Friday, July 10, 2009
Silver Stumbles on the Precious Metal Trail
It is 6:08 AM and I've been spending some time this morning watching silver on the London Spot Market. That's the great thing about markets, somebody is always trading something no matter the time of day. The ole Colonel looks for "funnies" and we might have one shaping up between gold and silver. In normal times, silver follows gold down the wiggly trail of precious metal prices. Silver is called a "high beta" metal with respect to its lustrous cousin gold. That means that when gold goes up the stairs, silver takes the fast elevator (beta greater than one). Of course, the opposite is true; when gold slides, silver falls down the elevator shaft. For number geeks, the silver beta has been about 1.6 this year although I haven't run the numbers since vacation.
Silver is "thinly traded" with respect to gold because there are many more folks and countries invested in the yeller stuff and for many more reasons (currency backstop etc.). Following this argument, when silver does something on its own it's a good time to take notice. The massive hedge fund liquidation of silver last November was a good example and silver courted $9...oooh weee! By contrast, the 20-day moving average of gold stayed within plus or minus 10% through the worst carnage of last year's economic crisis. The lesson? Gold is a fairly stable precious metal; its whacky cousin can somtimes behave like a screaming nut case.
There is nothing that dramatic going on in London but silver did drop 2.6% suddenly to $12.56 while gold only dropped 0.8% to $908. Using this beta stuff, one would expect silver to follow gold down 1.3% (i.e. 1.6 X 0.8), so 2.6% is something to watch. More importantly, silver the follower dropped first. To round things out, platinum spot fell 1.8% to $1091 but only after silver stumbled.
Have I given you a headache with all this blasted number crunching? Let me leave you with a bottom line; if silver falls below $12, the Colonel is buying a chunk. Today might be a big nothing but if it signals further weakness in precious metals the Colonel is buying a tad more gold below $883, yee-ha!
Let's toss out the calculator and walk the walk:
Oil is down $1.14 to $59.27 in early trading (August contract); Gold is down $6.2 to $910.0 (August contract); Silver is down $0.35 to $12.585 (September contract); Copper is down $0.0215 to $2.216 (September contract); Molybdenum is still sitting at $11.50 which ain't too bad buckaroos!
The DOW is down 28.1 points to 8155.06; the S&P 500, down 1.62 points to 881.06. The miners are mixed today:
Barrick (ABX) $31.47 down 0.82%
Newmont (NEM) $37.70 down 0.89%
General Moly (Eureka Moly, LLC) (GMO) $1.82 down 2.67%
Freeport McMoran (FCX) $46.82 up 0.28% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are mixed(a "tell" for General Moly):
Nucor (NUE) $40.77 down 1.62% - domestic steel manufacturing
ArcelorMittal (MT) $29.49 down 1.27% - global steel producer
POSCO (PKX) $85.25 up 2.32%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down 0.79% to $912,230.61.