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

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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.

Friday, October 30, 2009

The Colonel's Outlook for Year's End



Morning Miners!

It is 5:27 AM and my favorite day of the month. The Report brings the Duke back at the close of each month to walk the walk in the savings and credit markets so the reader can track progress as we ride down the Recovery Trail. Nothing like a little John Wayne persuasion to keep those financial nere-do-wells in line.

Before we go there, grab a cup of that famous Raine's TGIF coffee and let me tell you why the Colonel is cautiously optimistic for the remainder of 2009.

1) September and October are traditionally the worst months for stock markets. Many expected a severe correction, it didn't happen. Today looks like a bruiser but we have come a long, long way from the March lows (e.g., S&P 500 at 1,050 is up 58%)

2) We are nearly through "earnings season" when corporations report their financial status for the last quarter. There was much pessimism about these results but overall most companies beat expectations; productivity is up, costs are down. Top-line revenue growth will continue to be a challenge but there are signs the consumer is coming back to life.

3) The DOW Jones and S&P 500 saw big rallies in this period but have returned to roughly where they were at the beginning of earnings season. For the ole Colonel, "flat" is good. I was getting a little worried about too much exuberance before the economy gets a better footing. Let's have stable (up and down) markets for the time being before trying a moonshot to pre-recession levels. I'm a happy camper if the year closes near October's highs, somewhere around DOW 10,000 and S&P 1100. Gold above $1000/oz would be nice too, let's say $1080 or so.

4) October is the last month the government plans to print money. The cessation of "quantitative easing" will allow free market forces to again establish key interest rates. Watch the 10-yr Treasury note, if you're planning to buy a house you might want to make a move soon.

5) Our poor old greenback showed some signs of life this week. Someday we need a strong dollar to sustain recovery. It is said that a weak dollar promotes growth but lowers our standard of living in the long run. Presently, a weak dollar helps U.S. exporters (think Caterpillar) and dollar strength equates to down markets (Whistling Dixie...What is a Weak Dollar?). This Fall, the dollar index hit 52-week lows as the stock markets enjoyed 52-week highs.

6) Some fear has returned to the markets (the VIX is currently north of 25, what does this mean?) and a little fear is good for stability. Central Banks are starting to remove stimulus around the world and there will be less easy money chasing commodities and equities. Markets returning to fundamentals with less speculation is not all bad. This market relation is in play presently: FEAR = Stronger Dollar = Weaker Equities = Falling Commodity Prices

7) Even though fear is now moderating greed, copper remains above $3 and the steel makers recovered from a beating earlier this week although they are down again today. Copper and steel demand are good indicators that global recovery is on track. Oil moving above $80 is worrisome but has seen some downward pressure lately.

8) The Commerce Department reported a U.S. gross domestic product (GDP) yesterday of 3.5% that beat economists expectations. Future GDP estimates will no doubt decline as the stimulus wears off but that is fine as long as we can sustain enough growth to stay in recovery mode. Larry Summers, economic adviser to the President, stated that something around 2% in 2010 was adequate to achieve "escape velocity" from planet recession. This morning Dr. El-Erian, CEO of Pimco, disagreed with the White House assessment and warned of rough times ahead after the "sugar rush" of stimulus has worn off. He did state that countries east and south of New York have better "initial conditions" for recovery (think Asia, Brazil, India). Domestically, El-Erian sees a struggle between a "a FED that pushes investors to riskier assets" and a "difficult 2010". He may be spot on but I'm always a little suspect of bond investor outlooks. Pimco is the world's largest bond dealer and they often do quite well when times are bad. I'm an eternal (but seasoned) optimist and will go with the "escape velocity" metaphor for now. Stay tuned buckaroos.

OK it's time to grab the Duke and checkout the savings and credit markets. The Report started this check last May in the blog, Where's The Duke When We Need Him?. Here are today's national averages compared to last month's numbers (WSJ Market Data, 10/30/09):

10-yr Treasury Note 3.420% vs 3.291%, up
Money Market 1.07% vs 1.11%, down (52-wk low, 1.07%)
5-year Bank CD 2.70% vs 2.71%, up (52-wk low, 2.59%)
30-yr mortgage, fixed 5.32% vs 5.29%, up (52-wk low, 5.06%)
15-yr mortgage, fixed 4.65% vs 4.66%, down (52-wk low, 4.52%)
New-car loan, 48-month 7.12% vs 7.36%, down (52-wk low, 6.57%)
Home-equity LOC, $30K 5.77% vs 5.74%, up (52-wk low, 5.03%)


It is discouraging that money market rates made a new 52-week low and CD rates have stalled after slowly inching up. Good news for home buyers with continued low fixed rate mortgages. The 10-yr Treasury hovering around the mid-3% range tells us that Uncle Ben is still doing a pretty good job in keeping interest rates low and the credit markets stable. As we noted for several months, Ben is keeping savers on the Slim-Fast plan.

Let's checkout the Eureka Miner's Million Dollar Grubstake. At the market close yesterday, the readers (yup, that's you) made $1,195,069.16 ($191,322.97 last month), that's a 19.5% return on your money since we started May 10th. General Moly has fallen from number one position but is still in the top three stocks. Here's the top four out of twelve stocks:

Freeport-McMoran (FCX) up 50.9% (last month, 31.9%)
Caterpillar (CAT) up 44.4% (30.2%)
General Moly (GMO) up 31.0% (72.8%)
ArcelorMittal (MT) up 25.1% (31.9%)


Here's the bottom four (worst first):

Nucor (NUE) down 5.4% (last month, up 7.4%)
Newmont Mining (NEM) down 1.8% (down 0.1%)
Barrick Gold Corp. (ABX) up 8.8% (no data for comparison)
ConocoPhillips (COP) up 9.4% (down 3.6%)


Copper breaking $3, strong steel performance in Asia and a positive international outlook for Caterpillar have kept FCX, CAT and MT in the top four although steel makers got whacked pretty hard this week. Oil has broken $80 and natural gas is north of $5 helping our two energy companies. EOG Resources left the worst four and ConocoPhilips has gone from a negative to positive return. Barrick (ABX) dropped to join Newmont (NEM) in the basement although they still enjoy a positive return.

Enough talk, let's walk the walk:

4-WD is ON - the VIX or "fear index" is above 25 ,off-road market conditions are expected to continue (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 $0.89 in early trading to $78.98 (December contract); Gold is down $1.9 to $1045.2 (December contract, most active); Silver is down $0.090 to $16.565 (December contract); Copper is down $.0170 to $3.0125 (December contract); Molybdenum is steady at $11.75.

The DOW is down 93.86 points to 9868.729; the S&P 500, down 11.19 points to 1054.92. The miners are mixed:

Barrick (ABX) $35.79 down 3.55%
Newmont (NEM) $43.30 up 0.70%
General Moly (Eureka Moly, LLC) (GMO) $2.32 down 3.73%
Freeport McMoran (FCX) $76.12 down 2.62% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $40.21 down 2.52% - domestic steel manufacturing
ArcelorMittal (MT) $34.38 down 4.23% - global steel producer
POSCO (PKX) $104.98 down 3.23% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 2.26% to $1,168,061.36 (what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Thursday, October 29, 2009

The Recession is Over (Well...sort of)


Morning Miners!

