Wednesday, March 31, 2010
How Are We Really Doing? Let's Ask the Class
It is 6:04 AM. Grab a cup and let's figure out if we're any smarter than a month ago. It is the end of the month and the end of the first quarter - how are we really doing? Let's ask our favorite students:
Gold is seeing a nice rally on the London spot exchange this morning. Normally I get all excited about such things but this bounce takes us pretty near to where we started. On March 2, the Report noted:
"I think I can count as many reasons for gold to rise as fall so the Report will maintain $1120/oz as a nominal price for March. This is close to its 1-year, 3-year and 5-year trend lines. Gold really needs to sort out what its role will be in the coming months - a fellow traveler with the metals and oil or safe haven play for investors fleeing the commodity space." (The Colonel's Outlook for March)
Ho-hum. COMEX gold is trading at $1116.9/oz, up $11.2 but pretty durn close to our nominal value of $1120/oz. After a month of going nowhere gold is now below its 1-year trend line. If it is trying to keep pace with the metals, it needs some vitamins. Investors aren't fleeing the commodity space either since there hasn't been anything super-scary in the headlines. Let's checkout something a little more exciting...
While gold has remained range-bound, our proud little canary in the global recovery mineshaft is soaring like an eagle again. Copper broke the key $3.50/lb resistance level and is still showing some mojo this morning. COMEX copper is presently trading at $3.5555/lb. On 3/2 the Report gave a range for copper of $2.9363/lb to $3.4977/lb, a breakout is indeed a bullish sign for this metal and perhaps broader global economic trends. The wires are awash with articles on copper's recent flight tempered with some cautions for the near-term. Here are two examples from downunder:
Copper outlook bright (Herald Sun, 4/01/2010 - it's tomorrow in Australia already!)
And an earlier report,
Copper prices soar to near two-year high (Dow Jones Newswires, 3/31/2010)
The common theme is a more stable outlook for Greece and optimism about growth prospects in China. The caution, of course, is a misread on China and a return of sovereign debt jitters. Have you learned the words to this song yet?
Gold's constant companion Silver has been a little wishy-washy too. COMEX silver at $17.585/oz is sitting above the Report's fair value for March of $17.184/oz but well below an upper range of $18.423. If gold breaks out, silver could still mount a charge at $20/oz this year. I'm sticking to my 3/4 prediction that silver will break $19 before Memorial Day but my palms are a little sweaty, pardner.
Nuts. The fuel light on our Eureka Outlook Dashboard has been yellow for most of this month with oil stubbornly trading above $80. NYMEX Oil is $83.55 this morning breaking out of our March upper range of $82.77. This is terrific for oil "bulls" but not so hot for miners and other folks that are getting renewed sticker shock at Marge's Chevron. Some of the same reasons that copper is headed higher apply to black gold. A big new sovereign debt bugaboo could fix this but that's not so hot either. Let's see what the treasury yields say...
10-Year Treasury Note
There has been much concern this month on whether a sharp increase in the yields of Treasurys may upset the ore cart for the Federal Reserve's low-interest strategy and the pace of the nascent domestic recovery (Debt Concerns Move from Europe to U.S.). A worse than expected ADP labor report today may have changed the mood as reported by the Wall Street Journal:
NEW YORK—Prices of Treasury notes and bonds rallied [i.e. yields declined] after an unexpected decline in the latest private-sector jobs data spurred many investors to sell stocks and return to the comfort of safe-haven U.S. government securities. The report dented optimism about the March nonfarm payrolls data scheduled for release Friday and raised concern about the labor market, still grappling with an elevated unemployment rate of 9.7%. The weak data support the Federal Reserve's stance of keeping interest rates at a record low near zero to sustain an economic recovery. (WSJ, 3/31/2010)
The 10-year Treasury yield has notched down to 3.833% this morning on the ADP headline which is good news for Ben Bernanke on interest rates; a lousy precursor (perhaps) to the upcoming Labor Department employment report. Stay tuned.
Miss Moly has been pretty unconcerned about weakening dollars, rising yields and Uncle Ben. She still sings a happy song about a recovering global steel industry and increasing demand for her metal. Western moly oxide is at $17.11/lb, European moly oxide is $17.50/lb and the LME futures contracts have nicely converged towards spot prices with the 3-month and 15-month seller contracts trading at $17.74/lb. That's a steady-eddy market for now buckaroos.
I'm with Miss Moly, might as well be happy. Not a bad March, not a bad first quarter and a whole lot better than a year ago. Class dismissed!
Enough school, let's walk the walk:
4-WD is OFF - the VIX or "fear index" is below 25, smoother broader markets are still in the cards; metals & miners are good with FCX remaining comfortably above $74; the benchmark 10-year T-Note remains below 4% (what is this?)
The YELLOW light is switched back on our fuel gauge with oil above $80
An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
NYMEX/COMEX: Oil is up $1.18 in early trading to $83.55 (May contract, most active); Gold is up $11.2 to $1116.9 (June contract, most active); Silver is up $0.255 to $17.585 (May contract); Copper is down $0.080 to $3.5555 (May contract); Western Molybdenum Oxide remains at $17.11
The DOW is down 12.77 points to 10894.65; the S&P 500 is up 0.30 to 1173.57. The miners are mixed:
Barrick (ABX) $38.28 up 1.38%
Newmont (NEM) $51.36 up 1.22%
US Gold UXG) $2.70 down 0.74%
General Moly (Eureka Moly, LLC) (GMO) $3.39 up 0.30%
Thompson Creek (TC) $13.65 down 0.22%
Freeport-McMoRan (FCX) $83.62 down 0.05% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are mixed, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $43.91 up 0.09% - global steel producer
POSCO (PKX) $117.75 down 0.54% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.29% to $1,357,400.76 (what's this?).
Headline photograph by Mariana Titus