Part II - Why the Colonel Isn't Worried about the Price of Gold

Morning Miners!

It is 6:17 AM and the sun is warming up Diamond Valley with a smile - no more rain, hail or snow (maybe). Have a cup of Raine's famous TGIF Red Label and let's get ready for a great weekend...

Part II - Why the Colonel Isn't Worried about the Price of Gold

Yesterday, we talked about the price of gold and its recent trend down from its record price of 1,577.44/oz set in early May. We noticed that although gold has been down in terms of U.S. dollars, it has been steadily gaining in value with respect to oil, copper and silver. This breaks a roughly 11-month trend of gold's declining value with respect to these key commodities. Today, I thought we'd move a little further down the stope and see what this turnaround may be telling us about the outlook for mining stocks.

Last year, the day after Thanksgiving was an unremarkable market day. The DOW and S&P 500 closed down a bit and it wasn't until December 1st that stock and commodity markets would bolt to new highs and finish 2010 as charging bulls. In retrospect, what makes November 26th memorable for me was its lack of excitement - commodity prices relative to gold were finally returning to historical norms and enjoying a brief period of rock solid stability after the horrific market churn of the 2008-2009 period.

For example, the closely watched gold/silver ratio was 51 after Turkey Day, comfortably in the 50-56 range prior to the Bear Sterns collapse and ensuing financial meltdown (the gold/silver ratio surged to the 80s after the Lehman Brothers bankruptcy). In late April of this year the pendulum had swung in the opposite direction when the ratio reached the low-30s and silver courted $50/oz. Today it is headed back up at 41.7; not in the 50s yet but steadily moving to more normal levels.

Alas, the period of November calm started to storm in early in 2011. The new year began with a divergence of key commodity ratios and prompted my January 14th comment to Mining Editor Adella Harding of the 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 corrected then rallied then fell down the shaft to the present levels of pain. Two good examples: General Moly (GMO) is below $4 again this morning and bellwether miner Freeport-McMoRan (FCX) share price is struggling between its 200-day and 400-day moving averages. For the latter, breaking the 200-day is generally a signal for miners to head for higher ground.

So what now? If we use the pendulum analogy, last November represented a mid-point from extremes and it looks like we may be headed back to that stable condition. This report's Value Adjusted Gold Price (VAGP) is a good way to gauge our progess (see below). The 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. When the VAGP and gold price are equal we return to the normalcy of last November - this may prove to be a necessary step before we can expect the next sustained mining rally.

Are we there yet? Today COMEX gold price is presently trading at $1,500.8/oz and the VAGP is $1,604.0/oz. By my argument, gold is still undervalued with repect to the combination of our three reference commodities. We're about 100-bucks low but it has been much worse. The VAGP peaked at $1,848.6 on April 25th when gold was just a little higher than today's price ($1,513.0/oz versus $1,500.8/oz) for a spread of $335.6. Stay tuned - the gap is closing in gold's favor, pardner.


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 277.73, down from yesterday's 304.27 and below the 1-month moving average of 385.78. The EMI continues to be down from the high set on January 4th and set a new 2011 low May 17th. The 1-month average continues a troubling negative trend.

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

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

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 78.18, up from yesterday's 76.84 and above its 1-month average of 74.60. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,604.0/oz.

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

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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

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

NYMEX light sweet crude $98.70
ICE North Sea Brent crude $111.30
Spread (ICE- NYMEX) = $12.60 (Yesterday's $12.56 )

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $99.59
ICE North Sea Brent crude $110.91
Spread (ICE- NYMEX) = $11.32 (Yesterday's $11.47 )

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

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) has broke below its 200-day moving average of $49.88 (our new warning level, 05/16 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

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

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

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

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, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.26 in early trading at $98.70 (June contract, most active); Gold is up $10.0 to $1500.8 (June contract, most active); Silver is up $0.028 to $34.960 (July contract, most active); Copper is up $0.0385 at $4.0910 (July contract, most active)

