Wednesday, January 6, 2010
Moly Inches Higher, The Colonel's Outlook for January
It is 6:34 AM and the Diamond Valley holds a winter rose. Mother Nature has a way of making our ambitions pale when she brings out her palette of morning colors. Let's grab a cup and enjoy her painting lesson. By contrast the headline photo today is almost devoid of color, taken yesterday on our trip to Austin.
The sun rose hours ago in London and brought gold with her to reach the $1130 level. Molybdenum is feeling this week's metallic levitation too and inched higher to $12.75. Copper continues to soar challenging the $3.50 level in early morning trading.
The Wall Street Journal reported the thoughts of Eugen Weinberg, an analyst at Commerzbank, on the New Year's metal rally:
"As long as sentiment remains this strong, there is no reason to believe we will see a correction [in prices] to a fundamental level..." (WSJ 1/6/2010)
Continuing a trend from last year it seems fundamentals are taking a back seat to renewed investor optimism:
"Analysts said investors bullish on commodities are overwhelming lackluster demand and traditionally bearish trends such as rising inventories." (Matthew Walls, WSJ 1/6/2010)
To underline the importance of investor participation, checkout the mind boggling holdings of the popular Exchange Traded Funds (ETF) in gold and silver:
SPDR Gold Trust (GLD) 1,128.8 metric tons
iShares Silver Trust (SLV) 9,488.8 metric tons
The Eureka Miner's Grubstake Portfolio holds both GLD and SLV.
I just updated my commodity models for the month of January and this is where we sit for silver, copper and oil given this morning's $1130/oz gold:
The fair value of silver is $17.918 in a range of $17.064 to $18.771
The fair value of copper is $3.1105 in a range of $2.8862 to $3.3348
The fair value of oil is $76.610 in a range of $69.98 to $83.24
Given this morning's prices it appears that silver has finally caught up with gold sitting very near fair value at $17.995. This was not the case in November when we asked the question, Why is Silver So Cheap?. Copper is outside its upper limit at $3.4760 emphasizing its stellar rise but also indicating an overvalued condition. A pullback in copper or a jump in gold is required to re-establish equilibrium this month.
Oil is curious too. It seems $80 oil is in the air, decorrelating from gold in the last 3-months and heading toward a possible inversion. This is a fancy way to say that oil may continue to rise on average as gold falls in the near term. The Colonel gets a little cautious when gold and oil stop moving together. This morning's oil at $81.75 is $5 above its fair value with respect to gold. Stay tuned buckaroos, it might be an exciting time in commodities this quarter.
Let's close with a one-month chart for molybdenum and nickel, another key ingredient in steel production:
Enough talk, let's walk the walk:
4-WD is OFF - the VIX or "fear index" remains below 25; smoother road market conditions expected to continue (what's this?)
Yellow light is ON for our fuel gauge with oil above $80
Yellow light is ON for possible adverse regulation/legislation: Cortez Hills & mercury emissions
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
Oil is down $0.02 in early trading to $81.75 (February contract, most active); Gold is up $9.8 to $1128.5 (February contract, most active); Silver is up $0.195 to $17.995 (March contract); Copper is down $0.0625 to $3.4760 (March contract); Molybdenum is up at $12.75.
The DOW is up 14.28 points to 10586.30; the S&P 500 is up 0.56 points to 1137.08. The miners are still happy:
Barrick (ABX) $41.88 up 2.42%
Newmont (NEM) $49.66 up 2.22%
General Moly (Eureka Moly, LLC) (GMO) $2.43 unchanged
Thompson Creek (TC) $13.53 up 3.13%
Freeport McMoran (FCX) $86.47 up 2.99% (a bellwether mining stock spanning gold, copper & molybdenum)
The Steels are down a tad, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $47.04 down 0.74% - global steel producer
POSCO (PKX) $135.33 down 0.15% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.99% to $1,348,818.12 (what is this?).
Headline Photograph by Mariana Titus (heading out to Austin, Nevada)