 3-month negative territory, a bearish sign. Copper versus oil (3-month) maintains a fairly tight positive correlation for both 1- and 3-month data (>0.6). The metals & miners tend to do best when all correlations are positive.

According to my new June models (see bottom of blog page): oil is presently undervalued with respect to gold by -1.57 standard deviations and copper is undervalued by -0.81-standard deviations. Copper is presently undervalued with respect to oil by -0.76-standard deviations.

One way to visualize these correlations over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations (aka "rho") as shown below in a graph of oil versus gold and copper versus gold. The blue line indicates the correlation trajectory since October 1st; the magenta line is more recent data (ref: China to the Rescue?):



In the case of oil versus gold, we start out on 10/1/10 in the "+,-" or "yellow" quadrant and move upward until both are positively correlated (i.e. in the "+,+" or "green" quadrant). Copper correlated positively faster than oil last fall and has was initially in the green quadrant longer. Correlation data in this region is typically considered bullish. After a brief venture into the "-,+" quadrant, the return of oil vs gold to the "+,+" side was bullish but now with a drop into "+,-" quadrant the trajectory has turned bearish; the movement of copper vs gold in the "+,-" quadrant is down and bearish.

Gold:Oil, Oil:Copper & Gold:Copper Ratios

The Report has been tracking the stability of the gold:oil, oil:copper & gold:copper ratios. Although they ended last year rock solid (<3% variation, 1-standard deviation/mean) the ratios have diverged. The period of divergence is what prompted my January 14th comment to Adella Harding, Elko Daily Free Press, "The recent divergence of our lustrous friend [gold] from copper and oil...may signal a near-term correction for the overall metals and mining sector.". The mining sector remains on shaky ground.

Once the ratios exceed 3% error, they become less useful in predicting the price moves of one commodity with respect to the another in the ratio pair. The errors have been falling lately which suggests a return to greater stability.

For the past 3-months we have these statistics given this mornings' numbers:

Gold:Oil ratio

mean 14.289 bbl/oz
variation > 3.0% limit at 5.82% (1-standard deviation/mean)

Oil:Copper ratio

mean 24.85 lbs/bbl
variation > 3.0% limit at 3.86% (1-standard deviation/mean)

Gold:Copper ratio

mean 354.84 lbs/oz
variation > 3.0% limit at 5.70% (1-standard deviation/mean)

Weekly Molybdenum Roundup

Spot prices for molybdenum oxide are below $17/lb territory with $16.42/lb out West and $16.60/lb in Europe. Western and Euro moly spot prices remain in a mild contango with both 3-month and 15-month London Metal Exchange (LME) seller contracts. (contango occurs when the price of a commodity for future delivery is higher than the spot price, or a far future delivery price is higher than a nearer future delivery; backwardation is the opposite of contango).

The 3-month seller at $17.01/lb is comfortably above the Colonel's mid-range moly price target for 2010 of $15.71/lb but below my target of $20.21/lb for 2011. The Report will give moly prices a "yellow-green" light on the Eureka Outlook Dashboard for now. I did believe we could see much higher prices this year although recent commodity reversals have put a damper on that expectation. There is an excellent analysis of the supply/demand argument for $20+/lb moly provided by General Moly's Seth Foreman in the General Moly Update.

Here is a detailed pricing summary for last week:

Western Moly Oxide $16.42/lb (FeMo65, the price tracked by Infomine - see the side bar graph in the lower right column)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $16.60/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $37,200/metric ton $16.87/lb

3-Month (Buyer) $36,750/metric ton $16.67/lb
3-Month (Seller) $37,500/metric ton $17.01/lb

15-Month (Buyer) $35,500/metric ton $16.10/lb
15-Month (Seller) $38,750/metric ton $17.58/lb

Here is a 1-year chart of the LME 3-month contract (seller), please ignore the data glitch at the far right hand portion of the LME chart:




Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is ON - The miners are in a rough shape; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 200-day average of $51.08(our new warning level, 06/10 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The YELLOW light is turned back on for Investor Confidence as investors begin to avoid commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90/bbl

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.68 in early trading at $98.61 (July contract, most active); Gold is down $2.2 to $1527.0 (August contract, most active); Silver is down $0.612 to $35.715 (July contract, most active); Copper is down 0.0290 to $4.0290 (July contract, most active)

Western Molybdenum Oxide is $16.42; European Molybdenum Oxide is $16.60; LME moly 3-month seller's contract is $17.01, LME cash seller is $16.87

Stock Market Morning Update

The DOW is up 39.43 points to 11,991.34; the S&P 500 is up 3.89 at 1,274.87

Miners are mixed:

Barrick (ABX) $43.52 down 0.09%
Newmont (NEM) $52.16 up 0.12%
US Gold (UXG) $5.66 down 1.39%
General Moly (Eureka Moly, LLC) (GMO) $4.36 up 0.93%
Thompson Creek (TC) $9.55 up 0.53%
Freeport-McMoRan (FCX) $49.01 up 0.16% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.82 up 0.07%

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

ArcelorMittal (MT) $32.26 up 0.12% - global steel producer
POSCO (PKX) $100.25 up 0.59% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.21% at $1,612,483.46(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

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

Gartman, RBS Thoughts on Gold & Silver

Morning Miners!

