Jobs Shocker: Gold, Silver Up; Markets Down, Miners Resilient

Morning Miners!

It is 5:26 AM. You have a choice this morning, Raine's delicious Red Label or Elko's famous White King. Old Miner Woden hitchhiked in from his Lone Mountain diggings just to brew the extra pot for market bears; the ole Colonel is getting a lot of "told you so" from the old cuss...

Jobs Shocker


There are times when all the experts get it wrong. Even CNBC's Rick Santelli thought the nonfarm payroll number would be up 83,000 from an his earlier prediction of "same as May's paltry 54,000." Rick is the bond reporter made famous by his Chicago Tea Party rant in February, 2009. Rick like others upped their estimates following yesterday's rosy ADP report that said 157,000 private-sector jobs were added in June. The consensus number moved from 108,000 to 125,000 and some economists, more optimistic about the recovery than Rick Santelli, saw 175,000 additional jobs in the ether.

Reality set in when the U.S. Labor Report came in at 5:30 AM PT - nonfarm payrolls rose a dismal 18,000 last month, a fraction of what everyone expected. CNBC's usually upbeat economist, Steve Liesman said, "We're within a round-off error of being negative." The rise in private-sector jobs barely nudged out the loss in government jobs and was a much less rosy 57,000 compared to the ADP number. The jobless rate, calculated from a separate household survey, increased for a third straight month to 9.2% in June, the highest since December 2010. Nuts.

COMEX gold and silver reacted immediately as investors sought safe haven. Gold went from $1,525.50/oz before the report release to $1,546.0/oz by 6:05 AM PT; a $20.5/oz pop or 1.3%. COMEX silver did even better rocketing from $36.15/oz to $36.90/oz; a 2.1% move. Predictably, COMEX copper took a hit falling from $4.4450/lb to $4,3810/lb by 5:55 AM PT; a 1.4% drop. Here is how gold and silver fared in London:




COMEX gold has settled back some presently trading at $1,544.5/oz; silver is at $36.770/oz and copper at $4.3965/lb.

To be a Market Bear or Not To Be?


The ole Colonel was certainly praying for a better report than this. The stagnant domestic jobs market is very discouraging. The broader markets are now open and the DOW is down a 100 points, the S&P 500 is down nearly 1% at 1,340.86. Lousy but not scary. Earnings reports commence Monday with aluminum giant Alcoa (AA) reporting after the bell. Some think that there will be surprises to the upside for many companies. Hopefully those analysts will do a better job of predicting earnings than economists have done with jobs.

I just did a calculation of our Eureka Miner's Index(EMI) and it is actually up at 328.96 compared to yesterday's 323.66 extending the rally above its 1-month moving average into the 6th day. The EMI is now well above the 2011 low of 180.03 set June 27th (see discussion below). Another positive sign for the metals & miners is the correlation trajectory of copper and gold. Both remain in a state of inversion (by this report's definition this occurs when both 1-month and 3-month correlations are negative) but the direction of change is pointed directly at positive territory (i.e. both correlations are positive). Copper fell today but did not "gap down" and will be supported by weather induced supply restrictions in Chile and improving signs for global demand.

This week I joined Ruby T in her bull pasture after hanging out with Old Miner Woden in his depressing bear camp. The ole Colonel believes that even with a dismal labor report today, the metals & miners have put the worse behind them in May-June. Just to show my conviction, I pitched a few a few shares of Caterpillar (CAT) in the buckboard this morning as that stock pulled back 2.4%. Fire up the CATs, there's still a lot of mining to be done in this resource-stretched world!

Please do your own research, the ole Colonel could be dead wrong.


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 328.96, up from yesterday's 323.66 and above the 1-month moving average of 236.42. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. The 1-month moving average broke its troubling downtrend on May 2nd.

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 hot and cold markets 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 78.08, up from yesterday's 77.09 and below its 1-month average of 79.89. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,652.9/oz or $128.3/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend but now appears to be back on the down slope.