It is 5:58 AM and we have a strong pot a'brewin' this morning. Let's start out with some good news - the recession is over. Well, sort of if you take stock in official numbers. The Commerce Department reported this morning that the U.S. gross domestic product (GDP) rose by a seasonally adjusted 3.5% annual rate from July through September. GDP is the broad measure of economic activity in the United States. As reported in the Wall Street Journal:

"The economy's growth was the first since the second quarter of 2008 and serves as an unofficial confirmation that the longest and deepest recession since the Great Depression has ended. The GDP gain was driven by consumer spending, which rose by 3.4%. Economists said the massive stimulus injected by the U.S. government, such as the cash for clunkers program, helped boost consumer spending." (WSJ, 10/29/2009)


The best news was that the GDP number beat economist's estimates who had forecast a 3.2% GDP growth (Dow Jones Newswires survey). Economists are the only working group in America that can boast full employment. That is, of course, the downside. High unemployment elsewhere and diminishing stimulus will extend recovery over many months with expectations of lack luster growth.


Nuts. Let's be thankful for any good news after the beating commodities, miners and steel makers took yesterday. The markets are back on their feet this morning with the encouraging GDP news. General Moly was up nearly 14% in early trading after coming perilously close to $2 yesterday. Phew! If you followed the canine logic in yesterday's article, it appears Henry the Bold is back in charge and Charley the Protector is taking a needed rest (Dogs, Bears, Coyotes and a little Lithium).

Enough talk, let's walk the walk:

4-WD is ON - the VIX or "fear index" is is above 25 ,off-road market conditions are expected to continue (what's this?)

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

Yellow light is back on for our Fuel Gauge as oil just entered $80 territory again (9:42 AM PDT update)

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

Oil is up $1.56 in early trading to $79.02 (December contract); Gold is up $7.1 to $1037.6 (December contract, most active); Silver is up $0.245 to $16.485 (December contract); Copper is up $.0565 to $2.9870 (December contract); Molybdenum is steady at $11.75.

The DOW is up 98.70 points to 9861.39; the S&P 500, up 13.29 points to 1055.92. The miners are break dancing:

Barrick (ABX) $36.19 up 4.66%
Newmont (NEM) $42.58 up 2.60%
General Moly (Eureka Moly, LLC) (GMO) $2.30 up 11.1%
Freeport McMoran (FCX) $76.72 up 4.45% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $40.95 up 2.50% - domestic steel manufacturing
ArcelorMittal (MT) $35.61 up 4.28% - global steel producer
POSCO (PKX) $106.98 up 1.56% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 3.31% to $1,174,346.10 (what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Wednesday, October 28, 2009

Dogs, Bears, Coyotes and a little more Lithium


Morning Miners!

It is 5:42 AM, the coffee's hot and Loquita is catching up on her beauty sleep. Dogs know things that humans don't. You realize this if you've had dogs in your life. The ole Colonel was blessed to have three; two black labs and their sidekick, La Loquita. Henry and Charley have passed on as old dogs do but I think of them quite often and they passed on many canine secrets to my small companion.

Dog owners know that their animals speak to them telepathically. Henry would often berate his master, "You know we'd have more interesting conversations if you had a better sense of smell!" Henry was bear-like, crashing through the sage with forepaws and hind legs moving in opposing lockstep. Charley was the coyote; side-stepping, serpentine, cautious and aware that a misstep in the wilds could be fatal. Henry the Bold, Charley the Protector. Working together they combined their strengths to offset their weaknesses. Smart critters those two.

Markets exhibit some of the same characteristics. For several months we have been bounding through the sagebrush to higher and higher bluffs without much concern for what dangers may lie ahead. The Dow Jones broke 10,000, the S&P raced past 1100 and commodities have been on a tear. Oil jumped above $80 and copper finally broke the $3 mark. Henry the Bold.

This week fear has returned to the marketplace and the pace is more cautious. Stock markets, oil and copper along with the precious metals are in retreat. Money is fleeing riskier assets to seek safe haven. Charley the Protector.

What's changed? One theory is that global stimulus is slowly coming to an end. Australia was the first to tighten monetary policy by raising interest rates. India and Norway are following Australia's lead and it is suspected that South Korea will be the next to hit the brakes. Fear arises as investor's contemplate a global recovery without central bank training wheels. Interestingly, there is renewed vigor for foreigners to buy U.S. debt as evidenced by a record breaking auction of 2-year Treasury notes yesterday and a rebound of the poor U.S. dollar against the euro and yen.

Is the Colonel worried? Nay, actually I'm relieved to see a little fear dampen cheap money speculation. I get scared when everything is up, up and away. We've come a long way since the March lows. Let's follow Charley Dog's lead for awhile; side-stepping, serpentine, cautious and aware that a misstep in the marketplace could be fatal.


I'll close on a positive note, lithium is back in the news. The Report has been tracking lithium and vanadium as two strategic metals that may have a big footprint in our future as the next generation of electric and electric hybrid vehicles roll down the highway:

The Next Big Thing for Northern Nevada? (9/28/2009)

A Big Step into the Future for Eureka County? (10/23/2009)

Last week there was a panel discussion at the Managing Supply Chain Risks for Critical & Strategic Metals conference in Washington. Here is a link to a Reuter's article on the meeting:

Lithium outlook bright with auto electrification


Jay Chmelauskas, president of Western Lithium Corp. (WLC), said:

"I think that the future of transportation and energy is in electrification and smart grids. For electrification to really take place, you need a number of drivers, and we are seeing these catalysts today in Beijing ... in Washington, in terms of energy independence and 'green' air quality requirements..."

and,

"Will it happen? Yes it will, but where is that inflection point? I think it is in the next five to ten years from what we see happening..." (Reuters, 10/27/09)

David L. Trueman, consulting geologist with Avalon Rare Metals Inc., stated:

"We are recognizing that lithium is perhaps the Holy Grail of the electric vehicle and variations of the electric vehicle..." (Reuters, 10/27/09)

WLC presently holds "potentially one of the world's largest strategic, scalable and reliable sources of high-quality lithium carbonate" located in Kings Valley, Nevada (Humboldt County). WLC has recently expressed interest in the vanadium deposits in Eureka County's Gibellini mining district.

That's not all bad buckaroos!

Enough talk, let's walk the walk:

4-WD is ON - the VIX or "fear index" is is above 25 ,off-road market conditions ahead (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 $0.79 in early trading to $78.76 (December contract); Gold is down $0.4 to $1035.0 (December contract, most active); Silver is down $0.150 to $16.390 (December contract); Copper is down $.0255 to $2.9735 (December contract); Molybdenum is steady at $11.75.

The DOW is down 29.55 points to 9852.62; the S&P 500, down 9.37 points to 1054.04. The miners are getting stomped:

Barrick (ABX) $34.83 down 3.49%
Newmont (NEM) $42.37 down 2.10%
General Moly (Eureka Moly, LLC) (GMO) $2.22 down 5.13%
Freeport McMoran (FCX) $74.86 down 3.34% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are on the mat, (a "tell" for General Moly):

Nucor (NUE) $39.78 down 3.02% - domestic steel manufacturing
ArcelorMittal (MT) $34.22 down 3.77% - global steel producer
POSCO (PKX) $106.77 down 4.16% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 2.90% to $1,154,166.02 (what is this?).

Cheers,

Colonel Possum

Photographs by Mariana Titus

Tuesday, October 27, 2009

Eureka is not Saginaw, Michigan



Morning Miners!

It is 5:54 AM. Let the ole Colonel pour you a cup and let's take a stroll down Memory Lane. For us old timers in the West "Saginaw, Michigan" meant only two things; a song by Lefty Frizzell by that name and a tough-as-nails transmission for General Motors products. Lefty hailed from Corsicana, Texas but later moved to Bakersfield, California, and became a major influence on that young buck country star, Merle Haggard.