Western Molybdenum Oxide is $16.87; European Molybdenum Oxide is $16.72; LME cash seller is $17.21, LME moly 3-month seller's contract is $17.24

Stock Market Morning Update

The DOW is down 66.22 points to 12,539.10; the S&P 500 is down 7.58 at 1,336.02

Miners are mixed:

Barrick (ABX) $45.25 down 0.70%
Newmont (NEM) $53.81 down 0.46%
US Gold (UXG) $6.49 down 1.07%
General Moly (Eureka Moly, LLC) (GMO) $3.97 down 1.73%
Thompson Creek (TC) $10.58 down 0.19%
Freeport-McMoRan (FCX) $48.08 up 0.23% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.83 down 1.47% - global steel producer
POSCO (PKX) $104.70 down 0.69% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.68% at $1,659,641.80(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

Why the Colonel Isn't Worried about the Price of Gold

Þūnresdæg
Morning Miners!

It is 5:49 AM. Come in from the snow and have a cup of Thor's Spring Thunder. Last week I said our favorite Norseman had fashioned a bird feeder from a Model T differential case. A few readers have asked what the Colonel was talking about so Mariana took a picture of his contraption for today's headline photo. You won't see Thor because he's got K.P. duty this morning. I wasn't pleased that he threw thunderbolts so close to town yesterday afternoon; now, he's paying the price for his explosive indiscretion. Have a happy "Thor's Day!"

Mt. Hope in Clouded Splendor

Before we talk about gold, take a look at this terrific photo a faithful reader and friend of this report sent in yesterday - Mt. Hope in clouded splendor.


Why the Colonel Isn't Worried about the Price of Gold

I'm more worried about snow this morning than the price of gold. The Colonel needs to fix the wind damage to his wood shed roof from a few days ago and this spring snow is in my way. Of course, the high winds were telling me the snow was coming - life in the Great Basin!

Now, why am I not concerned that COMEX gold took a dip this morning? Early this month gold made my December prediction that it would break $1,570/oz before the Fourth of July. On May 2nd it peaked at $1,577.40 and its been pretty much downhill ever since. This morning we shaved off another $7/oz to trade presently at $1,488.8/oz on better-than-expected news from the labor front.

The Labor Department reported initial unemployment claims decreased by 29,000 to a seasonally adjusted 409,000 in the week ending May 14. Economists had expected only 11,000 less claims so this is encouraging news; the U.S. dollar popped a little and gold price went down. In our present environment gold likes bad headlines, not good ones.

If we suddenly experienced a dramatically improving domestic economy, more jobs and blue skies - gold price could drop a lot further. That's the rub. An economist rule-of-thumb is that our economy adds more jobs than it is sheds once the weekly claims figure falls below 400,000. We're not there yet, pardner.

High unemployment for a sustained time in the U.S. and other developed countries is only one example of how fragile the global economy has become. Pick your poison: oil prices over $100/bbl, re-emerging doubts about European sovereign debt, economic slowdown in China, inflation on the horizon...gold prices are not headed south for long with all these persistent worries. I'll stick my neck out and say we see $1,600/oz gold before Labor Day.

That's my price story but what about value? This report talks frequently about the relative value of gold with respect to key commodities. Our Gold Value Index (GVI) gauges the value of gold in relation to oil, copper and silver independent of currency (see below). 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. Until recently, the GVI has been trending down since 6/7/2010 when it had a value of 100; today it is at 76.84 and it reached a low of 67.89 on 4/11/2010.

This morning one ounce of gold will fetch roughly 360 pounds of copper - this is the same number as last Thanksgiving. When the GVI plumbed a new low in April, an ounce of gold was only worth 325 lbs of the red metal. Gold is gaining value relative to copper.

Looking back to November 2010 is important because it was a time when oil, copper and silver all traded near more historic norms in relation to gold. The closely watched gold/silver ratio stood at 51 on November 26th (the day after Thanksgiving) which is in the 50-56 range we saw before the Bear Sterns collapse and ensuing financial meltdown. Today the gold/silver ratio is 42 up from the low 30s when silver was courting $50/oz in late April. Gold is gaining value relative to silver.

