"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.

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?).


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):

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