Eureka Miner's 2-Year Anniversary; Silver Breaks $38

Þūnresdæg
Morning Miners!

It is 5:49 AM. Have a cup of Thor's Day Thunder. I can hardly be too upset with our favorite Norseman this morning. His heart was in the right place when he tried to bake a cake for the Eureka Miner's second anniversary. Either there was too much yeast in the pan or the thunderbolt was too hot but we have more cake on the walls of the break room than on our table. We'll just have to settle for a hot cup of Thor's famous java, happy anniversary miners!

The Eureka Miner's 2-Year Anniversary

This will be the four hundred and fifty ninth morning market report since we went on the air March 24th 2009. That was 2-weeks after the worst drop in the stock markets that most living folks remember. Copper was a $1.80/lb, gold was $940/oz and T. Boone Pickens had just predicted that oil would see $60/bbl before $40/bbl. The average price for NYMEX crude at that time was $42/bbl. General Moly stock closed at $1.23 and Barrick stood at $32.06. There were grave concerns about global recovery and further crumbling of markets.

That was then, this is now. Copper is up a healthy $4.44+/lb, gold is trading above $1400+/oz and COMEX silver just set a new record at an eye-popping $38.180/oz. Of course, NYMEX oil is a chilling $105+/bbl taking some of the fun out of the party.

In May of 2009, the Report put together a portfolio of 12 stocks that directly or indirectly impact mining in Eureka County, Nevada. The ole Colonel gave the readers one million dollars of play money to invest and today the Eureka Miner's Grubstake Portfolio is worth $1,882,878.82. General Moly is trading today at $5.38 and Barrick is standing tall at $51.78. I'd say we've come a long way together, pardner.

Some fun facts about the Eureka Miner's Market Report

When I started the Report, my intent was to provide Eurekans a summary of how metal and equity markets fare every morning, especially those that influence the mining concerns in our area. Surprisingly, there has been considerable interest in what Eureka is up to beyond our county borders. Here are some fun facts:

The Report has had 4,880 domestic and international visitors.

92 countries and territories have checked out the Eureka Miner. The top five as a percent of total visits are:

United States 88.4%
Canada 2.8%
United Kingdom 2.0%
India 0.9%
Australia 0.8%

Every state and territory in the U.S.A. has dropped by for an occasional read. The top five are:

Nevada 30.4%
California 17.9%
Colorado 7.6%
New York 5.4%
Virginia 3.6%

Over two years the average reader of the report has spent 3 minutes and 35 seconds checking out the latest market news. Our biggest day was 208 readers; lately, the average traffic is about 50 readers per day.

The internet traffic breaks out like this:

Direct traffic 37.9%
Referring sites 37.3%
Search engine 24.9%

The ole Colonel also places an occasional beer bet with the readers on commodity and stock prices. Here's who owes who:

2010 Prediction Accuracy 77.8%
2010 Score: 15 Bets; Colonel 7 beers, Readers 2, Rollovers 6

2009 Prediction Accuracy 71.4%
2009 Score: 14 Bets; Colonel 10 beers, Readers 4, Rollovers 0

This year I predicted we'd see $100/bbl oil, $36/lb silver and $1,570/oz gold before the Fourth of July. We still have to get gold in the bag but there are a lot of market days left before Independence day.

Thank you all for you faithful readership, contributions and support!

I would also like to thank my sweetheart Mariana for taking all the terrific headline photographs for the Report. Mariana Titus has been photographing the folks and environs of Eureka since the mid-1980s.


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 $105.99
ICE North Sea Brent crude $114.68
Spread (ICE- NYMEX) = $8.69 (Yesterday $10.26)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $106.61
ICE North Sea Brent crude $114.37
Spread (ICE- NYMEX) = $7.76 (Yesterday $9.10)

*(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 446.76, up from yesterday's 362.77 and above the 1-month moving average of 384.45. The EMI continues to be down from the high set on January 4th and up from the March 15th low of 262.02

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.