Lastly, this morning's ounce of gold buys 14.9 barrels of NYMEX crude oil; on April 11th it only bought 13.1 barrels, last November it bought 16.3 barrels. Gold has a way to go but it too is gaining value relative to oil.

So what's your point Colonel? Since May 5th COMEX gold has been trading in a range of$1,462/oz to $1,527/oz. This morning we're near the center of that range and may be bouncing along this road until the next scary headline. A rise in dollar price when gold is gaining value against key commodities is not a bad outlook for this report's favorite precious metal. Stay tuned, $1,600/oz here we come.


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 304.27, up from yesterday's 270.16 and below the 1-month moving average of 392.39. The EMI continues to be down from the high set on January 4th and set a new 2011 low May 17th. The 1-month average continues a troubling negative trend.

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

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

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 76.84, down from yesterday's 78.13 and above its 1-month average of 74.29. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,619.0/oz.

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

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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

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

NYMEX light sweet crude $99.91
ICE North Sea Brent crude $112.47
Spread (ICE- NYMEX) = $12.56 (Yesterday's $12.62 )

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $100.68
ICE North Sea Brent crude $112.08
Spread (ICE- NYMEX) = $11.40 (Yesterday's $11.47 )

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

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) has broke below its 200-day moving average of $49.88 (our new warning level, 05/16 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

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

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

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

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, 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 0.19 in early trading at $99.91 (June contract, most active); Gold is down $7.0 to $1488.8 (June contract, most active); Silver is up $0.273 to $35.700 (July contract, most active); Copper is down $1.70 at $4.0880 (July contract, most active)

Western Molybdenum Oxide is $16.65; European Molybdenum Oxide is $16.80; LME cash seller is $17.32, LME moly 3-month seller's contract is $17.46

Stock Market Morning Update

The DOW is down 65.62 points to 12,625.80; the S&P 500 is up 5.67 at 1,346.35

Miners are mixed:

Barrick (ABX) $45.68 up 0.73%
Newmont (NEM) $54.04 up 0.45%
US Gold (UXG) $6.76 down 0.29%
General Moly (Eureka Moly, LLC) (GMO) $4.26 up 0.24%
Thompson Creek (TC) $10.73 up 0.85%
Freeport-McMoRan (FCX) $48.44 down 0.37% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.48 down 0.59% - global steel producer
POSCO (PKX) $104.97 down 1.34% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.18% at $1,694,046.77(what's this?).

Cheers,

Colonel Possum

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

Headline photograph by Mariana Titus

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

The Colonel's Trip to Elko; Big Mo Smiles on the Metals & Miners

Wōdnesdæg
Morning Miners!

It is 6:11 AM. Old Miner Woden has just brewed a fresh pot of Hump Day Happiness, have a cup and let's get happy...

The Colonel's Trip to Elko

Sometimes praying to the molybdenum god is a good remedy for a bad market.

Ruby T packed Mariana, Loquita and me in the truck yesterday morning and we were off to Elko for a Home Depot/WalMart run. When we left, the markets were in the dumps with General Moly (GMO) sliding below $4, touching $3.83 briefly after the open. These are levels not seen since mid-October 2010 and a tall drop from the lofty $7.25 high of late December. Of course, it was not just General Moly, the entire metals & mining sector was hurting yesterday morning. The Eureka Miner's Index(EMI), which includes three benchmark miners, interest rates, market volatility together with oil, copper, gold and silver prices, had just plumbed a new low for 2011.

About 20 miles north of town, Ruby hit the jake brake and we rolled in at the Mt. Hope turnoff. I took a photo of Mariana by the Eureka Moly sign while Ruby gathered and burned some sage. We formed a circle around the smoldering embers and prayed to the god of the forty second element of the Periodic Table, Molybdenum or "Big Mo."



We were without internet but apparently our brief ceremony did not go unnoticed in the metallic heavens. General Moly share price bumped back up to $4.17 mid-day and closed at $4.12, thank you Big Mo. Overall the metals & miners ended a lot better than they started.

