"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.

Wednesday, September 16, 2009

The Colonel Sticks by his Gold Price Prediction

Morning Miners!

It is 5:43 AM, grab a cup and we've got sunny days ahead. On May 22, I predicted gold would see $1050 before Christmas and it looks like we're almost there. The London spot price hit $1020.50 this morning and is presently hovering just below the $1020 level. You can watch the action yourself by clicking on the InfoMine link in the Miner's Corner to your right. Charts for gold, silver, platinum and palladium are on the homepage and are updated frequently.

Broader markets are on a tear too after Ben Bernanke's comment yesterday that the "recession is very likely over at this point..." The causality has been the U.S. dollar as investors around the world move back into riskier assets. Coincidentally, the S&P 500 and gold are numerically similar with the S&P closing at a new high of 1,052.63 yesterday. If its a race to 1050, the stock market is already there. You shouldn't draw too much from this but it is a fun way to keep track of the two which have shown a great deal of correlation lately.

The Report readers (yup, that's you) should be happy too! Your Grubstake profits passed a quarter of a million dollars this morning for a return of over 25% since we put your portfolio together May 10th (The Eureka Miner's Million Dollar Grubstake). Mining stocks have been one of the strongest leaders in the market rally to date and General Moly has reached new intraday highs of $3.67 this morning. How about a big Colonel - Yee-ha!

Some of gold's recent luster has been driven the U.S. dollar's continued weakness. Rick Santelli of CNBC Business News soberly reminded us yesterday that the dollar is "stock" in America and its decline (although good for our exporters) is nothing to cheer. I thought I'd look at gold price for the last three-years in relation to three currencies: the U.S. dollar, the euro and the Australian "aussie". The chart is shown below. The aussie (blue line) is always an interesting currency because it represents a commodity based economy (similar to Eureka County, mining and agriculture). The euro (green line) is representative of more generalized western economies reflecting the broad diversity of the euro zone (manufacturing, services etc.). The U.S. dollar is given by the red line:

Note that dollar denominated gold has courted the $1000/oz zone three times in two years; roughly the Bear Stearns collapse, bottoming of the S&P last March and recent times. We are very close to the March high of $1,032.35. The recent gains in gold are less bullish when we compare the U.S. dollar chart to the euro and aussie which supports the case that the September rally is more about an ailing dollar than anything else.

It's always good to be cautious in rallies and I remain puzzled about the slide in nickel and molybdenum although they appear to be stabilizing. I checked out steel manufacturer Nucor (NUE) yesterday as promised after seeing a news flash about "new demand". They offered guidance for the third quarter yesterday. Dan DiMicco, Nucor's President, Chairman and CEO, commented:

"Our view remains that there has been little improvement in real demand and the uncertainty in our economy is still very high. We also continue to believe that real demand is in for a long, slow recovery."

Hmm...that doesn't sound too great. Of course Nucor is a domestic company more tied to the fate of the U.S. economy. Our other steelmakers, ArcelorMittal and POSCO, service China and global markets. I'll dig a little more into their story buckaroos. Always keep a sober guard posted at the gates when the troops are having a party.

Enough talk, let's walk the walk:

4-WD is OFF (the VIX or "fear index" is low)

Yellow light is ON for declining molybdenum price (less than magic number: $16.50)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

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

Oil is up $0.70 in early trading to $71.63 (October contract); Gold is up $12.00 to $1018.3 (December contract, most active); Silver is up $0.385 to $17.385 (December contract); Copper is up $.0735 to $2.9185 (December contract); Molybdenum holds at $14.75.

The DOW is up 30.15 points to 9713.56; the S&P 500, up 4.88 points to 1057.51. The miners are happy:

Barrick (ABX) $38.66 up 1.87%
Newmont (NEM) $47.54 up 1.73%
General Moly (Eureka Moly, LLC) (GMO) $3.63 up 2.26%
Freeport McMoran (FCX) $72.26 up 1.32% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed, (a "tell" for General Moly):

Nucor (NUE) $47.46 down 0.69% - domestic steel manufacturing
ArcelorMittal (MT) $41.93 up 0.62% - global steel producer
POSCO (PKX) $106.68 up 2.60% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.20% to $1,256,426.31(what is this?).


Colonel Possum

Headline Photograph by Mariana Titus

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