Eureka Outlook Dashboard

4-WD is ON - The miners are still in a real rough patch; The VIX or "fear index" is just below 25; bellwether Freeport-McMoRan (FCX) is just above its 50-day and 100-day moving average and 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 up $0.24 in early trading at $105.99 (May contract, most active); Gold is up $1.0 to $1439.0 (April contract, most active); Silver is up $0.457 to $37.665 (May contract, most active); Copper is down $0.0110 to $4.4175 (May contract, most active)

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

Stock Market Morning Update

The DOW is up 32.70 points to 12,118.72; the S&P 500 is up 2.19 at 1299.73

Miners are mixed:

Barrick (ABX) $51.78 down 0.48%
Newmont (NEM) $54.75 down 0.15%
US Gold (UXG) $8.59 down 0.23%
General Moly (Eureka Moly, LLC) (GMO) $5.38 down 1.82%
Thompson Creek (TC) $12.69 down 0.31%
Freeport-McMoRan (FCX) $54.26 down 1.13% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $35.61 up 0.37% - global steel producer
POSCO (PKX) $111.20 down 1.11% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.21% at $1,882,878.82 (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

What Is the Value of Gold? Ask the GVI

Wōdnesdæg
Morning Miners!

It is 5:49 AM. Have a cup of hump day bliss. Old Miner Woden is in a huff this morning because I questioned the value of gold. You would have thought I said something unkind about his dear departed mother...

The Gold Value Index (GVI)

As the U.S. dollar plumbs new depths and gold prices on the rise again, it is not unreasonable to question the value of gold with respect to other commodities. Last month the Report looked at the value of gold with respect to oil, silver & copper (Gold's Dramatic Drop in Value, 2/28/2011). We noted that a barrel of NYMEX oil fetched about 22 pounds of copper, roughly the same as last Thanksgiving. By contrast, an ounce of gold bought far less copper last month than last November. Even though gold prices were above $1400/oz in late February, an ounce of gold bought far fewer ounces of silver than when it was trading in the $1350+/oz range during the fall of 2010.

To carry this line of thinking a little further, the ole Colonel thought it may be fun to look at gold in relation to a composite of three popular ratios - gold/oil (Au:Oil), gold/silver (Au:Ag) and gold/copper (Au:Cu). Removing the currency dependency, we are asking the same questions, "How many barrels of crude can I buy with an ounce of gold? How many ounces of silver? How many pounds of copper?"

Let's call this composite a "gold value index" or GVI. For the math buffs, I've included the formulation for the GVI in Note 2 at the end of the blog page. Basically, the GVI gives you a single number that rolls up the relative value of gold with respect to oil, silver and copper. Somewhat arbitrarily I chose June 7th of last year to give the GVI par-value of 100. As you may remember, this was the day the DOW closed below the so-called "flash crash" low recorded a month earlier (note 3) and was arguably one of the worst days for the metals & miners in 2010.

Here is a plot of our newly minted GVI (magenta line) from last June to today (a larger and more readable chart is included near the end of this blog page):


Somewhat surprisingly, the GVI has been below par ever since that fateful day in June. The gold/silver ratio is a big driver in this formulation falling lately to sub-40 multi-decade lows. However, gold has also lost considerable value to both copper and oil. The latter case has seen some relief recently but nonetheless the GVI remains on a downtrend (note the 1-month average, blue line). To add insult to injury, the GVI pegged a low at 69.85 on the day COMEX gold set a new record on March 7th. Ironically, the GVI was driven down by silver's new reach for the heavens on that same day.

Here are the end-points for relative value comparison:

Gold/oil: 25.9 bbl/oz (6/7/10) 13.6 bbl/oz (today) down 47.5%
Gold/silver: 68.3 oz/oz (6/7/10) 41.5 oz/oz (today) down 39.2%
Gold/copper: 449 lbs/oz (6/7/10) 323 lbs/oz (today) down 28.1%

By contrast, copper has actually risen in value with respect to oil over the same period:

Copper/oil: 0.0385 bbl/lb (6/7/10) 0.0420 bbl/lb (today) up 9.1%

A gold miner like Barrick is now paying more for fuel in terms of their product than last June; copper miners like Freeport-McMoRan are paying less. Since miner's use refined oil products, we can tune up this comparison by figuring out how many gallons of diesel can be bought with an ounce of gold and a pound of copper*:

One ounce of gold buys 373 gallons (6/7/10) 338 gallons (today) 9.4% less diesel

One pound of copper buys 0.83 gallons (6/7/10) 1.04 gallons (today) 25.6% more diesel

*(Eureka retail diesel prices were used for this analysis. In fact, miner's pay a bulk rate and some may hedge fuel costs. The comparison is nonetheless illustrative for relative value comparison)

Today the GVI is at 70.84 down 29.2% from 6/7/10. The Report will soon begin to carry the Gold Value Index so we can see if glitter can recover some shine.