His song "Saginaw, Michigan" (1964) is a about a local boy who falls in love with a Saginaw girl. Her wealthy father blocks the romance given the boy's humble fisherman background. Not discouraged, the young lad heads out to Alaska's gold fields to find a fortune and raise his social standing. His Klondyke claim doesn't pan out but he convinces the father otherwise. Wild with gold fever, the father heads for Alaska and the boy gets the girl. That's my kind of buckaroo, pardner!

Now he's up there in Alaska digging in the cold, cold ground.
The greedy fool is a looking for the gold I never found.
It serves him right and no-one here is missing him.
Least of all the newly-weds of Saginaw, Michigan.


Oh, what about that transmission? It got the shaft too when the aluminum case 4-speed "Muncie" appeared on the scene about the same time as the song. Although the Saginaw-four was still produced, the Muncie was the ticket for Corvettes, Camaros and other hot cars of that era. A friend of mine used to carry a spare Muncie in his trunk; they were good as cash if you ran short of funds.


"Where you going with all this ancient history, Colonel?"

Hang on young'uns, we're almost there. You see that feller in Saginaw with the cute bride probably wishes he was back in gold country these days. I'm going to guess that things never got better in Saginaw with their old iron box four-speed. Nowadays we know that the decline of the U.S automotive industry has brought Michigan to number one in unemployment at a whopping 15.3%. Before we feel too bad for them, remember that Nevada is number two with 13.3% compared to a national figure rapidly closing on double digits.

It is sad when anyone loses a job but I'm going to guess that things are better up here in the north counties than down in Las Vegas. A Eureka woman who I greatly admire told me several months ago, "Eureka got through the Depression just fine, we'll get through this thing too!"

So here's my point. As bad as things may be or become, Eureka is well positioned to weather recessions and be first in line for economic recovery. As the Report has mentioned many times, gold is a safe haven during hard times and this County still has plenty of it. In a resource stretched world, strategic materials are ever more important too. We've got one of the world's largest deposits of molybdenum in Mt. Hope and Friday we learned the Gibellini vanadium exploration in the southeast corner of the County may have found new value in the light of tomorrow's electric cars and energy storage devices (A Big Step into the Future for Eureka County?). So take heart Eurekans, mining together with robust farming and ranching activities makes our County not a bad place to be.

Excuse me, a couple of old folks just pulled up to the shop in a 1964 Pontiac Catalina. Say, she's pretty good looking. Not the car, pardner, the old gal that just stepped out, "Excuse me sir, can you tell me where we can find some gas?"

"The Chevron, you must have passed it coming into town on the left. Where you from?"

"My husband and I drove all the way from Saginaw, Michigan."

"Welcome to Eureka, hon. I hope you stay awhile, you've come to the best little town on earth."

Enough story tellin', let's walk the walk:

4-WD is OFF - the VIX or "fear index" is flirting with 25 lately, rocky markets may be ahead. We'll keep'er in 2-WD for now (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 up $0.18 in early trading to $78.86 (December contract); Gold is down $1.8 to $1041.0 (December contract, most active); Silver is down $0.085 to $17.010 (December contract); Copper is up $.0110 to $3.0220 (December contract); Molybdenum is steady at $11.75.

The DOW is up 56.91 points to 9924.87; the S&P 500, down 7.33 points to 1069.09. The miners are mixed:

Barrick (ABX) $36.55 up 0.97%
Newmont (NEM) $43.44 up 0.23%
General Moly (Eureka Moly, LLC) (GMO) $2.41 down 2.03%
Freeport McMoran (FCX) $78.86 down 0.91% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $41.57 down 3.95% - domestic steel manufacturing
ArcelorMittal (MT) $36.48 down 2.51% - global steel producer
POSCO (PKX) $112.94 down 1.93% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.83% to $1,203,688.72 (what is this?).

Cheers,

Colonel Possum

Monday, October 26, 2009

Dog In Search of an Honest Metal


Morning Miners!

It is 5:51 AM, grab a cup and the ole Colonel will tell you about an unusual visitor in our break room this morning. I was letting Loquita out for her morning pee when I saw a faint and flickering light come my way. It was an old timer carrying a miner's lamp. He walked up to the shop door and asked to come in to rest a spell. I asked his name and he said, "Diogenes. It's a Greek name, miners call me Dog". After our second cup, I asked the old feller what he was doing up so early in Eureka. He smiled and said, "I'm looking for an honest metal and I think I've found it." Puzzled, I inquired what metal that might be and he laughed, "Molybdenum, my friend!"


I didn't learn too much more from "Dog" and he melted away in the early morning darkness as quickly as he appeared. Loquita followed and for a moment I wondered if I had lost my dog to another. With the first light of dawn, she came running back wagging her tail with a note tucked in her collar. I read the note and now I know what my miner friend was telling me.

The readers of the Report have watched a meteoric rise in gold since early September as our poor ole greenback continues to fall down the mineshaft relative to other currencies (Gold Breaks $1007, Attack of the Ninja Miners). Equity and oil markets have also rallied with the Dow Jones breaking 10,000 and oil jumping above $80.

Initially, the curious thing was the lack luster performance of the industrial metals. We noticed molybdenum and nickel, both key ingredients to steel production, kept trending downwards as the precious metals danced in the heavens. General Moly responded to the Report's concern with an excellent analysis of moly's price performance which we reprinted in Good Golly Miss Moly. I encourage you to read their entire response which concludes:

"So when we look at the [molybdenum] price declining from the mid $17/lb to the mid $15/lb over the past couple weeks, we suspect one or more of the following is at play. First, the Chinese could be done accumulating their stockpile of moly and thus demand has been reduced. Or, second, some incremental [molybdenum] production from either China or the western world could be coming back online, increasing relative supply."

My takeaway from this line of argument is that moly price is following the expected laws of supply and demand. Even though it took another jog down to $11.75 last week, I suspect moly continues to obey supply/demand fundamentals as miners (supply) and the global steel community (demand) seek equilibrium in the global recovery.

Perhaps not so for other metals and that brings us to Dog's note. He suggested I look at nickel, zinc and copper which have been fairly range bound during the precious metal rally. Lo and behold, it appears that these metals have now caught "gold fever" too. Here is a one-month chart of nickel, zinc and copper rising as molybdenum falls.


What's going on? The Wall Street Journal has an interesting view on copper which broke the elusive $3 level only last week:

"Although the weakening dollar and the generally more positive outlook for the metals sector is certainly providing support, brokers remain confused at the gains[in copper price].

Poor physical-market conditions are failing to provide the rationale for the move in copper, a metal used in industrial applications like housing and construction. But brokers say they won't take their money off the table and go short in case they miss yet another leg up for the base metals complex.

'A wall of money is playing into the hands of market bulls,' said Ole Hansen, manager for futures and fixed income at Saxo Bank.

The latest U.S. Commodity Futures Trading Commission Commitments of Traders report showed speculative long positions have reached the highest level since January 2006. 'This trend is confirming our view that the last price increase was predominantly driven by speculation and downside risk is building up," said Eugen Weinberg of Commerzbank. (WSJ, 10/26/2009)

Ah-ha! I see what Dog is telling me. Molybdenum, a less attractive metal for speculation, is continuing along a rational supply/demand path while its more glamourous cousins (copper, nickel and zinc) are being inflated by speculators with a lot of cheap money in their pockets. Have we seen this movie before?

The Wall Street Journal article concludes:

"Few [analysts] deny that several markets, such as copper, have started to see the kind of improvement in their underlying fundamentals that would justify the current prices, but only perhaps in 2010. Privately, many see the moves as too swift, too soon, and say the divergence between the underlying and futures prices has become extreme." (WSJ, 10/26,2009)

So is molybdenum the honest metal in a crowded ballroom filling with tiny bubbles? Maybe Dog will return in several months and we can chat more over a cup of joe in Monday's early morning hours.