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 $97.40
ICE North Sea Brent crude $118.38
Spread (ICE- NYMEX) = $20.98 (Yesterday, $18.03)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $98.41
ICE North Sea Brent crude $117.74
Spread (ICE- NYMEX) = $19.33 (Yesterday, $16.70)

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

Prices are off their crisis highs but we still have $110+ Brent and $95+ NYMEX in October favoring high oil prices throughout the summer and into fall. 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 OFF - The miners are finally on smoother roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $52.03 and 150-day moving average of $53.38 (our new key levels, 07/06 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 phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The GREEN light is turned back on for Investor Confidence as more investors return to 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 down $1.27 in early trading at $97.40 (August contract, most active); Gold is up $13.9 to $1544.5 (August contract, most active); Silver is up $0.234 to $36.770 (September contract, most active); Copper is down $0.0455 at $4.3965 (September contract, most active)

Western Molybdenum Oxide is $14.29; European Molybdenum Oxide is $14.65; LME cash seller is $14.52, LME moly 3-month seller's contract is $14.52

Stock Market Morning Update

The DOW is up 101.75 points to 12,617.74; the S&P 500 is down 12.36 at 1,340.86

Miners are mixed but resilient:

Barrick (ABX) $46.61 up 0.91%
Newmont (NEM) $55.18 up 0.38%
US Gold (UXG) $6.42 up 3.38%
General Moly (Eureka Moly, LLC) (GMO) $4.55 down 0.87%
Thompson Creek (TC) $10.16 down 1.84%
Freeport-McMoRan (FCX) $54.87 down 1.12% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.39 down 0.13%

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

ArcelorMittal (MT) $34.62 down 1.84% - global steel producer
POSCO (PKX) $109.70 up 0.41% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.08% at $1,737,909.18 (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 Bulls Are Running; Silver, Copper, Freeport Pop; Markets Rock

Þūnresdæg
Morning Miners!

It is 5:47AM. Have a cup of Summer Thunder. Nothing like a stampede to jolt our favorite Norseman from the July doldrums. It is a good thing Old Miner Woden is out at his diggings today, the bulls are running and our market bear would not be happy. The break room's semi-retired thunder god is pounding his chest in the parking lot, happy Thor's Day...

Jobs, Jobs, Jobs

The Colonel had CNBC Business News on this morning to watch two of three of this week's labor reports come in. The big boy is the nonfarm payroll report tomorrow but today the Automatic Data Processing Inc. (ADP) and the Labor Department jobless claims data had some positive surprises indeed.

The ADP survey tallies only private-sector jobs, while the Bureau of Labor Statistics' nonfarm payroll data includes government workers. This ADP report this morning shows private-sector jobs rose by 157,000 last month; economists surveyed by Dow Jones Newswires had expected a gain of just 95,000.

That's encouraging and the number of idled U.S. workers making new claims for unemployment benefits fell last week too. The Labor Department reports new claims dropped by 14,000 to a seasonally adjusted 418,000 in the week that ended July 2. A rule-of-thumb is that the economy adds more jobs than it is sheds once the weekly claims figure falls below 400,000 so we're not out of the woods yet. The jobs market remains soft with claims above that level since the week that ended April 9.

All in all, a pretty decent pair of reports, pardner. We needed some positive news, let's cross our fingers for tomorrow. The number to beat is an expectation of 108,000 nonfarm payroll jobs added in June, double the weak 54,000 reported in May. Stay tuned

John D. Rockerfeller Couldn't Watch Baseball in His Living Room


About the time the labor reports were coming across the wire CNBC's Becky Quick was interviewing Warren Buffet about the economy from Sun Valley, Idaho. The venerable billionaire and sage of Omaha is feeling fairly upbeat about the path going forward. He thinks housing will surprise and feels confident that America will dig itself out of the hole we're in. Tax reform will come with "leadership and outrage" and grandpa Warren thinks we may be near that threshold. Old timers always provide needed perspective in hard times and Mr. Buffet is no exception. With good humor he said most people today are better off than John D. Rockerfeller who couldn't even watch baseball in his living room. Warren was born in 1930 and reminded the audience that the Great Depression, a World War and nuclear weapons were not enough to stop American prosperity (or to keep him from making billions), "America is still the best place in the world to be born."

Silver, Copper Pop; Markets Rock

Whether it was Warren Buffet or the labor reports, markets reacted very positively to the morning news. Of our favorite metals the most impressive were moves in silver and copper. Here is how spot silver reacted in London:



COMEX gold remained pretty flat at $1,528.5/oz on a rising U.S. dollar and falling euro but the COMEX silver bounce is impressive, presently up $0.364/oz at $36.280/oz. COMEX copper beat its high the other day and is now trading up $0.0470/lb at $4.3820/lb; a level not seen since April 25th. Continued expectations of demand from China and supply disruptions in Chile boosted the red metal as well as the decline of inventories. Here is a chart of the falling London Metal Exchange (LME) copper stocks:



Perhaps most importantly, bellwether miner and copper giant Freepot-McMoran (FCX) gaped above its 150-day moving average of $53.38 to presently trade at $54.90. This is an amazing 16.5% rise from an intraday low of $47.11 on June 23rd and enough to kick us out of 4-WD on the Eureka Outlook Dashboard. The miners should be on smoother roads.

