Twin Fiddles and a Steel Guitar

When you hear twin fiddles and a steel guitar
You're listenin' to the sound of the American heart - George Straight

Morning Miners!

It is 6:01 AM, have a Mardi Gras cup of joe and welcome back to the break room. I can't think of a better song to start this market week than George Straight's Heartland. Our twin fiddles today are copper and gold and our steel guitar is that heavy metal industry that loves molybdenum. All are singing and playing on key after several weeks on the Highway of Global Doldrums. What's changed the tune for metals, miners and the steel industry?

The answer is all sorts of stuff, pardner. Let's enjoy this show while it lasts because we could go back on the lonesome highway. The biggest news is Japan. It is funny how little attention the second biggest economy has received lately. China is catching up with them fast but Japan remains one of the economic powerhouses of the world with a currency that is strong as Nippon steel. Here is an article from Bloomberg News that broke yesterday:

Copper Climbs in London as Japan’s Economic Growth Accelerates (Bloomberg News, 2/15/2010)

Japan is the world’s fourth-largest consumer of copper and the price for that and other base metals popped when it was reported that Japan’s gross domestic product grew at a surprising 4.6 percent pace in the fourth quarter. The buzz now is that any shortfall in Chinese demand will be offset by Japan and others on a solid recovery path. Expectations for the steel industry also rose on this logic.


Gold is getting back some of its mojo too. The sovereign debt crisis in Europe is by no means over and will probably hang around like a bad cold for the remainder of the year. There is some cautious optimism emerging with better-than-expected euro-zone economic data. The euro has rebounded against the dollar, but the absence of a detailed fix for Greece's debt problems has sent some investors running back to gold. Reports of rising inflation in the U.K. were also supportive of gold price. This morning gold has returned to about where it was at the beginning of this month after dipping to $1044 on February 5th (COMEX, intraday April contract). That was the darkest day for oil and copper while silver put in a low on the 4th.


Let's see how we fare against the Colonel's February model. On the second I picked $1120 as the nominal monthly price for gold; this morning COMEX gold is just about there at $1118.6. Here is how the others are doing:

The fair value of silver is $17.662 in a range of $16.959 to $18.366
Today COMEX silver is $15.950 with a intraday low of $14.65 on 2/4. Silver remains very undervalued with respect to gold with both numbers well below the expected range. The Colonel threw a few extra bars in the buckboard a week ago.

The fair value of copper is $3.1856 in a range of $2.8853 to $3.4860
Today COMEX copper is just above fair value at $3.1930 after breaking its lower bound with an intraday low of $2.810 on 2/5.

The fair value of oil is $77.263 in a range of $71.101 to $83.424
Today NYMEX crude light jumped $2.68 in early trading to $76.78 hovering just below fair value after a scary dip to $69.50 on 2/5.

After all the dips and flips of the last few weeks we have gold near its nominal and copper and oil trading near fair value. Silver is cheap if you think gold is headed higher. The biggest take away for me from today's numbers is a return of gold to its traditional role as a "safe haven" against currency volatility and possible inflation in the developed countries. For too long gold has been riding the "risk trade" with other commodities. We'll see if today is a flash in the gold pan or a turning point for the yeller stuff.

Let's close with our old friend George and sing along with the metals and miners:

Sing a song about the heartland the only place I feel at home
Sing about the way a good man works until the daylight's gone
Sing the rain on the roof on a summer night
Where they still know wrong from right
Sing a song about the heartland sing a song about my life
Sing a song about the heartland...

OK, enough singing, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, smoother markets are expected (what is this?)

Yellow light remains ON with concerns about commodity reflation given a stronger dollar but we could go green if a dollar trend lower continues (U.S. Dollar Index DXY remains above 80, today we're right at 80).

Yellow light is ON for diminished investor confidence in the metal and mining sectors, let's hope we can turn this back to green soon with the latest news.

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 up $2.65 in early trading to $76.78 (March contract, most active); Gold is up $28.6 to $1118.6 (April contract, most active); Silver is up $0.530 to $15.950 (March contract); Copper is up $0.1105 to $3.1930 (March contract); Molybdenum is steady at $16.00

The DOW is up 93.72 points to 10192.86; the S&P 500 is up 11.09 points to 1086.60. The miners are singing with George today:

Barrick (ABX) $37.77 up 2.92%
Newmont (NEM) $47.30 up 1.65%
US Gold UXG) $2.5895 up 4.42%
General Moly (Eureka Moly, LLC) (GMO) $2.53 up 4.12%
Thompson Creek (TC) $13.28 up 3.35%
Freeport-McMoRan (FCX) $75.20 up 2.06% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are singing too, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $38.94 up 4.03% - global steel producer
POSCO (PKX) $120.05 up 3.52% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 2.82% to $1,253,899.27 (what is this?).

Cheers,

Colonel Possum