Have a good week, buckaroos.

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (what's this?)

Yellow light is ON for our fuel gauge (oil over $80/barrel)

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 $0.37 in early trading to $80.87 (December contract); Gold is down $0.6 to $1055.8 (December contract, most active); Silver is down $0.018 to $17.700 (December contract); Copper is up $.0275 to $3.0620 (December contract); Molybdenum is steady at $11.75.

The DOW is down 30.38 points to 9941.80; the S&P 500, down 2.73 points to 10076.87. The miners are mixed:

Barrick (ABX) $37.51 down 0.16%
Newmont (NEM) $45.52 down 0.87%
General Moly (Eureka Moly, LLC) (GMO) $2.70 up 0.37%
Freeport McMoran (FCX) $82.08 up 0.90% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $44.32 up 0.34% - domestic steel manufacturing
ArcelorMittal (MT) $38.66 up 1.26% - global steel producer
POSCO (PKX) $117.69 up 4.78% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up% to $1,255,178.81 (what is this?).

Cheers,

Colonel Possum

Friday, October 23, 2009

A Big Step into the Future for Eureka County?


Morning Miners!

It is 5:51 AM. Let me pour you a cup of that famous Raine's TGIF coffee and tell you about some exciting news for Eureka County. This morning I received a news wire from Western Lithium (WLC) announcing their intention to acquire Rocky Mountain Resources. Here's the link:

Western Lithium to Acquire Rocky Mountain Resources

Why has this got the ole Colonel on his third cup of Scott's red label brand? Allow me to connect the dots. On September 28th the Report told you about Western Lithium and their lithium carbonate project in Kings Valley up in Humboldt County (The Next Big Thing in Northern Nevada?). This may become great news for Nevada because "Western Lithium is positioning itself as a major U.S.-based supplier to support the rising global demand for lithium carbonate that is expected from the increased use of mobile electronics and hybrid/electric vehicles."


In our September article we learned that WLC has potentially the world's largest source of high quality lithium carbonate which is accessible by low cost open pit mining. The more traditional technique is brine extraction used to recover lithium from salt flats. A good example of this is the Foote Mineral deposits, currently operated by Chemetall, in the Clayton Valley just west of Goldfield. Presently, Bolivia has the most known reserves of this variety but their Uyuni salt flats have a fairly poor magnesium-to-lithium ratio. Although the Chinese are trying to scoop up this resource the poor ratio makes extraction economics costly (Not So Hotsi in Potsi, Cap and Trade Stumbles, 8/18/09).

What has all this to do with Eureka County? If the WLC acquisition of Rocky Mountain Resources succeeds, they pick up their Gibellini development stage Vanadium project in the southeast corner of our county. The Gibellini mine site is south of Fish Creek in the western foothills of the Little Smoky Valley.


This is an important tie because in their words, "Vanadium has the potential to become an important element for future battery chemistries together with lithium-ion chemistries. The companies believe that a combination of Nevada based strategic metals for applications in electrical storage and other industrial uses will provide operational and corporate synergies, and accretive value to shareholders."

So folks, we may be joining Humboldt County on a long but exciting journey to the electrical future of our country, a future not dependent on foreign resources but supported by strategic materials in our own backyard. That deserves a Colonel Yee-ha for our state, our county and its future generations.

Let's wish Western Lithium and Rocky Mountain Resources the best of luck on this very important first step.

The thumbnail photo today shows a specimum of Huemulite, an
anhydrous vanadium oxysalt taken from the Gibellini Mining District.

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (what's this?)

Yellow light is ON for our fuel gauge (oil over $80/barrel)

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 $0.10 in early trading to $81.92 (December contract); Gold is up $9.0 to $1067.0 (December contract, most active); Silver is up $0.330 to $17.875 (December contract); Copper is up $.0520 to $3.0500 (December contract); Molybdenum drops to $11.75.

The DOW is down 88.95 points to 9992.36; the S&P 500, down 3.46 points to 1082.87. The miners are crabby:

Barrick (ABX) $37.68 down 0.66%
Newmont (NEM) $45.37 down 0.33%
General Moly (Eureka Moly, LLC) (GMO) $2.74 down 2.49%
Freeport McMoran (FCX) $82.45 down 0.64% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $44.07 down 0.25% - domestic steel manufacturing
ArcelorMittal (MT) $38.11 down 1.78% - global steel producer
POSCO (PKX) $113.13 down 0.21% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 1.95% to $1,251,937.93 (what is this?).

Cheers,

Colonel Possum

Headline Photographs by Mariana Titus; "Courthouse Reflections"

Thursday, October 22, 2009

Happy Thor's Day, Don't Worry be Happy!



Morning Miners!

It is 5:48 AM, grab a cup and let's give a salute to Thor's day. A recent History Channel reminded me that Thursday is named after the big feller with the hammer that used to run things up North. Maybe we should invite Thor back to hammer out a few remaining dents in our economy. I think we call his approach "tough love" nowadays.

You don't need to ask an old timer about tougher times, just think back to this May. The Colonel wrote a piece, The Deer Don't Care if Oil is $59, inspired by one of the critters walking past my office window in the very early hours. Yesterday, oil crossed into $80 territory and I bet the deer still don't give a hoot. In May we were in recession's storm but rumblings in the clouds overhead were joined by a few rays of sunshine. Copper was at $2.14 and heading higher, molybdenum had come off its bottom and was proud to be $9.70. Yesterday copper soared through $3 which this Report has identified as a key level to show improving global recovery. Moly has come off its highs but has been holding steady at $13.6 for several weeks.

Gold has been a big story soaring to $1060 from $920 levels in May. We started the Eureka Miner's One Million Dollar Grubstake portfolio in that same month to track the health of investor confidence in areas that directly and indirectly affect Eureka County. We've accumulated over a quarter of a million dollars in profit since, and that's not too bad. The Dow Jones in May was in the mid 8,000 and this month rattles around 10,000 and that's good too.

So what's your point Colonel? I want to remind readers that perspective is as good as your favorite reading glasses. We can get all depressed about $80 oil and forget that commodity reflation is one of the key drivers to our local economy. Things have improved considerably since Spring and it appears we may be at an inflection point. Higher oil could dampen recovery but the jury is still out on whether $80 today means $100 in 2010. Supply is still at record levels and much of the run up can be attributed to a falling dollar.

There may be some improving news for the old greenback too. There is a good article on the dance of the dollar, gold and oil in today's MineWeb:

Gold could be in for shaky time in runup to G20

This is not about the imminent collapse of gold price but more about some long needed re-balancing between the greenback and the yeller stuff. It is good to remember that a $1.50 euro and near parity for the Canadian dollar just kills major exporters like Germany and Canada. With all the trash talk about the U.S. dollar, China and the Middle East countries are not anxious to see their vast dollar reserves vanish in the mineshaft. The Colonel believes a strengthening dollar and moderating gold and oil prices would be good for everyone.

So don't worry, be happy. If things go bad, I'll call in Thor for a little hammer time!

By the by, I've added a fuel gauge to the Eureka Outlook Dashboard. Unfortunately, I'm setting the yellow light on as long as oil trades above $80.

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (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 up $0.66 in early trading to $80.71 (December contract); Gold is down $7.8 to $1056.7 (December contract, most active); Silver is up $0.340 to $17.485 (December contract); Copper is down $.0300 to $3.0165 (December contract); Molybdenum remains steady at $13.625.