Moly benchmark producer Thompson Creek (TC) also appears strong today even against a backdrop of falling moly prices. Yesterday, euro-moly oxide dropped to $14.65/lb approaching western moly at $14.52/lb. TC is approaching its 50-day moving average of $10.43 presently up 1.39% at $10.18. General Moly (GMO) is up 2.03% to $4.53.

With the benchmarks in bull mode, the Eureka Miner's Index(EMI) has finally broken the downtrend of its 1-month moving average. Today the average is up for it's third day after declining steadily downward from its peak on May 2nd. The EMI is at 323.7 up from its June 27th 2011 low of 180.0 (see discussion below). Let's get another positive labor report under our saddle, pardner, things are looking up!


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 323.66, up from yesterday's 298.26 and above the 1-month moving average of 232.93 for the fourth day. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. The 1-month moving average has broken its troubling downtrend since May 2nd.

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 hot and cold markets 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 77.09, down from yesterday's 78.26 and below its 1-month average of 79.93. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,656.8/oz or $128.3/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend but now appears to be back on the down slope.

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 $98.76
ICE North Sea Brent crude $116.79
Spread (ICE- NYMEX) = $18.03 (Yesterday, $16.41)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $99.70
ICE North Sea Brent crude $116.40
Spread (ICE- NYMEX) = $16.70 (Yesterday, $15.08)

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

Prices are off their crisis highs but we still have $110+ Brent and $95+ NYMEX in October favoring high oil prices throughout the summer and into fall. 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 OFF - The miners are finally on smoother roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $52.03 and 150-day moving average of $53.38 (our new key levels, 07/06 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 phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The GREEN light is turned back on for Investor Confidence as more investors return to 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 $2.11 in early trading at $98.76 (August contract, most active); Gold is down $0.7 to $1528.5 (August contract, most active); Silver is up $0.364 to $36.280 (September contract, most active); Copper is up $0.0470 at $4.3820 (September contract, most active)

Western Molybdenum Oxide is $14.52; European Molybdenum Oxide is $14.65; LME cash seller is $14.52, LME moly 3-month seller's contract is $14.52

Stock Market Morning Update

The DOW is up 79.55 points to 12,705.57; the S&P 500 is up 11.41 at 1,350.63

Miners are up:

Barrick (ABX) $46.45 up 0.65%
Newmont (NEM) $54.99 up 0.81%
US Gold (UXG) $6.20 up 0.49%
General Moly (Eureka Moly, LLC) (GMO) $4.53 up 2.03%
Thompson Creek (TC) $10.18 up 1.39%
Freeport-McMoRan (FCX) $54.90 up 2.58% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.23 up 0.97%

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

ArcelorMittal (MT) $34.77 up 2.08% - global steel producer
POSCO (PKX) $108.92 up 0.67% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.10% at $1,727,827.80 (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

General Moly (GMO) on Moly Prices; Liberty Project Update; POSCO + Li3?

Wōdnesdæg
Morning Miners!

It is 5:24 AM. Have a cup of Elko's classic White King coffee. Old Miner Woden brewed a special pot this morning for the market bears in the break room - he may be drinking alone. The ole Colonel thinks the grass is starting to look a little greener in Ruby T's bull pasture...

To be a Bear or Not to Be?

There is certainly enough scary news floating around to keep folks skeptical of the markets. This morning the repercussions of Portugal's debt downgrade to junk status yesterday and an interest rate hike from China has put a damper on base metals. COMEX copper has come off its recent high and is trading presently at $4.3335/lb. Yesterday the red metal peaked at levels not seen since late April. Today's price is, however, only down 0.3% - hardly a "gap down" given these pretty lousy headlines.

I have worried lately that although copper and the base metals have rallied, molybdenum has headed down, down. Although it is unwise to infer too much from the price swings of a minor metal, the ole Colonel suspected moly is telling a different story than the big boys. Since there is negligible speculative money in moly, does the downtrend in prices since mid-June provide a more sober view of near-term direction than the red metal giant?

I asked General Moly's Seth Foreman for his view on the copper-moly conundrum yesterday and have included his thoughtful analysis below. According to Seth, molybdenum may be just showing some seasonal fluctuations. His moly price history chart from more normal times (i.e. pre-financial crisis and recession) does show mid-year dips.