It is 5:54 AM. Have a cup of delicious Raine's Red Label TGIF. Let's scratch our heads on gold & silver after Thursday's whirlwind...

Gold & Silver New Records

COMEX gold and silver both made new records yesterday. Gold started the race at 10:30 ET but silver quickly responded to break above $38/oz pegging $38.180/oz. COMEX gold inched out its March 7th watermark rising to a peak of $1,448.60/oz. The gold/silver ratio for the two records is at multi-decade low of 37.94. The steady decline in this closely watched ratio has not missed the attention of two savvy investors as we'll discover in a moment.

NYMEX oil came within a few cents of its latest record but fell back before making the score.

Let's update our record book for the big three metals together with NYMEX and ICE Brent crude:

COMEX Gold $1448.60/oz 10:30 ET 03/24/2011, April contract most active (new)
COMEX Silver $38.180/oz 10:50 ET 03/24/2011, May contract most active (new)
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $106.95/bbl 08:05 ET, 03/07/2011, April contract most active
ICE Brent crude $119.79/bbl 02:45 ET 02/24/2011, April contract most active

Gartman, RBS Thoughts on Gold & Silver

Kitco News carried Dennis Gartman's latest thoughts on gold, silver and equities in a "Market Nugget." Gartman is the author of the Gartman Letter and one of the Colonel's favorite metallic prognosticators.

Market Nuggets: Gartman: Silver Outperformance Vs. Gold Bodes Well For Equities (Kitco News, Market Nuggets, 3/25/2011)

Market Nuggets tend to be fleeting on this website so I'll try to boil down the message. Steve Cortes, a CNBC contributor and one of my other favorites, apparently showed Mr. Gartman a chart that indicated equities historically do well when the gold/silver ratio compresses and less well when it expands. Mr. Gartman says, when silver outperforms gold, as has been the case lately, "we must err bullishly of equities," and conversely when silver loses relative to gold, "we’ll err bearishly instead."

Mr. Gartman concludes, "We have long argued that silver’s strength relative to gold tells a story of economic growth, for silver is both industrial and precious, and the gold/silver ratio moves in silver’s favor when industrial activity is high and rising."

On June 7th 2010, arguably the worst day for the metals & miners, the gold/silver ratio was 68; today it is 38. But, according to the latest RBS Commodity Companion publication, the fortunes of gold & silver may change as we look towards the next several years. There is an informative article about this voluminous document on Mineweb this morning:

Aluminium, copper, PGMS to perform over next 3 years - RBS
(Rhona O'Connell, Mineweb, 24 Mar 2011)

Th gist of the summary is that RBS prefers aluminium, copper, platinum and palladium to bulk commodities and silver looking out to 2014. According to RBS, "gold, silver, coal and iron ore are now richly priced and set to fade." They are particularly down on silver, "Silver is the least preferred metal."

If RBS is correct we may see a drop in gold prices with a steeper decline in silver bringing the gold/silver ratio back to more typical levels seen before the collapse of Lehman Brothers, say 50-56. In that light $1400/oz gold would support $25-$28/oz silver prices. Pick your own numbers, pardner and stay tuned...they may also be wrong.

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa. It is still above $100/bbl with a large but narrowing spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $105.33
ICE North Sea Brent crude $115.71
Spread (ICE- NYMEX) = $10.38 (Yesterday $8.69)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $106.29
ICE North Sea Brent crude $115.32
Spread (ICE- NYMEX) = $9.03 (Yesterday $7.76)

*(the most active front-month contracts are now May so we moved from June to July contracts for a 2-month look-ahead).

Although prices are off their crisis highs, we have $100+ Brent and NYMEX in July favoring higher oil prices through the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 474.87, up from yesterday's 446.76 and above the 1-month moving average of 386.72. The EMI continues to be down from the high set on January 4th and up from the March 15th low of 262.02 - a trend reversal may again be in the works.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is 69.45 below yesterday's 69.62 setting a new low for 2011. The 1-month moving average is 71.70.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value 0f 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

Eureka Outlook Dashboard

4-WD is ON - The miners are still in a real rough patch but Freeport may pull us out of the mud hole yet; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) moved above its 50-day and 100-day moving average today and is comfortably above its 200-day average of $44.85 (our new warning level, 03/04 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The RED light is turned on our Fuel Gauge with oil above $100

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.27 in early trading at $105.33 (May contract, most active); Gold is down $0.7 to $1434.2 (April contract, most active); Silver is up $0.105 to $37.480 (May contract, most active); Copper is up $0.0275 to $4.4520 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.75; LME cash seller is $16.81, LME moly 3-month seller's contract is $17.01

Stock Market Morning Update

The DOW is up 29.67 points to 12,200.23; the S&P 500 is up 2.83 at 1312.49

Miners are mixed:

Barrick (ABX) $51.81 up 0.39%
Newmont (NEM) $54.73 up 0.39%
US Gold (UXG) $8.69 up 1.76%
General Moly (Eureka Moly, LLC) (GMO) $5.31 down 1.67%
Thompson Creek (TC) $12.53 down 0.24%
Freeport-McMoRan (FCX) $54.88 up 0.99% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.26 up 0.19% - global steel producer
POSCO (PKX) $112.94 up 1.15% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.47% at $1,888,777.95 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

Headline photograph by Mariana Titus (Eureka December 2005)

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market