The broader markets are now open and it looks like our rally-from-the-depths has legs for another day. General Moly is holding on nicely at $4.15 and bellwether miner Freeport-McMoran has popped 2%. COMEX gold took another run at $1,500/oz in the wee hours touching $1,497.5/oz before falling back to trade presently at $1,491.0/oz - a whole lot better than yesterday's low of $1,471.0/oz. Silver has some mojo too at $34.78/oz and western moly oxide has returned to $17/lb pasture. Comex copper is bracing at $4.050/lb. The Eureka Miner's Index(EMI) is at 270.2 up from yesterday's 2011 low of 235.7 (see below).

The Big Mo smiles on the metals & miners.

We stop to visit Adella Harding

I didn't think the day could get better after buying a new DeWALT drill/driver on special at Home Depot...but it did! We decided to pay a visit to Mining Editor Adella Harding at the Elko Daily Free Press. She was busily putting the finishing touches on the upcoming edition of the Mining Quarterly and it should be a dandy. Talking with Adella is always an uplifting moment and yesterday was no exception. Her "boots-on-the-ground" reporting style for mining in Northern Neveda is second to none.


I promised Adella my latest thoughts on gold price and value and we were off to Eureka before the next storm set in. Let's hope our luck lasts beyond today, pardner. We may need another trip to Mt. Hope to keep Big Mo happy - look for the latest Mining Quarterly coming your way soon.


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 270.16, up from yesterday's 235.69 and below the 1-month moving average of 396.09. The EMI continues to be down from the high set on January 4th and set a new 2011 low May 17th. The 1-month average continues a troubling negative trend.

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

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

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 78.13, down from yesterday's 79.14 and above its 1-month average of 74.02. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,594.6/oz.

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

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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

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

NYMEX light sweet crude $98.34
ICE North Sea Brent crude $99.10
Spread (ICE- NYMEX) = $12.62 (Yesterday's $13.56 )

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $99.10
ICE North Sea Brent crude $110.57
Spread (ICE- NYMEX) = $11.47 (Yesterday's $12.44)

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

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) has broke below its 200-day moving average of $49.88 (our new warning level, 05/16 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

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

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

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

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, 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 $1.34 in early trading at $98.34 (June contract, most active); Gold is up $11.0 to $1491.0 (June contract, most active); Silver is up $1.289 to $34.780 (July contract, most active); Copper is up $0.0565 at $4.0550 (July contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.80; LME cash seller is $17.10, LME moly 3-month seller's contract is $17.24

Stock Market Morning Update

The DOW is down 10.75 points to 12,468.83; the S&P 500 is up 1.40 at 1,330.38

Miners are up:

Barrick (ABX) $45.32 up 0.18%
Newmont (NEM) $53.64 up 0.21%
US Gold (UXG) $6.88 up 1.78%
General Moly (Eureka Moly, LLC) (GMO) $4.15 up 0.73%
Thompson Creek (TC) $10.65 up 0.76%
Freeport-McMoRan (FCX) $47.74 up 1.94% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.42 up 0.15% - global steel producer
POSCO (PKX) $105.03 up 0.34% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.93% at $1,677,721.01 (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

Gold Down in Price, Up in Value; GMO drops below $4

Morning Miners!

It is 5:59 AM. Have a cup of Tuesday, the pot's just brewed. Mariana and I are hitching a ride to Elko this morning with Ruby T. She's itching to put the pedal to the metal so let's get going...

Gold Down in Price, Up in Value

COMEX gold tried to enter $1500/oz pasture in the wee hours touching $1497.5/oz but got slammed at 08:30 ET dropping $15.1 in 25 minutes to $1475.1/oz. It has recovered some to trade presently at $1478.1. COMEX silver took a hit too, now at $33.340/oz. Is the Colonel worried? Nah, the gold/silver ratio is now in 44 territory, a level not seen since mid-February. Gold has been steadily gaining in value against silver, copper and oil as tracked in this Report's Gold Value Index (GVI). This morning the GVI is nearly at its peak for 2011 set last Thursday (see below).