Copper on the other hand may be exhibiting some counter-seasonal trends due to supply restrictions and expectations that the Chinese will continue re-stocking copper this summer together with some additional pickup in U.S. and Japan demand. The jury is still out on this one, but if anything, copper continues to be resilient. Dennis Gartman, who has been bearish on copper and the base metals, noted that "someone" is buying the stuff at the current $4+/lb price levels and that's "impressive."

My second concern has been the inverted relation of copper and gold prices. Both are currently in "deep inversion" by this Report's definition (i.e. 1-month and 3-month correlations are negative). This morning COMEX gold is up another $13.8/oz at $1,526.5/oz on the headlines but surprisingly the copper/gold correlation trajectory has turned in a bullish direction. If this continues we may be headed for better times, pardner.

The Chinese seem ready to back the euro aggressively by buying the debt of Europe's profligate peripheral countries if things get too bad. Chinese direct investment in Europe is up 60% from 2009 and together with their massive euro reserves, China has a lot at stake there. I've stopped worrying about Europe until September.

A bigger headwind could be our own debt debate coming to a head in early August. If congress doesn't raise the debt limit, this ole boy will leave Ruby's pasture and be be drinking a lot of White King with Old Miner Woden.

General Moly (GMO) on Moly Prices

These are Seth Foreman's thoughts on the recent declines in molybdenum prices:

I have two thoughts. First, summer is a traditionally slow period for the steel industry. Particularly in Europe, mills tend to slow production rates as people vacation, and return to full strength in the fall (September-ish). For Moly, this translates into few orders for product. Simultaneously, you have a number of producers and trading companies that don’t want to get stuck holding inventory of moly until September becoming increasingly more aggressive at liquidating product before the summer slow period. Those two factors are driving prices down currently.

I drew up the attached chart [included below] recently showing moly prices from 2000-2007 (eliminating 2008 and 2009 because of the financial crash). Of course the past is no predictor of the future, but moly prices have generally retreated from May/June to August/September in 5 of the 8 years on this chart. The exceptions are 2004 when the price was rocketing up, 2006 when prices held about steady over the summer, and 2007 where they rose slightly. So there does seem to be some seasonality to moly prices. If the global economy is still showing signs of strength and growth come August/September, we anticipate the moly price to respond positively.

Second, we have seen a number of weak economic indicators, both from the US and China. GDP growth here is tepid and a number of PMI indices in China have recently been showing very slow growth. Psychologically, this could lead both trading companies and steel mills to want to hold less inventory (de-stocking) just in case the economic rebound sputters. That could be compounding the seasonal issue described above, but this is difficult to quantify. If there de-stocking going on in the moly market currently, we can take relief in knowing that de-stocking is a temporary issue (eventually inventories will get de-stocked and can get de-stocked no further!). (Seth Foreman, General Moly Director of Investor Relations)


Thanks Seth!

General Moly Liberty Project Update

There was some good General Moly news release yesterday about their Tonopah Liberty project:

General Moly Announces Liberty Project Drill Hole Results (Press Release, 7/5/2011)

In the words of Bruce D. Hansen, Chief Executive Officer:

"As part of our effort to re-start project development activities at the Liberty project this year, I am pleased to release these encouraging drill results from our second, world-class moly property. In addition to ongoing permitting achievements that we anticipate at the Mt. Hope project in the second half of the year, we are also advancing the Liberty project and anticipate releasing a revised resource estimate in the third quarter, as well as an updated pre-feasibility study early next year. Liberty is a solid project with robust economics for which we feel we receive minimal market valuation; however I am confident that we will continue to build value for our shareholders by driving both Mt. Hope and Liberty project development." (Press Release, 7/5/2011)

Adella Harding talked to General Moly spokesman Zach Spencer yesterday about the drill results and reported his thoughts in the Elko Daily Free Press last night:

Gold prices return to above $1,500 (Adella Harding, Mining Editor, Elko daily Free Press, 7/5/2011)

Don't let the title confuse you; there is a second article by the same name in Free Press online news. Just a little oopsy-doopsy at press time I assume.

POSCO + Li3 Energy?