Pete Goicoechea talks about field audits for Nevada mines

Mining Editor Adella Harding of the Elko Daily Free Press ran a good article on Pete Goicoechea's thoughts on the pending field audits for Nevada mines:

Goicoechea: No field audits in 7-8 years (Adella Harding, Elko Daily Free Press, 3/22/2011)

Stay tuned, there will be more to this story, pardner.

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 $105.20
ICE North Sea Brent crude $115.46
Spread (ICE- NYMEX) = $10.26 (Yesterday $12.06)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $106.10
ICE North Sea Brent crude $115.20
Spread (ICE- NYMEX) = $9.10 (Yesterday $10.71)

*(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 362.77, down from yesterday's 366.99 and below the 1-month moving average of 387.02. The EMI continues to be down from the high set on January 4th and up from the March 15th low of 262.02

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.

Eureka Outlook Dashboard

4-WD is ON - The miners are in a real rough patch; The VIX or "fear index" is just below 25; bellwether Freeport-McMoRan (FCX) is between its 100-day and 150-day moving average and 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 $0.17 in early trading at $105.02 (May contract, most active); Gold is up $3.8 to $1431.4 (April contract, most active); Silver is up $0.196 to $34.465 (May contract, most active); Copper is up $0.1150 to $4.4280 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.90; LME moly 3-month seller's contract is $16.78, LME cash seller is $16.58

Stock Market Morning Update

The DOW is up 3.06 points to 12,021.77; the S&P 500 is down 3.56 at 1290.21

Miners are mixed:

Barrick (ABX) $50.59 up 0.74%
Newmont (NEM) $53.43 up 0.49%
US Gold (UXG) $7.80 up 0.65%
General Moly (Eureka Moly, LLC) (GMO) $5.26 down 0.75%
Thompson Creek (TC) $12.40 down 0.48%
Freeport-McMoRan (FCX) $52.81 up 1.01% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $35.03 down 0.60% - global steel producer
POSCO (PKX) $111.49 down 0.63% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.03% at $1,826,170.93 (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).

Note 2 - Mathematically, the root-mean-square seems like a good honest broker for a relative value roll-up. Let's try this for a "gold value index":

Gold Value Index = (100/SQRT(3)) * RSS( Au:Oil, Au:Ag, Au:Cu)

where RSS is the root-sum-of-squares.

For our calculation the respective ratios are normalized so we're rolling up dimensionless quantities. I picked June 7th of last year for normalization, arguably one of the worst days for the metals & miners in 2010. Arbitrarily, the "gold value" is 100 on that day since each normalized ratio has a value of one:

Gold Value Index= (100/SQRT(3)) * RSS( 1,1,1) = 100

Note 3 - The May 6, 2010 Flash Crash also known as The Crash of 2:45, the 2010 Flash Crash or just simply, the Flash Crash, was a United States stock market crash on May 6, 2010 in which the Dow Jones Industrial Average plunged about 900 points - or about nine percent - only to recover those losses within minutes. It was the second largest point swing, 1,010.14 points, and the biggest one-day point decline, 998.5 points, on an intraday basis in Dow Jones Industrial Average history (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

"A Silver Dollar is Gold"

Morning Miners!

It is 6:03 AM. Have a cup of Tuesday and let's checkout Ruby T. She's been sitting at the break table all morning stacking and counting her formidable collection of silver dollars. She just winked at the ole Colonel and said, "A silver dollar is gold!"

A Silver Dollar is Gold


I guess it is natural to have someone in the Silver State take a liking to silver dollars, Ruby sure has. It has also been one of the wisest investments I can imagine as we watch the debasement of paper currencies around the developed world including our poor ole greenback. In just the last six months silver has risen 70% to gold's 10% while the U.S. Dollar Index has dropped nearly 7%. U.S. Federal reserve quantitative easing and inflation fears in emerging economies have taken their toll on our fiat money...that's the stuff in your wallet that has value only because the government says it does. Lately that's been a lot of "here's hoping."