What does this mean? An ounce of gold now buys a lot more ounces of silver, pounds of copper and barrels of oil than it did just a short while ago. As we have pointed out before, gold has been in an 11-month value downtrend against these three key commodities until a reversal to the upside on April 26th. We'll talk more about this recent uptrend when I return from Elko.

On a less positive note, GMO is now trading below $4 at $3.98, the Eureka Miner's Index(EMI) is at a new low (see below) and the S&P 500 is just a notch above its 50-day moving average (1,325.1 versus 1,323.61 average). Tough markets, pardner. 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 235.69, down from yesterday's 262.12 and below the 1-month moving average of 404.72. The EMI continues to be down from the high set on January 4th and sets a new 2011 low today. The 1-month average has established a troubling negative trend.

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

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

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 79.14, up from yesterday's 78.48 and above its 1-month average of 73.66. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,560.6/oz.

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

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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

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

NYMEX light sweet crude $96.74
ICE North Sea Brent crude $110.30
Spread (ICE- NYMEX) = $13.56 (Yesterday's $13.17)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $97.47
ICE North Sea Brent crude $109.91
Spread (ICE- NYMEX) = $12.44 (Yesterday's $12.31)

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

Prices are off their crisis highs but we now have $100+ Brent and $90+ NYMEX in August favoring higher oil prices throughout the summer although the futures are trending down. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) has broke below its 200-day moving average of $49.88 (our new warning level, 05/16 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

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

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

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

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, 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 $0.63 in early trading at $96.74 (June contract, most active); Gold is down $12.5 to $1478.1 (June contract, most active); Silver is down $0.792 to $33.340 (July contract, most active); Copper is up $0.0045 at $3.9950(July contract, most active)

Western Molybdenum Oxide is $16.74; European Molybdenum Oxide is $16.98; LME cash seller is $16.99, LME moly 3-month seller's contract is $17.12

Stock Market Morning Update

The DOW is down 71.55 points to 12,476.62; the S&P 500 is down 3.95 at 1,325.52
Miners are down:

Barrick (ABX) $44.75 down 0.93%
Newmont (NEM) $52.84 down 0.19%
US Gold (UXG) $6.57 down 1.50%
General Moly (Eureka Moly, LLC) (GMO) $3.98 down 1.97%
Thompson Creek (TC) $10.24 down 0.49%
Freeport-McMoRan (FCX) $47.12 down 0.49% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.28 down 0.54% - global steel producer
POSCO (PKX) $103.95 down 0.33% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 1.02% at $1,643,340.07 (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

Beware the South Wind - Metals & Miners Weekly Roundup

Morning Miners!

It is 5:27 AM. Have a cup of Monday Nitro. Boy-oh-boy, this was a fun weekend in Eureka. We started out with the first ever drag races at the airport and then 100+ beautiful rides at the car show on Main Street Saturday. For us old timers there's isn't anything much better than Beach Boy's car tunes and 1957 Chevrolets. Yee-ha!



Beware the South Wind - Metals & Miners Outlook

If you have been following this report for awhile, you know the ole Colonel is a born optimist. Historically, optimists have been right more times than pessimists. Here's the proof: If the opposite were true we'd still be living in caves only they'd be smaller, there'd be less to eat and your pessimist neighbor in the cave next door would be predicting that things will get worse.

Having said that, there are times for caution. In these parts, a strong south wind in is a good example. We got through the car show just fine then had a "souther" that blew off a chunk of my wood shed roof followed by a wet spring snow with more to come this week. Good-bye sunshine.

I'm starting to think the same about the broader markets. Miners have been in the doldrums for months while the DOW and S&P 500 have sailed merrily along setting new highs. We saw this same pattern before when copper and bellwether miner Freeport-Mc-Moran(FCX) broke down and several months later the broader markets took a nosedive. The red metal and FCX crashed in December 2008 only to be followed by the S&P 500 fall down the mineshaft in March 2009. A similar, but much less severe, case occured last year as Freeport stumbled several times early in the year and then everybody hit the skids in early June. Fortunately, this was followed by a terrfifc rally by the metals & miners for the remainder of 2010.