Finally, here is an interesting tidbit about Li3 Energy, Inc. and South Korean steelmaker POSCO, who is an investor in General Moly (GMO) and owns 20% of our Mt. Hope:

Li3 Energy Provides Posco Update (Li3 Energy Press Release: Lima, Peru - 7/5/2011)

Besides securing molybdenum resources, POSCO has shown a keen interest in Lithium. Lithium is a key metal used in advanced battery chemistries for future electric and electric hybrid vehicles as well as many other applications. This report has covered how emerging battery technologies may become very important to our County and State. A list of links to these reports is included in this piece about Warren Buffet, POSCO and lithium:

Buffet Wants More POSCO, Both Want Lithium (Eureka Miner's Market Report, 1/19/2010)

We had a lithium followup several months later when Li3 Energy, Inc. announced acquisition of 170,000 acres of prospective lithium brine assets in the Big Smoky valley:

The Future Comes to Big Smoky - More Lithium in Northern Nevada (Eureka Miner's Market Report, 4/14/2010)

Now it seems POSCO and Li3 Energy may well be on a path of teaming together which could include both financial and technological exchanges. Although Li3 Energy's primary focus are its assets in South America, the connection to POSCO and our nearby Big Smoky is interesting. Stay tuned.


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 298.28, up from yesterday's 297.51 and above the 1-month moving average of 230.41 for the third day. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. The 1-month moving average continues a troubling downtrend but the recent EMI move above the average is encouraging.

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 hot and cold markets 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 78.26, down from yesterday's 79.95 and below its 1-month average of 80.01. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,629.7/oz or $103.2/oz above the current COMEX 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 trended down since 6/7/2010 when it had a value of 100; recently, gold has been gaining value reversing the trend. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious 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 $96.68
ICE North Sea Brent crude $113.09
Spread (ICE- NYMEX) = $16.41 (Yesterday, $16.63)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $97.68
ICE North Sea Brent crude $112.76
Spread (ICE- NYMEX) = $15.08 (Yesterday, $15.20)

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

Prices are off their crisis highs but we still have $110+ Brent and $90+ NYMEX in October favoring high oil prices throughout the summer and into fall. 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 still on rough but possibly improving roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $51.91 (our new warning level, 07/01 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 phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as more 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 down $0.21 in early trading at $96.68 (August contract, most active); Gold is up $13.8 to $1526.5 (August contract, most active); Silver is up $0.340 to $35.750 (September contract, most active); Copper is down $0.0140 at $4.3335 (September contract, most active)

Western Molybdenum Oxide is $14.52; European Molybdenum Oxide is $14.90; LME cash seller is $14.74, LME moly 3-month seller's contract is $14.74

Stock Market Morning Update

The DOW is up 3.70 points to 12,573.57; the S&P 500 is down 3.31 at 1,334.57

Miners are mixed:

Barrick (ABX) $46.48 up 1.09%
Newmont (NEM) $54.50 up 0.24%
US Gold (UXG) $6.20 up 3.85%
General Moly (Eureka Moly, LLC) (GMO) $4.44 up 3.02%
Thompson Creek (TC) $10.05 down 0.50%
Freeport-McMoRan (FCX) $53.72 up 0.19% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.24 down 0.61%

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

ArcelorMittal (MT) $34.42 down 0.86% - global steel producer
POSCO (PKX) $107.63 down 0.57% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.05% at $1,710,025.58 (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

Copper-Moly Price Conundrum; Metals & Miners Weekly Roundup

Morning Miners!

It is 5:33 AM. Have a cup of Piccolo Pete java compliments of Sweet Ruby T. She brought back more than fireworks after her holiday break in Battle Mountain. She's looking for a punch-up with the market bears; anyone in the break room who isn't bullish on metals will get a bruiser, pardner...

The Colonel's Metals & Miners Outlook


There seem to be some real fireworks between two of our favorite metals - copper and molybdenum; major metal versus minor metal. Both appear to be telling very different stories about the near-term outlook for the metals & miners. Copper, a reliable proxy for global growth, has been on a roll. Copper giant and bellwether miner Freeport-McMoRan (FCX) closed last Friday after a 5-day rally putting some needed daylight between its share price and 200-day moving average. This Report's Eureka Miner's Index (EMI) has also been feeling the spirits lately after setting a new 2011 low June 27th; Friday marked its second day above its 1-month moving average. This is a bullish sign and important because the EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County (see EMI discussion below).