Those that read this Report know the ole Colonel occasionally invests in the U.S. Dollar Index through the DB US Dollar Index Bullish Fund (UUP). I'm just a contrary old cuss that likes to pick up things that most folks hate. I also buy gold and silver through the popular SPDR gold trust exchange traded fund (GLD) and the iShares Silver Trust (SLV). There's a lot of love in those two lately so the combination of UUP, GLD & SLV is a decent way to hedge your bets on precious metals.

Phooey! I'm guessing that's what my friend Johnny may think of my approach - he just buys silver dollars. I'd have a hard time trying to convince either Johnny or Ruby they are on the wrong path. Silver dollars have collector value and rise with the price of silver too! Some of the rarer coins have fetched several million dollars in the collector's market.

So why is silver doing so well lately? One attraction is that silver has a much broader industrial application than gold and that demand is expected to grow with even broader applications for silver in the future. Its use in high energy density batteries is one example that comes to mind. The other factor is that silver is regaining its role as a monetary metal. There is a good Mineweb article on this topic:

Silver's monetary role contributing to the metal's explosive growth (Mineweb, VANCOUVER, BC - www.BNWnews.ca, 3/21/2011)

The author states, "Silver is increasingly becoming a global monetary metal, mostly due to inflationary concerns and the debasement of the world's major currencies," and adds, "...enormously growing demand, particularly in China and India, will keep the silver price rising and outperforming gold in the process."

The article goes on to quote Eric Sprott, founder of the Toronto-based investment firm Sprott Asset Management, as saying:

"Asian demand for physical gold and silver is like a tsunami. The inflation resurgence in Asia is quietly driving new, unforeseen levels of physical demand for these metals."

And...

"While the world continues to float on a sea of paper, this massive wave of physical demand silently threatens to crash into the physical gold and silver market, wiping out tangible supply."

Hmm, that pretty much covers the silver outlook, buckaroos. Have a good read. Ruby has just finished counting her wise investment, I think she's heading up town this afternoon to buy Johnny a beer. The Colonel wasn't invited, numismatists only.

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 $102.31
ICE North Sea Brent crude $114.37
Spread (ICE- NYMEX) = $12.06 (Yesterday $12.09)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $103.48
ICE North Sea Brent crude $114.19
Spread (ICE- NYMEX) = $10.71 (Yesterday $10.67)

*(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 366.99, up from yesterday's 358.77 and below the 1-month moving average of 397.90. The EMI continues to be down from the high set on January 4th and up from the March 15th low of 262.02

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.

Eureka Outlook Dashboard

4-WD is ON - The miners are in a real rough patch; The VIX or "fear index" is just below 25; bellwether Freeport-McMoRan (FCX) is between its 100-day and 150-day moving average and 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 $0.78 in early trading at $102.31 (May contract, most active); Gold is down $3.4 to $1423.0 (April contract, most active); Silver is up $0.151 to $35.850 (May contract, most active); Copper is up $0.0055 to $4.2915 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.90; LME moly 3-month seller's contract is $17.01, LME cash seller is $16.81

Stock Market Morning Update

The DOW is down 14.01 points to 12,022.52; the S&P 500 is down 2.66 at 1295.72

Miners are mostly down:

Barrick (ABX) $50.07 down 0.50%
Newmont (NEM) $51.80 up 0.19%
US Gold (UXG) $7.60 down 0.39%
General Moly (Eureka Moly, LLC) (GMO) $5.26 down 0.75%
Thompson Creek (TC) $12.51 down 1.18%
Freeport-McMoRan (FCX) $51.82 down 1.14% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $35.07 down 1.71% - global steel producer
POSCO (PKX) $114.46 down 0.03% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.48% at $1,813,327.72 (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

Oil & Gold Up, Copper Steady, Moly Cautious - Metals & Miners Weekly Roundup

Morning Miners!

It is 5:56 AM. Have a Monday cup of fuel price jitters. It was a ball-the-jack evening run through Mojave, California, January 2006 - Gas was $2.37 and life was easy; that was then, this is now...

Oil & Metals Outlook

I guess we shouldn't be surprised that a war in Libya added to the fallout from Japan's horrific earthquake, tsunami and nuclear cliff-hanger would push oil prices higher. NYMEX crude rolled to a new contract last week and presently is trading at $103.83/bbl; Brent crude is grabbing for the $116 handle at $115.92/bbl (see daily oil report below).

