"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.

Monday, May 3, 2010

Strong Gold & Silver, Strong Dollar, $90 Oil?

Morning Miners!

It is 5:55 AM. Grab a cup and let's get to work. The ole Colonel may need to go up a diopter on his reading glasses because I can't believe my eyes. Be back in a minute, I'm going to check out these prices again. Yup, we got a bass-ackwards day trying to catch a forward gear. The dollar is up, gold is up, silver is up, COMEX oil is down but the August contract just broke $90. Oh-boy, do I have to explain all this?

Let's start with something I predicted that didn't happen. On 4/5 the Report said there was a good chance that silver would break $19 in April ($19 Silver for April...). It didn't but on this first market day of May, London spot silver just took a shot at $18.85/oz; any points for close? At least on a good silver day it makes sense that gold is up too - she is feeling fine and sassy above $1180/oz. Here's a bullish article that explains why from one of my favorite precious metal prognosticators, Lawrence Williams:

If gold poised for take-off then silver should be an even better bet (Mineweb, Lawrence Williams, 05/03/2010)

Digest that for now, pardner; I plan to come up with my own May predictions for the metals tomorrow.

OK, precious metals are up and the dollar should be down...right? Nope, the U.S. Dollar Index (.DXY or "Dixie") is having a great day up 0.4% which is not a bad move in the currency world. The euro-zone countries and the IMF patched together a new €110 billion ($147 billion) rescue package for Greece on Sunday. This has apparently calmed some investors but there is enough residual concern to push the euro down against the dollar this morning. We've noticed this trend before (Gold & the Dollar - Twin sisters on a See-Saw or...?). In fact, for the last 3-months the dollar and gold have both trended up together. In round numbers COMEX gold (orange line) is up about 9% in 6-months and the Dixie is up a respectable 8% (blue line) as shown in this comparison chart:

The sovereign debt crisis started in late November so the comparison suggests a reason for the breakdown in the more typical inverse relation between glitter and greenback. But what about oil? Although the June contract has pulled back a bit this morning it came near 19-month highs, underpinned by positive economic sentiment and uncertainty over the impact of the U.S. Gulf Coast oil spill. Last Friday, the October COMEX contract broke $90; this morning the August contract is trading at $90.43. I'm afraid $90 oil may be coming at us like a runaway rail car buckaroos!

Here is a 6-month comparison chart of oil (blue line) and gold (orange line); oil is up only 4% to gold's rise of 9%. Looks like we're in catch up mode on the slippery side.

And what are those "positive economic sentiments"? The Wall Street Journal reports this morning:

"Consumer spending rose in March by the largest amount in five months but the gains were financed out of savings, which fell to the lowest level in 18 months.

The Commerce Department said Monday that U.S. consumer spending rose twice as fast as income in March, with personal income up 0.3% and spending up 0.6%, in line with the expectations of economists surveyed by Dow Jones Newswires. The personal savings rate slid to 2.7% from 3% the previous month, now at its lowest level in 18 months." (WSJ, 5/03/2010)

Let's see, why does that make me feel good? Maybe all this bass-ackwardness has been with us all along, at least for the last few months. Take a deep breath and catch that forward gear - strong gold and strong dollar look good riding together in the front seat, now if we can just find some cheap gas in the next town.

Miss Moly has been catching up on her beauty sleep most of last week:

Western Moly Oxide (FeMo65) $17.75/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.60/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

3-Month (Buyer) $38,000/metric ton $17.24/lb
3-Month (Seller)$40,000/metric ton $18.14/lb

15-Month (Buyer) $38,000/metric ton $17.24/lb
15-Month (Seller)$40,000/metric ton $18.14/lb

Here is a chart of the LME 3-month contract (seller) from the February launch to the present:

Looks pretty flat line to me but a $17-18/lb trading range sure beats the $8/lb lows of last year!

Enough talk, let's walk the walk:

4-WD is ON - rough roads in the marketplace; the VIX or "fear index" is up in the 21-22s and too close to 25 for my comfort; metals & miners are on shaky timber with benchmark FCX now trading below its 200-day average of $75 (our new warning level), 10-year Treasurys are safely below 4% preserving a low-interest rate environment (what's this?)

The YELLOW light is switched back on our fuel gauge with oil above $80

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions &
General Moly Mt. Hope Water Rights

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

NYMEX/COMEX: Oil is down $0.13 in early trading to $86.02 (June contract, most active); Gold is up $3.1 to $1183.8 (June contract, most active); Silver is up $0.156 to $18.795 (July contract); Copper is up $0.0360 to $3.3175 (July contract); Western Molybdenum Oxide sits at $17.75, LME moly 3-month seller's contract remains at $18.14

The DOW is up 64.24 points to 11072.85; the S&P 500 is up 5.72 to 1192.41. The miners are mixed:

Barrick (ABX) $42.47 down 2.47%
Newmont (NEM) $54.22 down 3.32%
US Gold (UXG) $3.47 up 1.76%
General Moly (Eureka Moly, LLC) (GMO) $3.71 down 0.80%
Thompson Creek (TC) $12.51 down 2.42%
Freeport-McMoRan (FCX) $72.88 down 3.51% (a bellwether mining stock spanning copper, gols & molybdenum)

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

ArcelorMittal (MT) $39.14 up 0.80% - global steel producer
POSCO (PKX) $109.13 down 2.70% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.84% to $1,412,404.07 (what's this?).


Colonel Possum

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Headline photograph by Mariana Titus

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