Last week COMEX copper (orange) popped 6% to COMEX gold's (blue) 1% decline as shown in this 5-day chart:



Amid all this red metal bluster, Miss Moly has been feeling blue about the future. LME futures contracts and spot prices have been trending down since mid-June. The London Metal Exchange 3-month sellers contract is headed dangerously close its 52-week low ($14.74/lb versus $14.06/lb) and Western moly oxide closed last week at $14.40/lb. I posed the "moly price conundrum" on June 15th:

There is another little funny in the metals market - a slight change in moly pricing that may be a harbinger of things to come or just more moon light. Western moly oxide bumped back up to $17.00/lb yesterday while euro-moly dropped to $16.45/lb. No big deal really except the LME moly futures also dropped - the 3-month seller fell to $16.56/lb from $17.01/lb; the 15-month, to $17.11/lb from $17.58/lb. (Eureka Miner's Market Report, 6/15/2011)

We're a long way down from $17/lb pasture, pardner. Oddly, moly benchmark miner Thompson Creek (TC) doesn't seem to be phased by the slip in moly price closing above $10 after a 4-day rally to $10.13, a level not seen since early June. General Moly (GMO) has traded in a range of $4 to $4.50 over that same time period closing at $4.37 Friday; not great but certainly not headed for the cellar with Miss Moly. Finally POSCO (PKX), south Korean steelmaker and 10% owner of Mt. Hope, has been up and away bouncing more than 13% from its June lows to close at $108.74. This is relevant because steelmakers like POSCO use molybdenum in the production of high-grade steels. A rise in POSCO share price should be positive for future moly price expectations.

So Miss Moly appears to be a lonely voice in the metallic wilderness. Maybe not too lonely. Although he is probably less concerned with the minor metals, "Commodity King" Dennis Gartman has warned for some time that copper and the base metals are in for a surprise to the downside. Although he has backed off some from his clarion cry of "buy gold, sell copper," Kitco News reported last week:

Newsletter writer Dennis Gartman says he is heading to the sidelines in copper after previously anticipating weakness. “The chart appeared uncommonly ‘toppy’ and the economic news was, until last week’s ISM reports from around the world, of weakness rather than strength,” he says in The Gartman Letter. Other base metals had also appeared toppy, he says. But, he concludes: “The inventories of copper in Shanghai had been run down to discomfiting levels, and those inventories are being replenished, putting a strong bid into that market and forcing us to the sidelines.”

So there we have it, Miss Moly standing in the shadow of the Commodity King, but both seeing something in the ether. I hope they are wrong but this morning's price action maintains copper in a state of inversion with gold (i.e. by this report's definition, negative 1-month and 3-month correlations) almost never a bullish sign for the metals & miners (see Oil & Copper Correlations with Gold below). My July models, which we'll discuss later this week, also indicate that copper is in an overvalued state with respect to both gold and oil (see below). Stay tuned.

Poor Miss Moly (Euro-variety)...



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 297.51, up from Friday's close at 289.43 and above the 1-month moving average of 228.72. The EMI continues to be down from the high set on January 4th, the 1-month moving average continues a troubling downtrend but the recent breakout above the average is encouraging.

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 77.95 up from Friday's close of 77.82 and below the 1-month moving average of 80.04. Gold is losing relative value. Today's Value Adjusted Gold Price (VAGP) is $1,617.0/oz; $108.5 above the present 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 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 wide 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 $96.31
ICE North Sea Brent crude $112.94
Spread (ICE- NYMEX) = $16.63 (Friday $16.46)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $97.37
ICE North Sea Brent crude $112.57
Spread (ICE- NYMEX) = $15.20 (Friday $16.29)

* NYMEX futures contracts have rolled forward, we now show August and October for a 2-month look-ahead

Prices are off their crisis highs but we still have $110 Brent and $95+ NYMEX in October favoring high oil prices throughout the summer and into fall. 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.

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

Oil/Au correlation +0.4820(1-month) -0.1999 (3-month)
Cu/Au correlation -0.4404 (1-month) -0.3830 (3-month)
Cu/Oil correlation +0.0025 (1-month) +0.6386 (3-month)

Here are the numbers from our last roundup (6/27/2011):

Oil/Au correlation +0.3688(1-month) -0.3083 (3-month)
Cu/Au correlation +0.1687 (1-month) -0.4489 (3-month)
Cu/Oil correlation +0.4400 (1-month) +0.7458 (3-month)


We now have three negative correlations with movement of copper versus gold into deep inversion (i.e. 1- and 3-month correlations negative). Oil versus gold has a positive 1-month and is showing some improvement in its negative 3-month. Copper versus oil maintains a good positive correlation with 3-month data >0.6 but the 1-month is close to negative territory. The metals & miners tend to do best when all correlations are positive.