There is considerable discussion on whether the net effect of all this global upheaval will be oil supply disruption (prices up) or demand destruction (prices down). Fundamental support is in the NYMEX $85-$90/bbl range but further crisis escalation in the Arab world could easily spike us to $120-$150/bbl with some experts claiming $200/bbl is on the horizon.

We start this week with a barrel of oil not only because it is an important cost to mining companies and ordinary Americans facing higher gas prices but gold has been tracking oil tighter than a barrel band. COMEX gold is up $15.6 today trading at $1431.7/oz with a tight 1-month correlation of 0.85 (see correlation watch below). In simple terms: oil goes up gold goes up and watch out for vice-versa if everything suddenly gets nice-nice. With the present oil/gold ratio of 13.8, gold could head to sub-$1300 territory or fly north to $1600+ or perhaps even $2000+. That's volatility, pardner. I'll stick with my prediction of $1,570/oz before the Fourth of July.

Remember, another important factor supporting gold's rise is currency instability. Last week the G7 economies intervened to blunt the rise of the Japanese yen - the U.S. dollar strengthened some but the euro got the biggest boost which put pressure on the U.S. Dollar Index (.DXY). This morning the .DXY is plumbing record depths - hang on to your dollars, they should make good kindling for cold mornings.

With all this turmoil how are the metals doing? Let's look at two of our favorites, copper and molybdenum. COMEX copper has been extremely resilient trading in a range of $4.30-4.38/lb since St. Paddy's Day. This morning it is down a bit but hanging in bravely at $4.3150/lb. Reuters this morning looks at some of the forces behind the red metal price:

METALS-Copper rises; eyes China tightening, MidEast turmoil (Reuters, Mon Mar 21, 2011 8:23am GMT)

Molybdenum has also put on a brave but more cautious face. European moly oxide dropped last week to $16.90/lb which is just on the lower trend-line from its steady rise from last summer. Western Moly is still unperturbed at $17.00/lb but we could see a drop here too (see Molybdenum Weekly Roundup below). Platts carried an article Friday on some of the pressures on the Chinese and European moly trade:

Sino-European molybdenum trade (Platts, Hong Kong--18Mar2011/956 am EDT/1356 GMT)

Eureka Miner's Index (EMI)

The broader markets are now open and it looks like they are climbing a wall of worry in full bull mode. The DOW is up 200 points and the miners are smiling (mostly).

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 358.73, up from from Friday's close at 307.33 and below the 1-month moving average of 408.48. The EMI continues to be down from the high set on January 4th, it set a new 2011 low on March 15th.

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.

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 $103.83
ICE North Sea Brent crude $115.92
Spread (ICE- NYMEX) = $12.09 (Last Friday $13.28)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $104.84
ICE North Sea Brent crude $115.51
Spread (ICE- NYMEX) = $10.67 (Last Friday $11.35)

* (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.

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 +0.8522 (1-month) +0.7814 (3-month)
Cu/Au correlation +0.0157 (1-month) -0.2128 (3-month)
Cu/Oil correlation -0.2750 (1-month) -0.3183 (3-month)

Here are the numbers from the last roundup (3/14/2011):

Oil/Au correlation +0.9547 (1-month) +0.7448 (3-month)
Cu/Au correlation -0.5077 (1-month) -0.1636 (3-month)
Cu/Oil correlation -0.5832 (1-month) -0.1235 (3-month)

We now have as many negative as positive correlations. Oil and gold continue to move in a strong positive direction. Copper versus gold is just stepping outside an inversion (i.e. both one-month & three-month value correlations are negative) as its 1-month turns positive this morning. Copper versus oil remain in a solid inversion . The metals & miners tend to do best when all correlations are positive.

According to my March models (see bottom of blog page): oil is presently overvalued with respect to gold by +4.16-standard deviations and copper is overvalued by +0.70-standard deviations. Copper is presently under-valued with respect to oil by -0.90-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 is bullish; the movement of copper vs gold into the "-,-" inversion region was a bearish development but its movement into the "+,- region is encouragng. Stay tuned.

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 in correction except gold miners are getting some lift with rising gold prices.

Here is a plot of the variation for both ratios as well as the copper/oil ratio (a larger, more readable chart can be found near the bottom of the blog page):



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.