There is a reason for these early warning signs. Copper has been a very reliable proxy for global growth for the last several years. When investors are happy about global prospects, copper prices soar and copper giant Freeport-McMoran reaps the rewards. When global doubts arise, copper prices decline and large investors flee Freeport along other mining stocks as if they are unwanted relatives at the door.

The Report often looks at share price with respect to moving averages to gauge when problems are on the horizon. Here are the some 2011 warning signs from Freeport:

FCX broke below its 150-day moving average 3/9, 4/14 & 5/4
FCX is now below its 200-day moving average

Another tell is the correlation of copper with gold. It has suffered bouts of negative correlation with gold since early February, a very bearish sign in my view (see analysis below). Kitco's Debbie Carlson interviewed Ian McAvity, publisher of the newsletter “Deliberations on World Markets,” who shares a similar view as mine on copper:

INTERVIEW: Equity Markets Could Be Ready For Break, Commodities Break May Suggest Deflation (Debbie Carlson Of Kitco News, 13 May 2011, 02:48 p.m.)

His thoughts on the red metal warning sign:

"McAvity said copper’s divergence from the rest of commodities for the past three months has been 'most interesting.' He noted that prior to silver’s huge run-up in the early spring, copper was leading silver as copper represented the economic-trade aspect and silver the monetary aspect. Silver sometimes plays both a monetary and industrial role because of its dual use. He noted when silver rallied sharply, copper was unable to keep up."

McAvity goes on to observe that a break in commodity prices (like copper) could portend trouble for the broader markets and even a deflationary period before inflation sets in. The ole Colonel isn't worried about the deflationary theme quite yet as long as copper stays above $3.50/lb. Stay tuned, pardner, there may be more south winds coming in the markets.

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 262.12, down from from Friday's's close at 263.75 and above the 1-month moving average of 414.48. The EMI continues to be down from the high set on January 4th, it set a new 2011 low on May 12th of 248.09. The 1-month moving average has established a troubling downtrend.

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

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

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 78.48 up from Friday's close of 78.24 and below the 1-month moving average which is now 73.25. Gold is presently gaining value. The GVI high for 2011 is 79.96 set 5/12. Today's Value Adjusted Gold Price (VAGP) is $1,594.3/oz.

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

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

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



Daily Oil Watch

Latest Nevada Fuel Prices

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

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

NYMEX light sweet crude $99.96
ICE North Sea Brent crude $113.13
Spread (ICE- NYMEX) = $13.70(Last Friday $14.56)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $100.34
ICE North Sea Brent crude $112.65
Spread (ICE- NYMEX) = $12.31(Last Friday $12.54)

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

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

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 +0.5067 (1-month) +0.6674 (3-month)
Cu/Au correlation +0.0969 (1-month) -0.4964 (3-month)
Cu/Oil correlation +0.8794 (1-month) -0.0464 (3-month)

Here are the numbers from the last Monday (5/09/2011):

Oil/Au correlation +0.4226 (1-month) +0.8315 (3-month)
Cu/Au correlation -0.3628 (1-month) -0.5263 (3-month)
Cu/Oil correlation +0.6464 (1-month) -0.4194 (3-month)

We now have only two negative correlations with some improvement in copper versus gold. Oil and gold remain in the quadrant of positive correlation. Copper versus gold have just stepped outside the inversion quadrant (i.e. both one-month & three-month correlations are negative). Copper versus oil has an increasing positive 1-month and decreasing 1-month negative correlation. The metals & miners tend to do best when all correlations are positive.

According to my April models (see bottom of blog page): oil is presently undervalued with respect to gold by -3.96-standard deviations and copper is undervalued by -2.78-standard deviations. Copper is presently undervalued with respect to oil by -3.36-standard deviations. The May models will soon be availbale for comparison.