According to my new July models, oil is presently undervalued with respect to gold by -0.92-standard deviations and copper is overvalued by +1.33-standard deviations. Copper is presently overvalued with respect to oil by +2.56-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 1, 2010; 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 (white arrow) is decidedly 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 another in the ratio pair. The errors have been falling which suggests a return to greater stability.

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

Gold:Oil ratio

mean 14.90 bbl/oz
variation > 3.0% limit at 7.09% (1-standard deviation/mean)

Oil:Copper ratio

mean 24.51 lbs/bbl
variation > 3.0% limit at 5.20% (1-standard deviation/mean)

Gold:Copper ratio

mean 364.08 lbs/oz
variation > 3.0% limit at 4.15% (1-standard deviation/mean)

The composite Commodity Ratio Stability (CRS) is 5.62% (i.e the root-mean-square of the three variations above).

Weekly Molybdenum Roundup

Spot and futures prices for molybdenum oxide are now all below $15/lb except for the 15-month sellers contract at $15.20/lb. We have $14.40/lb spot out West and $14.90/lb in Europe. Western moly spot prices are in a mild contango with 3-month and 15-month London Metal Exchange (LME) seller contracts. European moly is in slight backwardation with the 3-month seller (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 $14.74/lb is below the Colonel's mid-range moly price target for 2010 of $15.71/lb and way below my target of $20.21/lb for 2011. The Report will give moly prices a "orange" light on the Eureka Outlook Dashboard for this bearish development. I did believe we could see much higher prices this year although May-June commodity reversals have put a large damper on that expectation.

Here is a detailed pricing summary for last week:

Western Moly Oxide $14.40/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) $14.90/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $32,500/metric ton $14.74/lb

3-Month (Buyer) $31,500/metric ton $14.29/lb
3-Month (Seller) $32,500/metric ton $14.74/lb

15-Month (Buyer) $32,500/metric ton $14.74/lb
15-Month (Seller) $33,500/metric ton $15.20/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 on improving but road conditions remain rough; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is above its 200-day average of $51.91(our new warning level, 07/01 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. The Federal Reserve phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors turn adverse to 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 up $1.37 in early trading at $96.31 (August contract, most active); Gold is up $25.9 to $1508.5 (August contract, most active); Silver is up $1.310 to $35.015 (July contract, most active); Copper is up 0.0100 to $4.3125 (July contract, most active)

Western Molybdenum Oxide is $14.40; European Molybdenum Oxide is $14.90; LME moly 3-month seller's contract is $14.74, LME cash seller is $14.74

Stock Market Morning Update

The DOW is down 6.93 points to 12,575.84; the S&P 500 is down 2.48 at 1,337.19

Miners are mostly up:

Barrick (ABX) $45.56 up 1.74%
Newmont (NEM) $54.58 up 1.56%
US Gold (UXG) $6.08 up 5.19%
General Moly (Eureka Moly, LLC) (GMO) $4.39 up 0.46%
Thompson Creek (TC) $10.09 down 0.39%
Freeport-McMoRan (FCX) $53.68 up 0.34% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.26 up 0.76%

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

ArcelorMittal (MT) $34.92 down 0.88% - global steel producer
POSCO (PKX) $108.99 up 0.23% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.36% at $1,695,335.17(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

The Maiden Moon Returns - Will We Fare Better?

Morning Miners!

It is 5:47 AM. Have a cup of Raine's famous New Moon Java for a little more lunar luck. We may need it as we start the second half of 2011 but for now the Report wishes you and your family a Happy Fourth of July!

The Maiden Moon Returns - Will We Fare Better?


On the last new moon I said, "...maybe the metals & miners will fare better in June." That was wishful thinking. May and June have been real bruisers but we are starting the second half of the year, maybe the metals & miners will fare better in July.

One lunar cycle ago the report also stated, "The beginning of every month brings on a host of global and domestic data, the big boy will be the Labor Department's jobs report this Friday. Already we have declining Purchasing Manager Index (PMI) data from China supporting their anticipated economic slowdown..." New lunar cycle: the Labor report will be out next Friday and the latest PMI data from China is declining more.

China Federation of Logistics and Purchasing said this morning that China's official PMI for June fell to 50.9 from 52.0 in May; market watchers expected 51.3. HSBC's independently derived China PMI for June dipped from 51.6 to 50.1, the lowest in 11 months. A PMI of less than 50 implies a contraction of factory activity. You may remember from yesterday's report that "Commodity King" Dennis Gartman and Seabreeze Partners Doug Kass have both been throwing out dire warnings about declining global PMIs.

