Where Do We Go From Here? Ask the Metals

Morning Miners!

It is 6:07 AM, the coffee is hot and September is the Colonel's favorite month! Yesterday we looked to the Fed to signal where we're headed next. They are going to maintain their target interest rate at 0%-0.25% for sometime to come until they are certain that the economy has some real legs. Most interpret that to mean after unemployment peaks and job creation returns with some gusto. That probably won't occur until sometime next year and estimates range from mid-2010 to 2011 before we'll see interest rates move north again. Markets have been reacting favorably lately because they look down the road 6-9 months, discounting bad news and anticipating a solid recovery. Well, at least until the following hit the wire this morning:

"Realtors said that sales of existing homes fell 2.7% in August to a seasonally adjusted annual rate of 5.1 million homes, snapping a four-month streak of rising activity that analysts expected to continue in the latest reporting period." (WSJ, 09/24/09)

Nuts, the "fear index" (what's this?) spiked above 25 on the news, markets dropped, the dollar rallied, oil and precious metals took a nose dive. Haven't we seen this movie before?


My guru Dennis Gartman, the "Commodity King", has often said that the base metals taken collectively have a PhD in economics. I thought we'd ask them for their opinion since the metals are good leading indicators for things to come. In mining and economics, base metals are the industrial non-ferrous group that includes copper, nickel, aluminum,lead, tin and zinc (see note 1).

The Report has been following copper for sometime since it is broadly viewed as a bellwether for global recovery. For the last several weeks we've tracked nickel together with molybdenum since they are both key ingredients to steel production which is important for General Moly (Why is that?). To date copper has been worrisome since it appears stuck below $3, has received little lift from dollar weakness and is presently undervalued with respect to gold. Dennis Gartman said on CNBC yesterday that he too is worried about copper price performance and fears it might be "broken". Molybdenum caught our eye earlier this month because it began to staircase down to lower and lower prices. We discovered that its buddy nickel was following it down to the cellar when things started to stabilize last week. Let's ask the whole class of base metals what they think. Here is a one-month chart of copper, aluminum and tin:


The next chart shows the remaining three; nickel, lead and zinc:


It is dangerous to draw too much from this snapshot, but it does appear a "bottom" formed mid-September and the base metals (with the possible exception of copper) are on the march higher. The glass-is-half empty crowd would say that the metals are all range bound waiting for something to happen on the world stage.

Here is our daily chart of nickel and molybdenum:


Although moly hasn't budged from its $14.75 level, the Colonel will bet it moves higher soon with its other classmates. A mixed picture? Yes, but we'll keep our eye on these fellers and the picture will be clearer soon. What the heck, I'll stick my neck out...here's a beer bet for the Colonel's Beer Derby (what's this?):

Molybdenum sees $16.50 before Christmas

Good golly Miss Moly, let's walk the walk:

4-WD is OFF (the VIX or "fear index" spiked this morning but the Colonel will watch another day before declaring off-road conditions what's this?)

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 down $2.77 in early trading to $66.20 (November contract); Gold is down $16.9 to $997.5 (December contract, most active); Silver is down $0.550 to $16.360 (December contract); Copper is down $.0995 to $2.7085 (December contract); Molybdenum holds steady at $14.75.

The DOW is down 35.52 points to 9713.03; the S&P 500, down 8.26 points to 1052.61. The miners are down:

Barrick (ABX) $36.18 down 0.96%
Newmont (NEM) $43.24 down 0.79%
General Moly (Eureka Moly, LLC) (GMO) $3.11 down 6.89%
Freeport McMoran (FCX) $68.73 down 3.32% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $47.86 down 1.87% - domestic steel manufacturing
ArcelorMittal (MT) $38.45 down 2.29% - global steel producer
POSCO (PKX) $103.88 down 2.05% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 2.77% to $1,188,600.63(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Note 1: The chemistry definition of "base metals" is slightly different. The term base metal is used to refer to a metal that oxidizes or corrodes relatively easily, and reacts variably with diluted hydrochloric acid (HCl) to form hydrogen. Examples include iron, nickel, lead and zinc. In the mining and economic terminology copper and aluminum are added to the base industrial group and iron is the building block of ferrous metals.