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

Gold:Oil ratio

mean 14.93 bbl/oz
variation > 3.0% limit at 4.54% (1-standard deviation/mean)



Oil:Copper ratio

mean 21.22 lbs/bbl
variation > 3.0% limit at 7.69% (1-standard deviation/mean)

Gold:Copper ratio

mean 315.8 lbs/oz
variation > 3.0% limit at 3.98% (1-standard deviation/mean)

Weekly Molybdenum Roundup

Spot prices for molybdenum oxide remain in $17/lb territory out West but dipped below to $16.90/lb in Europe. Western and Euro moly spot prices are now in 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 is 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 because I do believe we could see much higher prices this year although the Middle East and Japan crisis must be watched closely. 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 $17.00/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $16.90/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $37,050/metric ton $16.81/lb

3-Month (Buyer) $36,200/metric ton $16.42/lb
3-Month (Seller) $37,500/metric ton $17.01/lb

15-Month (Buyer) $37,550/metric ton $17.03/lb
15-Month (Seller) $38,550/metric ton $17.49/lb

Here is a 1-year chart of the LME 3-month contract (seller):



Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is ON - The miners are still in a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is between its 100-day and 150-day moving averages and 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 up $1.98 in early trading at $103.83 (May contract, most active); Gold is up $15.6 to $1431.7 (April contract, most active); Silver is up $0.852 to $35.910 (May contract, most active); Copper is down $0.0240 to $4.3150 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.90; LME moly 3-month seller's contract is $17.01, LME cash seller is $16.81

Stock Market Morning Update

The DOW is up 205.55 points to 12,064.07; the S&P 500 is up 20.22 at 1299.42

Miners are mostly happy:

Barrick (ABX) $50.16 up 1.54%
Newmont (NEM) $51.17 up 0.55%
US Gold (UXG) $7.51 up 0.27%
General Moly (Eureka Moly, LLC) (GMO) $5.17 down 1.71%
Thompson Creek (TC) $12.65 up 0.96%
Freeport-McMoRan (FCX) $51.85 up 0.14% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $35.37 up 2.25% - global steel producer
POSCO (PKX) $113.85 up 1.49% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.88% at $1,803,919.39 (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

Libya Cease-Fire, G7 Halts Yen, China Tightens

Morning Miners!

It is 5:47 AM. have a welcome cup of Raine's Friday Flag Raiser. It has been quite a week for news, let's see what headlines are rocking the metals & miners this morning...

Libya Cease Fire, G7 Halts Yen, China Tightens

The Wall Street Journal reports this morning that Libya's foreign minister Musa Kusa said, "...his country will abide by the U.N. resolution and will implement an immediate ceasefire and end to all military operations across the country." Apparently the threat of jets on their way was enough to cause Moammar Gadhafi to blink:

"Earlier on this morning, U.K. Prime Minister David Cameron said Britain had begun to deploy aircraft to enforce a no-fly zone in Libya, and Qatar became the first Arab nation to join the mission, after the United Nations Security Council authorized military force against Libyan leader Col. Moammar Gadhafi's regime." (WSJ, 03/18/2011)

Far from over, this is a major step in relieving some of the supply disruption fears coming from this oil rich region. NYMEX is still above $100/bbl but down from yesterday presently trading at $100.72/bbl (see Daily Oil Watch below).

The next headline of note is yesterday's intervention by the Group of Seven (G7) economies to halt the strengthening yen. Coordinated selling of the Japanese yen by some of the G7 members weakened the yen against the U.S. dollar and euro, the world's two other reserve currencies. The recent and dramatic rise in yen strength has been attributed to "repatriation" of Japan's currency in response to their earthquake-triggered multiple disasters. So far, it appears the euro benefited over the dollar trading presently at 1.4135 (EUR/USD) with the yen at 81.16 (USD/JPY). One euro now buys 114.7 yen (EUR/JPY). Yesterday, the U.S. dollar fell to a post-World War II low against the yen of 76.25 (USD/JPY).

So what do all these currency machinations do for metals? Most commodities are "dollarized" so a weakening dollar tends to support commodity prices. We saw everything from copper to corn bounce yesterday, due in part to the strengthening yen. However, the rise in the euro today against the dollar has actually pushed the U.S. dollar index (a basket of currencies including the yen and euro) to near November lows. Presently the index is at 75.83; the November low was 75.631 on 11/4. The net overall effect on commodity prices given the G7 intervention is therefore far from clear (at least to this ole boy). COMEX copper seems to be holding up alright down only $0.0100 from yesterday, trading at $4.3340/lb. The London Metal Exchange had a fitting headline for the morning's uncertainty, "Buying momentum stalls across [metal] complex, doubts cast on sustainability of bounce."

