Tuesday, June 23, 2009
Ask the Loonie Bird, Ask the Metals
It is 6:19 AM and we're firing up a second pot. The ole Colonel is a little late this morning because there has been so much data to sort through after yesterday's commodity massacre. The Eureka Miner's Grubstake Portfolio was down 6.91% shedding $70,384 for its largest daily loss - ouch! This quote from Metals Monthly pretty much sums up the situation:
"Are the green shoots of spring turning into the full blossoms of summer? Or is a late frost about to descend?" asks the VM Group, a specialist London-based metals analytics organisation, in its latest Metals Monthly for Fortis Bank.
The Report has been expecting a a summer slump in gold and the broader markets; yesterday may very well have been the warning shot for more to come. Fortunately, gold reversed early this morning (London time) after flirting with $914. There will probably be a relief rally today but the larger question is what next? I don't know the answer but it is always good to look at the metals and commodity-sensitive currencies for clues. The following charts suggest a weakening in the commodity reflation story may have started early this month. Here is a plot of the Canadian dollar ("Loonie", QCD U9)) versus the Australian dollar ("Aussie", QAD U9) for the last 3-months:
Although they are a hemisphere apart, the currencies of these two resource-rich countries are nearly identical in their performance. Note that both started to reserve their upward trend in early June. The story of the U.S. dollar (DX U9) is the inverse as shown in this chart plotted against the Aussie (QAD U9). This relation is not unexpected since the dollar index is based on a basket of global currencies but the counter-trend character with a commodity-sensitive currency is pronounced:
As the U.S. dollar has strengthened, gold has declined in their classic relation. Here are gold and copper, our favorite canaries in the global recovery mineshaft, for the last 3-months. The copper trend remains positive but weakening as doubts about the real strength of China's recovery emerge:
Where do we go from here? Stay tuned, the Colonel has got you covered.
Enough chart talk, let's walk the walk:
Oil is up $0.33 to $67.82 in early trading (August contract); Gold is up $2.3 to $923.3 (August contract); Silver is up $0.100 to $13.805 (July contract); Copper is up $0.0535 to $2.1855(July contract); Molybdenum holds steady at $10.58.
The DOW is down 23.28 points to 8315.73; the S&P 500, down 1.59 points to 891.45. The miners are recovering somewhat:
Barrick (ABX) $32.06 up 0.60%
Newmont (NEM) $40.22 up 0.88%
General Moly (Eureka Moly, LLC) (GMO) $2.07 down 2.82%
Freeport McMoran (FCX) $46.71 up 3.39% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are so-so (a "tell" for General Moly):
Nucor (NUE) $43.21 down 0.48% - domestic steel manufacturing
ArcelorMittal (MT) $31.13 up 1.83% - global steel producer
POSCO (PKX) $78.42 up 0.09%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is shaking off a little dust, up 0.34% to $952,168.11.