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 for a return trip back to the "-,-" inversion region is a decidedly bearish development although recent movement back to "+,-" is somewhat encouraging.

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

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

Once the ratios exceed 3% error, they become less useful in predicting the price moves of one commodity with respect to the another in the ratio pair.

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

Gold:Oil ratio

mean 14.02 bbl/oz
variation > 3.0% limit at 4.82% (1-standard deviation/mean)

Oil:Copper ratio

mean 24.03 lbs/bbl
variation > 3.0% limit at 6.98% (1-standard deviation/mean)

Gold:Copper ratio

mean 339.97 lbs/oz
variation > 3.0% limit at 6.02% (1-standard deviation/mean)

Weekly Molybdenum Roundup

Spot prices for molybdenum oxide have fallen from $17/lb territory with 16.69/lb out West and $16.98/lb in Europe. Western and Euro moly spot prices remain in a moderate contango with both 3-month and 15-month London Metal Exchange (LME) seller contracts. (contango occurs when the price of a commodity for future delivery is higher than the spot price, or a far future delivery price is higher than a nearer future delivery; backwardation is the opposite of contango).

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

Here is a detailed pricing summary for last week:

Western Moly Oxide $16.69/lb (FeMo65, the price tracked by Infomine - see the side bar graph in the lower right column)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $16.98/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

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

3-Month (Buyer) $36,500/metric ton $16.56/lb
3-Month (Seller) $37,500/metric ton $17.01/lb

15-Month (Buyer) $37,725/metric ton $17.11/lb
15-Month (Seller) $38,725/metric ton $17.57/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 in a very rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 200-day average of $49.88(our new warning level, 05/16 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/bbl

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

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.16 in early trading at $99.96 (June contract, most active); Gold is up $3.9 to $1497.5 (June contract, most active); Silver is down $0.123 to $34.890 (July contract, most active); Copper is down $0.0100 to $3.9735 (July contract, most active)

Western Molybdenum Oxide is $16.69; European Molybdenum Oxide is $16.98; LME moly 3-month seller's contract is $17.01, LME cash seller is $16.87

Stock Market Morning Update

The DOW is down 46.47 points to 12,549.28; the S&P 500 is down 2.94 at 1,334.83

Miners are up:

Barrick (ABX) $45.47 up 1.02%
Newmont (NEM) $53.35 up 1.08%
US Gold (UXG) $6.80 up 1.80%
General Moly (Eureka Moly, LLC) (GMO) $4.21 up 1.45%
Thompson Creek (TC) $10.66 up 0.38%
Freeport-McMoRan (FCX) $48.77 up 1.06% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.48 up 0.15% - global steel producer
POSCO (PKX) $105.65 down 0.03% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.46% at $1,687,617.93(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).

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) Update; Shootout at High Noon

Þūnresdæg

Morning Miners!

It is 6:15 AM. Have a cup of Thor's Lightning and checkout our favorite Norseman. Some time ago he figured an upended split differential case from a Model T makes a pretty good bird feeder. It is quite a sight to see a semi-retired thunder god feeding mountain grosbeaks and spotted towhees on a beautiful May morning...

General Moly (GMO) Update

This morning General Moly (GMO) released an update on their overall progress including the lastest permitting outlook for the Mt. Hope molybdenum project. Here is their press release:

GENERAL MOLY PROVIDES PROJECT UPDATE (Press release, 5/12/2011, 5:44 AM PT)

The latest step in the permitting process was the water rights hearing on Tuesday. Everything I've heard so far is consistent with the assessment in this press release. The hearing took less than three hours with about 15 minutes for cross-examination of Pat Rogers, GMO Director of Environmental and Permitting. Tuesday was an extra day granted to allow the protestants' counsel to question General Moly's water balance and basin use, as requested by the State Engineer.