The DOW is down 31.06 points to 10061.13; the S&P 500, down 3.66 points to 1094.25. The miners are happy:

Barrick (ABX) $38.64 up 2.09%
Newmont (NEM) $46.65 up 1.44%
General Moly (Eureka Moly, LLC) (GMO) $2.86 up 1.42%
Freeport McMoran (FCX) $80.72 up 2.65% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are happy-pappy, (a "tell" for General Moly):

Nucor (NUE) $46.48 up 1.80% - domestic steel manufacturing
ArcelorMittal (MT) $39.42 up 0.84% - global steel producer
POSCO (PKX) $117.01 up 1.54% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.24% to $1,284,260.49 (what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus; "Blue Space Two"

Wednesday, October 21, 2009

Why the Colonel Stopped Buying Gold


*** BREAKING NEWS *** Oil pops to $82.06 and gold to $1065.2 as the US Dollar drops to a new 14-month low of 74.99 (.DXY) (10:23 AM PDT)
*** BREAKING NEWS *** Copper has topped the elusive $3.00 level (December Contract, COMEX)

Morning Miners!

It is 5:50 AM, grab a cup and let me explain my headline before you think I'm having a senior moment. For someone to announce they are no longer buying gold in a community that derives a sizable revenue from local gold mines is probably as welcome as spring mud in Bean Flat. I understand that sentiment and before you haul me off to the landfill let me explain my position.

If you buy and hold gold for five years or more and don't give a flip about market dipsy-doodles, you can probably buy gold at any time, at any price. The long term prospects for a weakening dollar and rising gold price are quite sound. In a moment, I'll direct you to an article that will give you bunches of reasons to follow the yellow brick road.

That is, of course, my problem. It seems everyone is buying or selling gold and that makes me more than a little nervous. I can't turn on the TV lately without some shill yelling at me to buy gold coins or gold bars or gold trinkets. There are other ads urging me to stuff gold jewelry and wedding bands into mailing envelopes for CASH, CASH, CASH! The talking heads yak endlessly about the worthless greenback and the manifold virtues of GOLD, GOLD, GOLD!


The Colonel may be dead wrong but my contrary nature won't allow me to follow this crowd into the movie theater. Just to prove I'm an ornery cuss, I started buying the US Dollar Index (USDX or .DXY or "Dixie") last August and continue to buy a little more each time it hits a new 52-week low. Lately, that has been about every other day. We talked quite a lot about the Dixie last week; Whistling Dixie...What is a Weak Dollar?. I'm still holding on to a gold position but did take some profit north of $1000/oz.


Goldman Sachs (the smartest kids in the class or smartest devils depending on your viewpoint) has warned recently about the weak dollar mantra and related commodity rally. Michael Holland, president of Holland & Co in New York recently summarized the Goldman view to Reuters:

"You could say Goldman are looking at the commodity markets and saying a number of commodities have come a very long way and it's probably time for them to be pulling back."

and,

"It looks like, for most people, the dollar is just a one-way trade now," Holland said. "Goldman probably feels differently as they have been around for too long, and been too successful in the commodities trade, to know there is anything such as a one-way trade." (Reuters, 10/16/09)

The Colonel actually likes to have one foot on either side of a trade. As I stopped buying gold and started to accumulate the Dixie, I also started to pickup commodity-sensitive names to hedge the weakening dollar. Here is how my Dollar trade sets up with portfolio share and gain(loss) for each element:

Weak Dollar side:

Energy Canada (ECA) 12.5% share, gain 15.7%
Harry Winston Diamond (HWD) 4.0% share, gain 24.4%
Potash Corp. of Saskatchewan, Inc. (POT) 9.8% share, gain 10.59%
San Juan Basin Royalty Trust (SJT), 4.6% share, gain 50.0%
SPDR Gold Trust (GLD), 4.9% share, 12.7% gain

Strong Dollar side:

DB US Dollar Index Bullish Fund (UUP) 60.5%, 2.1% loss

Cash 3.7%

Total Portfolio 100%, 4.4% gain

The Colonel likes Canadian companies because you get a built-in US dollar hedge (ECA, HWD & POT). I'm quite happy to settle for a small net gain (4.4%) until the market direction becomes more clear. If commodities dive, one takes profit on the dollar weak-side; when (and if) a dollar rally tops, one takes profit on the strong- side. If commodities and the dollar crash together, get out of Dodge pardner!

Oh, here is that article on why I'm wrong and crazy as cattle on locoweed:

Gold at $1250+ within 6 months - hold on to it! (Gold Report,10/21/09)

I can understand why gold may reach $1250 but the ole Colonel will return to see this movie when the theater is a little less crowded. Stay tuned.

By the by, oil briefly crossed into $80 territory yesterday.

Enough hedging, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (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 up $0.58 in early trading to $79.70 (December contract); Gold is up $1.8 to $1060.4 (December contract, most active); Silver is up $0.102 to $17.660 (December contract); Copper is up $.0400 to $2.9720 (December contract); Molybdenum remains steady at $13.625.

The DOW is down 31.06 points to 10061.13; the S&P 500, down 3.66 points to 1094.25. The miners are happy:

Barrick (ABX) $38.64 up 2.09%
Newmont (NEM) $46.65 up 1.44%
General Moly (Eureka Moly, LLC) (GMO) $2.86 up 1.42%
Freeport McMoran (FCX) $80.72 up 2.65% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are happy-pappy, (a "tell" for General Moly):

Nucor (NUE) $46.48 up 1.80% - domestic steel manufacturing
ArcelorMittal (MT) $39.42 up 0.84% - global steel producer
POSCO (PKX) $117.01 up 1.54% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.24% to $1,284,260.49 (what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Tuesday, October 20, 2009

From Kenworths to Diamonds to Kartika Trehan



Morning Miners!

It is 6:04 AM. Grab a cup and let's talk about a powerful force that attracts unexpected outcomes to well intended human actions. It is called "The Law of Unintended Consequences." We've got a "shining" example this morning. The well intended actions in this case come from the Federal Reserve and Treasury who have been working like the dickens to kick start our economy. As a team they have dropped interest rates, printed money, nationalized "too big to fail" and sold all manner of Treasury notes, bills and bonds. They have been busy beavers.

Although they may say otherwise, their actions to date have weakened the poor ole greenback to new 52-week lows. Running for safe havens, investors and governments have shed dollars to buy hard assets causing a boom in commodities and a stellar increase in gold buying from grandma to Beijing. Well, not everyone is buying gold like they used to. The world's greatest demand for gold jewelry comes from India and gold prices north of $1000/oz have spooked customers in the midst of their traditional buying season. So how do you to please your Fall bride? Diamonds of course!

The lovely Kartika Trehan reports from Chennai in Tamil Nadu India that diamond jewelry sales have hit an all time record this year with prices down 7-8% while gold prices soar. If you want a memorable media experience this morning, watch this video of her report:

High gold prices boost diamond sales (Bloomberg UTV, 10/19/09)


So what does this have to do with Kenworth trucks you ask? Last September the Report did apiece on the Diavik Diamond mine in the arctic wilds of Canada [Diamonds are a (Canadian) Miner's Best Friend]. A news article on the mine came to my attention because it was one of the destinations on the popular "Ice Road Truckers" series on the History Channel. A primary investor in the mine project is Harry Winston Diamond Corp (NYSE:HWD). At the time, ole Harry sensed there was a good year ahead for diamonds and he was dead right. On a whim, I bought some HWD in September and it has brought a 31.6% return in just a few days over a month. Now that's a good hedge on a weak dollar, buckaroos.


I hope Uncle Ben is planning to buy his wife diamonds for Christmas. It would be a nice consolation prize for participating in The Law of Unintended Consequences.

Enough time in the jewelry store, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (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 $0.37 in early trading to $79.59 (December contract); Gold is up $3.1 to $1061.2 (December contract, most active); Silver is up $0.085 to $17.710 (December contract); Copper is down $0.0115 to $2.9550 (December contract); Molybdenum remains steady at $13.625.

