"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Thursday, April 16, 2009

Eureka at the Crossroads?

Morning Miners!

It is 6:59 am, the ole Colonel's head is buzzing and I don't think it's the caffeine. I just digested a pile of news and market data that could stumble a surefooted horse. If I had to boil it down to a few words it might be, "Eureka is at the crossroads of global recovery."

As I've said before, while you folks are working hard on the ground (or below it), the Colonel's job is to take his chopper and observe what might be coming over the hill. Let's look at three important chunks of today's global terrain:

"The Fed's Beige Book survey was slightly more optimistic than last month, showing that the pace of economic decline may be starting to moderate in some parts of the country." (WSJ 4/16/09)

"Industrial production in the 16 countries that use the euro dropped by 18.4% and inflation dived to a record low, with a quarter of the currency area members registering a drop in consumer prices..." (WSJ 4/16/09)

"China reported its worst quarterly economic growth in nearly two decades on Thursday, but also published other data indicating that the deepest part of the downturn may have already passed amid a huge wave of government spending." (WSJ 4/16/09)

One possible interpretation is the U.S. slowly turning the corner, Europe driving off a cliff and China's dragon starting to puff a little smoke after a shot of ether in her intake.

So how does all of this affect Eureka in the coming months? Deflationary trends in the U.S. and Europe could put a lot of pressure on gold in the near term, investors may try to short the demand weakness and drive prices south. Besides losing my recent beer bet this could cause some rough sledding for gold miners. This scenario is less than clear as evidenced by the mixed ratings for Barrick (ABX) in the last 24 hours. Today, Genuity cut the ABX price target from C$57 to C$50; yesterday, Scotia raised the target from C$44 to C$48. Confused?

The China story, as I have been reporting, is a bit more clear. A surge in infrastructure spending is great for the industrial metals. Copper has been on fire for weeks and Credit Suisse just upgraded the steel sector to overweight (Wall Street jargon for "back up the truck!"). Even though moly prices are still at their 5-month lows, General Moly (GMO) has been on a phenomenal tear this week.

So there, Eureka sits at the crossroads of gold and molybdenum. Hell, I'm still bullish on both. Let's rock the clock!

Here's the markets buckaroos:

Oil wobbled below $50 in early trading at $49.24; the dollar ("Dixie" or .DXY) is strong, up 0.21% to 85.111. The commodity index (.CRB) is steady at 225.43.

Gold dropped $11.2 to $882.3 (June contract); Silver is down a healthy 0.445 to $12.355; Copper pulled back $.0270 to $2.1720; Molybdenum lolly gags at $7.95.

The DOW is down 54 points to 7975.38; the S&P 500, down 4.24 points to 848.62. Miners are woozy except for General Moly which continues to be a rock star:

Barrick (ABX) $28.86 down 3.36%
Newmont (NEM) $40.70 down 3.78%
General Moly (GMO) $1.75 up 4.79%
Quadra (QUA.T) C$
Freeport McMoran (FCX) $43.01 down 4.00% (a bellwether mining stock spanning gold, copper & molybdenum)


Colonel Possum

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