To add to the confusion, China raised banks’ reserve requirements for the third time this year. They reckon that inflation remains a bigger threat to the world’s second-largest economy than Japan’s earthquake and nuclear crisis. Any monetary tightening in China puts pressure on metal prices because traders begin to question the vigor of the global growth story. These worries were further aided by an Indian rate hike yesterday. News of currency instability together with inflation was apparently good for gold and silver prices; COMEX gold is up $12.6 to $1,416.8/oz, COMEX silver up $0.792 to $35.05/oz.

The broader markets are now open and it looks like at least the miners are liking the morning headlines as the Eureka Miner's Index(EMI) gets a nice bump up from yesterday (see below). Have a good weekend.

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. The most active front month contract remains above $100/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 this volatile region.

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

NYMEX light sweet crude $100.72
ICE North Sea Brent crude $114.00
Spread (ICE- NYMEX) = $13.28 (yesterday $13.21 )

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $102.29
ICE North Sea Brent crude $113.64
Spread (ICE- NYMEX) = $11.35 (yesterday $11.45)

Although prices are off their crisis highs, we still have $100+ Brent and NYMEX in June favoring higher prices for the summer if supply disruption outweighs demand destruction fears in the oil markets. The Colonel's 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 343.47, up from yesterday's 267.63 and below the 1-month moving average of 422.91. The EMI continues to be down from the high set on January 4th and a trend reversal in the short term is questionable.

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.

Eureka Outlook Dashboard

4-WD is ON - The miners are in a real rough patch; The VIX or "fear index" is just below 25; bellwether Freeport-McMoRan (FCX) is a tad below its 150-day moving average and 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 $0.70 in early trading at $100.72 (April contract, most active); Gold is up $12.6 to $1416.8 (April contract, most active); Silver is up $0.792 to $35.05 (May contract, most active); Copper is down $0.0100 to $4.3340 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.00; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.92

Stock Market Morning Update

The DOW is up 144.70 points to 11,919.37; the S&P 500 is up 13.08 at 1286.80

Miners are mostly up:

Barrick (ABX) $49.33 up 1.80%
Newmont (NEM) $51.79 up 1.91%
US Gold (UXG) $7.27 up 1.96%
General Moly (Eureka Moly, LLC) (GMO) $5.03 down 0.40%
Thompson Creek (TC) $12.48 up 1.71%
Freeport-McMoRan (FCX) $52.59 up 1.13% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $34.79 up 2.02% - global steel producer
POSCO (PKX) $111.29 up 2.42% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.49% at $1,773,867.79 (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

Dollar Plummets, Copper Rallies, Euro Moly Drops

Morning Miners!

It is 5:57 AM. Have a cup of Irish coffee. Oh, too early for you? Here's some Red Label. There are few things sillier than watching our favorite Norseman Thor trying to look Irish. He's painted his cap green and made a mess of the shop. Have a happy St. Paddy's!

U.S. Dollar plummets, copper rallies

One of the other casualties of the horrific earthquake, tsunami and nuclear crisis in Japan has been the poor ole greenback. The so-called "yen repatriation" trade has sent the U.S. dollar to a post-World War II low against the yen of 76.25 in very early Asian trading (i.e. one U.S. dollar buys only 76.25 Japanese yen). It has since recovered some; now trading now at 78.69, yesterday's dollar close was a higher 79.85.

Since most commodities are "dollarized", dollar weakness has lifted many this morning from copper to corn. The London Metal Exchange says it all in their morning headline, "Metals extend corrective bounce, dollar weakness aids trend." As we mentioned yesterday, the other part of the metallic rebound is the idea that Japan reconstruction will eventually support future metal demand. COMEX Copper is presently trading at $4.30/lb up more than 5% from its intraday bottom of $4.0760/lb on Tuesday.

Even though the euro has shown some weakness against the yen, it has rallied against the dollar too driving the U.S. dollar index below its 52-week low (the U.S. dollar index or .DXY is a basket of currencies that include the euro and yen). The three reserve currencies of the world are the U.S. dollar, yen and euro putting us in an unenviable third place for comparable value. Dennis Gartman, the Commodity King and respected author of the Gartman Letter has said that gold has become the world's other "reserve currency" but it has been suffering this week along with the greenback. We watched COMEX gold dip into $1,300/oz country yesterday and it has barely returned to $1,400/oz pasture. COMEX gold is presently trading at $1,400.9/oz.