But wait, before we pass around the Kleenex, here is a real surprise! The Wall Street Journal just reported that, "The U.S. manufacturing sector expanded briskly in June, according to data released Friday by the Institute for Supply Management...The ISM's manufacturing purchasing managers' index rose to 55.3 in June from 53.5 in May. Readings above 50 indicate expanding activity."

That's a switch. The broader markets opened while I was digesting all this news. The ISM announcement at 10:00 AM ET just popped the S&P 500 8 points to 1,329.11 - remember we were wallowing in 1,260 territory just 7-market days ago (6/23/2011)? That's impressive, pardner. Let me go check on the metals & miners.

OK, the Eureka Miner's Index(EMI) is up slightly from yesterday, 289.8 versus 283.2, but marks its second day above the one-month moving average (see below). Not great but not bad.

Freeport-McMoran (FCX)is also spending its second day above its 200-day average which is also encouraging on higher red metal prices. COMEX copper is presently at a a healthy $4.2740/lb but COMEX gold and silver are getting hammered. COMEX gold has fallen below the $1,500/oz level to $1,485.90/oz; silver is down a buck to $33.820/oz.

Most troubling for me is that copper and gold are now in a deepening inversion (by this report's definition this occurs when both 1-month and 3-month correlations are negative). In fact of the six commodity correlations that we monitor with care, four are now negative as we start the second half of the year. Not a terrific sign - metals & miners do best when all six are positive.

A mixed bag, pardner. Let's go shoot off some fireworks!

Molybdenum Watch

This Monday the Report put molybdenum on price watch as western spot prices dropped below the $15 level. On June 15th, the ole Colonel had a hunch that moly pricing was setting up for the downside. We reported a subtle shift in molybdenum markets when Western moly oxide on the spot market found itself above the London Metal Exchange (LME) 3-month seller's contract in price. Although the difference was small this so-called "backwardation" was a condition we have not seen for some time. Spot prices typically trade below future price expectations or in "contango" with the futures contracts. Unfortunately, my hunch proved true.

Here is yesterday's lineup:

Western moly oxide $14.88/lb
European Moly Oxide $15.10/lb
LME cash seller $14.74/lb
LME 3-month seller $14.74

Western moly again finds itself in backwardation with the LME 3-month seller. Look for further spot price decline.


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 289.77, up from yesterday's 283.21 and above the 1-month moving average of 228.32 for the second day. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. However, 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 hot and cold markets 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 78.21, down from yesterday's 79.00 and below its 1-month average of 80.09. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,586.9/oz or $101.6/oz above the current COMEX 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 trended down since 6/7/2010 when it had a value of 100; recently, gold has been gaining value reversing the trend. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious 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 $94.32
ICE North Sea Brent crude $110.78
Spread (ICE- NYMEX) = $16.46 (Yesterday, $17.47)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $94.34
ICE North Sea Brent crude $110.63
Spread (ICE- NYMEX) = $16.29 (Yesterday, $16.35)

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

Prices are off their crisis highs but we still have $110+ Brent and $90+ NYMEX in October favoring high oil prices throughout the summer and into fall. 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 still on rough but possibly improving roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains slightly above its 200-day moving average of $51.84 (our new warning level, 06/30 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 phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as more 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 down $1.10 in early trading at $94.326 (August contract, most active); Gold is down $17.5 to $1484.9 (August contract, most active); Silver is down $1.012 to $33.840 (September contract, most active); Copper is up $0.0070 at $4.2895 (September contract, most active)

Western Molybdenum Oxide is $14.88; European Molybdenum Oxide is $15.10; LME cash seller is $14.74, LME moly 3-month seller's contract is $14.74

Stock Market Morning Update

The DOW is up 109.02 points to 12,523.36; the S&P 500 is up 9.34 at 1,329.98

Miners are mixed:

Barrick (ABX) $44.44 down 1.88%
Newmont (NEM) $53.26 down 1.32%
US Gold (UXG) $5.73 down 4.98%
General Moly (Eureka Moly, LLC) (GMO) $4.32 down 3.14%
Thompson Creek (TC) $10.03 up 0.50%
Freeport-McMoRan (FCX) $53.03 up 0.25% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.89 up 0.77%

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

ArcelorMittal (MT) $34.99 up 0.66% - global steel producer
POSCO (PKX) $108.02 down 0.55% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 1.30% at $1,660,478.97 (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