The DOW is down 31.06 points to 10061.13; the S&P 500, down 3.66 points to 1094.25. The miners are down:

Barrick (ABX) $38.18 down 0.75%
Newmont (NEM) $45.99 down 2.09%
General Moly (Eureka Moly, LLC) (GMO) $2.92 up 1.02%
Freeport McMoran (FCX) $78.96 down 0.05% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $46.07 up 0.63% - domestic steel manufacturing
ArcelorMittal (MT) $39.24 down 1.23% - global steel producer
POSCO (PKX) $115.31 down 2.34% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.36% to $1,278,637.36 (what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus, "Blue Space"

Monday, October 19, 2009

Steel & Silver Lazy or Just Resting?


***BREAKING NEWS*** The S&P 500 broke 1,100 at 10:37 AM (PDT)

Morning Miners!

It is 5:46 AM. There was a pleasant Monday surprise in the break room this morning. Doc Titus tucked a note and photo behind the coffeemaker:

"Morning Miners,

Thanks for your hospitality last week. With all your new-fangled gadgets, I thought you might like to see a snow plane I built in the 1930s. If I get back your way this winter maybe we can whip one up in the shop. We'd have quite a time out on the Diamond Valley flats!

Elmer"

The ole Colonel will look for a wooden propeller next time I'm out by the airport. Finding an engine like that might take a little longer. I'll ask Eric or Johnny. By the by, if you missed him last week you can find out more about Dr. Elmer Titus by clicking here.

We spent most of last week scratching our heads on gold and oil. We concluded gold might see a top at $1080 or so and oil would see $80 sooner than later. This morning oil futures on the NYMEX hit a new high for 2009 before falling back: $79.05.

Let's look at some other popular areas followed the Report. There is potentially worrying news coming out of Japan this morning. Here is the MineWeb link:

Weak demand means Tokyo Steel will cut prices

There is concern that Japan's biggest construction steel maker, Tokyo Steel Manufacturing Co Ltd, is sensing the recovery in steel demand is losing momentum:

"Japanese steelmakers had seen a pick-up in output since the market hit the bottom in April, driven by strong exports to China and other Asian countries and an increase in car production, but oversupply in China has clouded the outlook for the market." (TOKYO, REUTERS - 10/19/2009)

If this is true, there could be further downward pressure on the steel metals such as nickel and molybdenum (A Wild Ride Ahead for Moly too?).

Silver is looking a little lazy too. On October 7, the Report estimated that if we got to $1050 gold, silver should follow in a range of $18.15 to $19.05. Pardner, we've been hanging around the $1050 neighborhood for a spell and silver is below the lower range ($17.64 early this morning). This may be further evidence that both gold and oil rallies are due more to the weakening dollar than any supply/demand fundamentals. I'll stick my neck out and say that the present silver weakness is leading a gold top. I wouldn't be surprised if all the metals (precious and industrial) are setting up for consolidation. One positive sign is a bit of life in copper which is taking a new shot at $3 this morning. Stay tuned.

Enough soothsaying, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (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 $0.21 in early trading to $78.32 (November contract); Gold is up $2.7 to $1054.2 (December contract, most active); Silver is up $0.040 to $17.460 (December contract); Copper is up $0.0695 to $2.9145 (December contract); Molybdenum is steady at $13.625.

The DOW is down 28.49 points to 9987.37; the S&P 500, down 4.63 points to 1087.39. The miners are mixed:

Barrick (ABX) $34.04 down 0.75%
Newmont (NEM) $46.56 down 0.17%
General Moly (Eureka Moly, LLC) (GMO) $2.91 up 1.04%
Freeport McMoran (FCX) $76.90 up 1.54% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $45.48 up 0.55% - domestic steel manufacturing
ArcelorMittal (MT) $39.20 up 0.56% - global steel producer
POSCO (PKX) $116.67 up 0.15% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.52% to $1,262,139.48 (what is this?).

Cheers,

Colonel Possum

Headline Photograph: Dr. Elmer Titus, father of Mariana Titus, with his snow plane by his Highway 51 service sation in the Wisconsin Northwoods (circa 1930s).

Friday, October 16, 2009

The Devil, Oil, Gold & Goldman


Morning Miners!

It is 5:40 AM. Doc Titus and the ole Colonel just finished up a second cup of that famous Raine's TGIF coffee. The good Doctor prefers the red label brand, remind me to get some more. Dr. Elmer Titus joined us in the break room earlier this week and it has been a great visit (Whistling Dixie...What is a Weak Dollar?). He'll be heading over to Newark this afternoon to do a little prospecting.

Before leaving to fetch his mule he showed me another picture from the good ole days. The headline photo is Doc Titus packing a peacemaker at his Midway service station in Northern Wisconsin. The lace-up boots are no doubt from his stint in the Iowa National Guard when he chased Pancho Villa around in Old Mexico. I'm going to miss him and he leaves us with some old time advice. The Doc suggested we should go after that oil up in the north part of the County, "With all Eureka's gold, why in tarnation don't you folks get your own oil too? With gold and oil you could forget about the rest of the world and get on with life!"

There is a lot of charm in that sentiment, sadly we don't live in his world anymore.

Let's close out this week's conversation on gold and oil. It has been a record week for both with mind boggling movements in price. Low interest rates have created a newborn appetite for riskier assets and lately a lot of cheap money has been chasing oil. Gold lost some of its luster this morning with a strengthening U.S. dollar but the December oil futures got very close to $80 with a $78.17 open. Why is this startling? Let's review what the Report thought about $80 oil in the last 11 days:

October 13 - Gold peak estimate (2009) $1,080, Oil peak estimate (2009) $76.72; "Gold may be near a top at $1,080 and $80 oil before Christmas is looking 'iffy'."

October 7 - oil (fair value) $73.692; range $67.11 to to $80.27; "...oil could see $80 before, let's say, Christmas. Ouch!"

October 5 - Oil (fair value) $70.47; range $63.89 to to $77.05; "...$80 oil is not likely in the near term"

Colonel...make up your damn mind! Now that's a fair complaint readers but I'm having a hard time keeping pace with these high octane markets. My gut sense today is that we are probably near a top in gold for the year (let's stick with the $1080 number) but after the last 24 hours in the oil pits, I'd be surprised if $80 oil doesn't come home to roost a lot sooner than Christmas.

What do the smartest kids in the classroom think? Oh, who are they you ask? Why Goldman Sachs of course! The Report just covered Goldman with Meredith Whitney's recent downgrade (Where are Gold and Oil Headed for 2009?). Since then they blew everybody out of the water reporting a profit of $3.19 billion for just three months ending September 25th. To put this in perspective, Bank of America just reported a third quarter loss of $2.6 billion this morning. Goldman's share price has since declined because many think they have come to far too fast (kudos, Meredith Whitney). There is also a cloud over their decision to set aside compensation for their 31,700 employees which is on track to award an average of $700,000 apiece in 2009!

In these hard times, many think Goldman Sachs is the devil. I can understand that emotion but will steer clear of the debate. If anything, they are smart little devils. The Colonel will remind the reader what FDR said about Stalin during the Yalta conference. Quoting an old Bulgarian proverb, he remarked, "It is permitted in time of grave danger to walk with the devil until you have crossed the bridge."

In our case, the devil is Goldman; the bridge is commodities. Here is a link to an article on MineWeb on what Goldman Sachs thinks the future direction will be:


Goldman Sachs cuts commodities exposure in Q3


Happy reading, we'll talk about this more next week.