Nuts. The ole Colonel thinks this currency tsunami is a bit overdone. I believe we'll see the dollar regain its mojo against both the yen and euro and that gold will resume its trek to the $1,500+/oz highlands. Why? The Japanese will no doubt resort to quantitative easing to support their massive rebuild and Europe sovereign debt bugaboos will crawl back out from under the EU rug sooner or later. Even though our second round of quantitative easing is underway and we certainly have debt problems of our own, I'm betting our U.S. economic recovery will surprise to the upside later this year. Gold will get some wind in its sails too due to quantitative easing and global inflation fears.

On days like this I buy the DB US Dollar Bullish Fund (UUP) just to be a contrary old cuss. Please do your own research, I may be dead wrong.

The Colonel wins a bet, Euro Moly drops

One thing I've been right about is downward pressure on European molybdenum prices. Even though Western Moly has been steady-eddy for some time, changes in Euro moly oxide prices are important because Europe, with a high molybdenum content in their steels, creates a major share of global demand . On February 23rd we put the London Metal Exchange moly futures contracts to a test when the ole Colonel said:

"In Europe we've gone from contango to backwardation on the 3-month seller contract and spot price. I'm willing to place a bet that we'll see a fall in European spot prices soon. Here's a good Irish beer bet: European Moly Oxide will break below $17.50/lb before St. Patrick's day 2011." (Eureka Miner's Market Report, 2/23/2011)

Yesterday, European moly oxide prices dropped from $17.60/lb to $17.00/lb. On February 23rd Euro moly oxide was $17.82/lb - somebody buy me a beer!

We are now back to an orderly LME contango with respect to spot prices*:

Spot prices:

Western moly oxide $17.00/lb
Europena Moly Oxide $17.00/lb

LME futures contracts:

3-month seller $17.15/lb
15-month $17.58/lb

* Moly price is still predominantly determined by supply and demand and not speculative interest in the LME futures market. Although thinly traded, molybdenum futures have lately been behaving more or less like the major metals with periods of contango and backwardation of the 3-month and 15-month contarcts compared to moly oxide spot prices (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).

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. The most active front month contract remains above $100/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 this volatile region.

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

NYMEX light sweet crude $99.91
ICE North Sea Brent crude $113.12
Spread (ICE- NYMEX) = $13.21 (yesterday $12.07 )

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $101.50
ICE North Sea Brent crude $112.95
Spread (ICE- NYMEX) = $11.45 (yesterday $10.47)

Although prices are off their crisis highs, we still have $100+ Brent and NYMEX in June favoring higher prices for the summer if supply disruption outweighs demand destruction fears in the oil markets. The Colonel's 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 267.63, down from yesterday's 297.53 and well below the 1-month moving average of 436.65. The EMI continues to be down from the high set on January 4th and a trend reversal in the short term is questionable.

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.

Eureka Outlook Dashboard

4-WD is ON - The miners are in a real rough patch; The VIX or "fear index" is above 25; bellwether Freeport-McMoRan (FCX) is between its 100-day and 150-day moving average again and 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 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

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $1.93 in early trading at $99.91 (April contract, most active); Gold is up $4.8 to $1400.9 (April contract, most active); Silver is down $0.012 to $34.370 (May contract, most active); Copper is up $0.1025 to $4.3000 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.00; LME moly 3-month seller's contract is $17.15, LME cash seller is $16.92

Stock Market Morning Update

The DOW is up 123.75 points to 11,737.05; the S&P 500 is up 15.41 at 1272.29

Miners are up:

Barrick (ABX) $48.56 up 0.37%
Newmont (NEM) $50.53 up 0.28%
US Gold (UXG) $7.00 up 0.86%
General Moly (Eureka Moly, LLC) (GMO) $4.93 up 2.28%
Thompson Creek (TC) $12.09 up 3.07%
Freeport-McMoRan (FCX) $51.48 up 2.37% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.89 up 3.20% - global steel producer
POSCO (PKX) $108.12 up 2.87% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.53% at $1,730,117.94 (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

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