Bruce D. Hansen, Chief Executive Officer, summarized the water rights and other permitting and finance aspects of the Mt. Hope project in their press release:

“We are continuing to make good progress permitting the Mt. Hope project. We believe the Preliminary Draft Environmental Impact Statement (PDEIS) is a thorough and defensible document and look forward to working with the Bureau of Land Management (BLM) and the reviewing agencies to resolve the comments submitted. We remain extremely confident that our water applications before the State Engineer’s office will be granted and support the degree of care and diligence the State Engineer’s office has taken to create a complete and carefully considered record and believe the additional time for this process is helpful to the receipt of the Company’s water appropriations. Lastly, Hanlong (USA) Mining Investment Inc. (Hanlong) continues to be a supportive, long-term strategic finance partner and is dedicated to the success of the Mt. Hope project. We continue to work hand-in-hand with Hanlong on the Chinese bank financing, which is progressing well.” (Press release, 5/12/2011, 5:44 AM PT)

So far, so good.

Shootout at High Noon

Now, if only the world felt a little better about itself. Shortly before noon yesterday a commodity sell-off that started in the morning accelerated and General moly, Thompson Creek (TC) and Freeport-McMoRan (FCX) shed share price at a dramatic pace. Freeport broke through its 200-day moving average to the downside, never a good omen for the mining sector. The sell-off continues this morning in early morning trading with GMO at $4.13; TC at $10.60 and FCX at a lowly $48.01. Gold miner Barrick is plumbing $45.14 as COMEX gold descends below $1,500 to trade at $1,496.0/oz. Silver is losing more of its shine at $34.015/oz.

What's going on? I respect folks that can capture the big picture in a few succinct sentences. Although it was reported by Reuters Monday, statements by BHP Billiton Chairman Jacques Nasser frame the conditions for the present flight from commodity related investments in just that way:

"In the short term, although many economies are recovering, the world remains in a fragile state with persistent levels of unemployment and threats of inflation...For the medium term, we should be prepared for further downside as global monetary and fiscal tightening and economic restructuring take hold..."

So it goes, pardner. Here's the whole article:

BHP Billiton sees fragile global economy near-term (Reuters MELBOURNE, 5/09/2011)

The Eureka Miner's Index(EMI) (see below) has just dropped below its March 15th, 2011 low. The ole Colonel ain't scared but we could be in for a repeat of last year's May/June malaise. 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 248.09, down from yesterday's 309.15 and below the 1-month moving average of 433.22. The EMI continues to be down from the high set on January 4th and sets a new 2011 low today. The 1-month average has established a troubling negative trend.

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

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

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 79.96, up from yesterday's 77.34 and above its 1-month average of 72.44. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,563.2/oz.

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

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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

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

NYMEX light sweet crude $97.32
ICE North Sea Brent crude $112.33
Spread (ICE- NYMEX) = $15.01 (Yesterday's $14.17 )

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $98.31
ICE North Sea Brent crude $111.21
Spread (ICE- NYMEX) = $12.99 (Yesterday's $11.96)

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

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

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) has broke below its 200-day moving average of $49.62 (our new warning level, 05/10 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

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

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

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

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, 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 $0.89 in early trading at $97.32 (June contract, most active); Gold is down $5.4 to $1496.0 (June contract, most active); Silver is down $1.500 to $34.015 (July contract, most active); Copper is up $0.0255 at $3.9390(July contract, most active)

Western Molybdenum Oxide is $16.74; European Molybdenum Oxide is $16.98; LME cash seller is $16.99, LME moly 3-month seller's contract is $17.12

Stock Market Morning Update

The DOW is down 78.33 points to 12,551.70; the S&P 500 is down 8.12 at 1,333.96

Miners are down:

Barrick (ABX) $45.14 down 0.90%
Newmont (NEM) $53.13 down 0.52%
US Gold (UXG) $6.76 down 3.57%
General Moly (Eureka Moly, LLC) (GMO) $4.13 down 1.20%
Thompson Creek (TC) $10.60 down 0.75%
Freeport-McMoRan (FCX) $48.01 down 0.54% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $34.28 down 0.67% - global steel producer
POSCO (PKX) $106.18 down 1.17% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 2.16% at $1,673,787.41(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