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (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 $0.33 in early trading to $78.17 (November contract); Gold is down $3.6 to $1047.0 (December contract, most active); Silver is down $0.083 to $17.330 (December contract); Copper is down $0.0395 to $2.8195 (December contract); Molybdenum is steady at $13.625.

The DOW is down 28.49 points to 9987.37; the S&P 500, down 4.63 points to 1087.39. The miners are mixed:

Barrick (ABX) $38.99 up 0.21%
Newmont (NEM) $47.09 up 1.14%
General Moly (Eureka Moly, LLC) (GMO) $2.92 down 2.34%
Freeport McMoran (FCX) $75.49 down 0.58% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $45.25 down 1.91% - domestic steel manufacturing
ArcelorMittal (MT) $39.40 down 3.76% - global steel producer
POSCO (PKX) $114.79 down 1.75% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.84% to $1,257,797.02 (what is this?).

Cheers,

Colonel Possum

Headline Photograph: Dr. Elmer Titus, father of Mariana Titus, near his service sation on Highway 51 in the Wisconsin Northwoods (circa 1930s).

Thursday, October 15, 2009

A Wild Ride Ahead for Moly too?


Morning Miners!

It is 5:51 AM and we have a beautiful sliver of a moon. My mother said a moon that looks like it can hold water signals rain, I guess she was right the past several days. Yesterday we met Dr. Elmer Titus, a real old timer that symbolizes the rugged individualism that built our nation (Whistling Dixie...What is a Weak Dollar?). Doc Titus was mad as hell that the greenback was taking such a beating and decided to stay with us for the rest of the week to sort out the fate of gold and oil.

Over a coffee this morning he showed me the headline photo of his homestead in Wisconsin in the 1920s. At that time veterans could claim 40 acres of land in the Northwoods for a homestead. He may not have caught Pancho Villa but his efforts in America's Punitive Expedition to Mexico were well rewarded. In this picture we see Elmer sawing logs with an axle powered rig...that's making do with what you have pardner! He built the log cabin with trees from his land which were also a critical fuel source for those cold Wisconsin winters.

Before we return to our gold and oil story there is some interesting news coming out of Australia this morning. Here is the MineWeb link:

A wild ride ahead for nickel price?

Nickel, like molybdenum, is an important ingredient in steel production. They have been like kissing cousins in price action for the past several months, falling from their highs in July-August to their present levels (see chart below). General Moly provided the Report with an excellent analysis on moly price September 18th (Good Golly Miss Moly!) which gives you the big picture on what to expect going forward. Today's MineWeb article might provide an additional piece to the puzzle:

"A research analyst for Alto Capital, Carey Smith told the Australian Nickel Conference today that nickel could trade between US$8,500 and US$17,000 a tonne over the next few years." (MineWeb, 10/15/09)


In our chart, the present price for nickel is US$8.5/lb or US$18,700/tonne (metric ton), greater than his upper limit. If this analyst is correct, his prediction signals further downward pressure on nickel prices. Will molybdenum follow nickel? Before we jump to any conclusions, we must be careful not to compare apples to oranges (e.g., different supply stories for the two metals) and remind ourselves that this is only one analyst's opinion. One common thread is his more general outlook. Mr. Smith makes the point that the unwinding of global stimulus packages has a negative impact on resources-based commodities. Recent stockpiling of base metals has been exceptional and he states further:

"United States and European growth can be expected to be sluggish over the next 12 months as demand for commodities eases..."

"With this stimulus momentum removed, any increase in global consumption will be dependent on continuing growth in Asia and assuming that global recession does not double dip into a global depression." (MineWeb, 10/15/09)

Stay tuned buckaroos, the Report will continue tracking these metallic cousins for some time to come.

Doc Titus just reminded me that we need to get back to the topic of gold and oil both of which reached new highs for the year this week. Let me leave you with this thought on gold for today. On the 16th of September, the Report showed gold price in terms of three currencies; the US dollar, the Australian "aussie" and the euro (The Colonel Sticks by his Gold Prediction). The point of the chart then was to demonstrate that although gold had hit new highs in terms of the US dollar it hadn't in those other currencies. The takeaway was that dollar weakness was a primary driver in the recent gold rally. Not much has changed in a month. Here is the same chart except I have substituted the Canadian "loonie" for the "aussie" since the former is in the US dollar Index and the latter is not (see note 1 for other currencies). The US dollar is red, the loonie is blue and the euro is green.


Only the US dollar dominated gold is exceeding the March 2009 highs. More on the gold and oil story tomorrow.

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (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 up $0.778 in early trading to $75.95 (November contract); Gold is down $5.7 to $1059.0 (December contract, most active); Silver is down $0.228 to $17.680 (December contract); Copper is down $0.0095 to $2.8350 (December contract); Molybdenum is steady at $13.625.

The DOW is down 28.49 points to 9987.37; the S&P 500, down 4.63 points to 1087.39. The miners are down:

Barrick (ABX) $39.61 down 0.90%
Newmont (NEM) $46.95 down 0.84%
General Moly (Eureka Moly, LLC) (GMO) $2.93 down 3.32%
Freeport McMoran (FCX) $75.76 down 0.62% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $45.58 down 0.63% - domestic steel manufacturing
ArcelorMittal (MT) $40.45 down 0.27% - global steel producer
POSCO (PKX) $115.34 down 0.54% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.78% to $1,262,721.86 (what is this?).

Cheers,

Colonel Possum

Headline Photograph: "Homestead", Dr. Elmer Titus, father of Mariana Titus, sawing logs at his homestead in northern Wisconsin (circa 1920s)

Note 1: The gold chart for US dollar (red), Japanese yen (green) and British pound (blue), other important currencies in the US Dollar Index (USDX):

Wednesday, October 14, 2009

Whistling Dixie... What is a Weak Dollar?


BREAKING NEWS: The Dow Jones broke 10,000 at 10:21 AM (PDT) today

Morning Miners!

It is 5:59 AM, grab a cup and let me introduce you to a horseman, prospector and adventurer, Dr. Elmer Titus. The headline photo shows a young Elmer leaving South Dakota for Kansas City in the days when a "long ride" was just that and didn't involve looking for the next Stuckey's on the Interstate. Elmer served in the Army as a stable Sergeant in an Iowa cavalry unit and rode into Mexico on the heels of Pancho Villa with General Pershing and (at the time) First Lieutenant George S. Patton, Jr.

He later opened several garages in the Northwoods of Wisconsin and participated in the hunt for Chicago gangster John Dillinger as a town constable. Elmer's prospecting career was in the Southwest, the gold bug must have bit him there during his army days. He operated a small gold mine in Hillsboro, New Mexico, until 4 ounce/ton ore was no longer economical to transport to the mills in nearby El Paso. Can you imagine? We get excited about 0.1 ounce/ton grades or less in these parts!

In the 1940s, Elmer switched from gold to oil and worked in the booming oil fields of Venezuela. He met and married Ana Allen Perez there and started a family fairly late in life. Elmer and Ana returned to the States with two small children where he studied Chiropractic at the Palmer Institute in Iowa. He started a practice in southwest Louisiana where the family grew to six children. Pardner, they don't make'em like Doc Titus anymore! Unfortunately, the ole Colonel never met him but I am very proud to have married the second of his children, Mariana Titus.


I thought about Elmer this week as the Report ponders the near term fate of gold and oil. I am sure he would be mad as hell to learn that the recent rise in both is largely due to a weak U.S. Dollar. Having lived when a greenback was backed by gold and strong as a pack mule, I'm sure Elmer would have trouble understanding $1000+ for the yeller stuff and a national currency that seems to lose value every day.

Everyone talks about the "weak U.S. dollar" these days so I thought we'd explore just what that means. Dollar strength or weakness refers to its relative performance with respect to a basket of currencies. The standard of comparison is the U.S. Dollar Index (USDX or .DXY) or in currency trader slang ,"Dixie". The USDX was created March 1973 and is comprised of the following currencies and base weights:

Euro 57.60%
Japanese Yen 13.60%
British Pound 11.90%
Canadian Dollar 9.10%
Swedish Krona 4.20%
Swiss Franc 3.60%

At inception, the Dixie had a level of 100.00. As we have exported great wealth over the years the index has declined. Yesterday the Dixie hit a 14-month low of 75.63 as gold pegged a high of $1,070.40 on the London spot market. Early this morning the poor Dixie dropped further to 75.44. During the Bear Stearn meltdown in March of last year, the Dixie hit bottom at 70.931 while gold soared to $1,033.

OK, OK...enough already. It is equally important to point out that the index soared to 89.292 while the markets tanked in March of this year. Investors and governments ran to the dollar as a safe haven when fear was high. Now, they have abandoned the poor greenback with a voracious appetite for riskier assets. The Report looks at the so-called "fear index" or "VIX" (.VIX) everyday to decide whether to switch on 4-WD for bumpy markets (see below). It turns out there is a high correlation between the VIX and Dixie and both are at new lows as equities and commodities continue to move upward. Greed has replaced fear my friends.

As we enter yet another day of new highs in the stock market, the Colonel will continue our discussion of gold, oil and the greenback for the remainder of the week. Let me leave you with this thought. With nearly a 60% weight, the euro dominates the Dixie. There is only one commodity-sensitive economy in the mix, Canada, with the Canadian "Loonie" contributing less than a 10% share. A belief that the dollar is headed for the depths of the mineshaft implicitly assumes there will be a more robust recovery in the European Union (EU) than that anticipated for the U.S. Presently, the EU is comprised of 27 countries and may soon be led by the indefatigable Tony Blair. As the Economist reported this week:

"...Britons must stomach the prospect of Mr. Blair 'suddenly pupating into an intergalactic spokesman for Europe', in the phrase of London's Tory mayor, Boris Johnson." (Economist, 10/10/09)

Even though on paper the EU is a larger economy now than the United States, do we really believe that 27 disparate countries in Europe (possibly) led by Tony Blair will outstrip American innovation and productivity? I just heard Elmer Titus roar, "Hell no!"

Don't give up faith on our greenback buckaroos. When a little fear and reality returns, Doc Titus and George will smile again. Stay tuned, more to come.

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (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 up $0.78 in early trading to $74.93 (November contract); Gold is down $2.8 to $1062.2 (December contract, most active); Silver is up $0.030 to $17.870(December contract); Copper is up $0.0395 to $2.8340 (December contract); Molybdenum is steady at $13.625.

The DOW is up 110.49 points to 9981.55; the S&P 500, up 13.12 points to 1086.31. The miners are mixed:

Barrick (ABX) $40.19 up 0.73%
Newmont (NEM) $47.42 down 0.55%
General Moly (Eureka Moly, LLC) (GMO) $3.06 up 4.43%
Freeport McMoran (FCX) $76.19 up 1.79% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $45.67 up 2.06% - domestic steel manufacturing
ArcelorMittal (MT) $40.18 up 4.26% - global steel producer
POSCO (PKX) $114.42 up 4.97% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.92% to $1,269,672.65 (what is this?).

Cheers,

Colonel Possum

Headline Photograph "Elmer Titus", father of Mariana Titus

Tuesday, October 13, 2009

Where are Gold and Oil Headed for 2009?


Morning Miners!

It is 5:54 AM and the coffee is a lot hotter than outside. Gold set new highs on the London Exchange this morning breaching $1060 and silver followed entering $18 territory. As I promised yesterday, we'll take a broader look at both gold and oil in a minute (Ghosts, Gold & Oil).



The ole Colonel is always scouting news that may become a game changer in the marketplace. For the good part of this year, the Report has watched copper as our canary in the global recovery mineshaft. That bird is still struggling to break $3 and has not enjoyed much lift from the declining dollar or rising gold. There is another mineshaft that we don't visit as often but has a passel of taxpayer money at its bottom. That hole is called the U.S. banking industry and a favorite Wall Street canary is Goldman Sachs. Goldman is the only major investment bank that didn't belly flop during the financial crisis and has enjoyed a spectacular rise in their share price since the March lows. Many say as Goldman goes so goes the recent rally in the financial and broader markets. This morning, Meredith Whitney downgraded Goldman Sachs without comment:

"The Goldman downgrade comes ahead of the firm's scheduled quarterly earnings on Thursday, and is consistent with the caution Ms. Whitney has voiced over the airwaves and on Op-Ed pages in recent weeks." (WSJ, 10/13/2009)

As you may recall from earlier reports, Ms. Whitney gained attention during the financial crisis for bearish calls on the stocks of large banks that were ultimately proven correct. She spoke favorably of Goldman shares as recently as last month. I'm watching this news very carefully buckaroos. Stay tuned.

Now for a little more on the gold and oil story. Yesterday we picked a 10-month period last year that saw lofty peaks in both gold and oil to compare to their year-to-date performance this year (see note 1). Here are the peaks:

Peak Gold (2008) $1,033 (Bear Stearn's collapse, March 18)
Peak Oil (2008) $147.27 (Summer rally, July 11)

Peak Gold (2009) $1,060 (Today's rally)
Peak Oil (2009) $75.21 (August 6, November contract)

Now, let's look at the 10-month average price of gold and oil over the same time frame:

Gold average price (2008) $897.45
Oil average price (2008) $110.80

Gold average price (2009) $938.18
Oil average price (2009) $57.73

If we take the ratio of the peak and average prices for 2008 and 2009, they are suprisingly close:

Gold (peak/average) ratio (2008) 1.151
Gold (peak/average) ratio (2009) 1.130

Oil (peak/average) ratio (2008) 1.329
Oil (peak/average) ratio (2009) 1.303

Finally, if we take the 2008 ratios and apply them to the 2009 averages we have:

Gold peak estimate (2009) $1,080 (1.151 x $938.18)
Oil peak estimate (2009) $76.72 (1.329 x $57.73)

Now I know that's a lot of blasted number crunching but it gives you another way to look at the near term performance of gold and oil pardner. Gold may be near a top at $1,080 and $80 oil before Christmas is looking "iffy". More mañana, I'm not ready to make a new prediction yet.

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smooth markets expected in the near term (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 up $0.40 in early trading to $73.67 (November contract); Gold is up $2.8 to $1060.3 (December contract, most active); Silver is up $0.110 to $17.710(December contract); Copper is down $0.0850 to $2.7720 (December contract); Molybdenum is steady at $13.625.

The DOW is down 37.64 points to 9848.16; the S&P 500, down 6,81 points to 1069.38. The miners are mixed:

Barrick (ABX) $39.58 up 0.56%
Newmont (NEM) $47.58 up 2.37%
General Moly (Eureka Moly, LLC) (GMO) $2.92 down 4.26%
Freeport McMoran (FCX) $74.43 down 0.07% (a bellwether mining stock spanning gold, copper & molybdenum)

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

Nucor (NUE) $44.81 down 0.02% - domestic steel manufacturing
ArcelorMittal (MT) $38.30 up 1.62% - global steel producer
POSCO (PKX) $108.87 up 3.13% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.17% to $1,241,284.84 (what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Note 1 - My observations today are based on two records of gold and oil price data:

Record 1 - November 2007 through August 2008
Record 2 - January 2009 to the present

Both records span 10 months, the first begins just ahead of the recession and covers both peak oil and gold prices in 2008 ($147 oil, $1,033 gold); the second, the year-to-date performance for 2009.