10-yr T-Note Drops below 3% - Gold, Copper Stumble

Morning Miners!

It is 5:45AM. Coffee is on the Colonel this morning! I've been saving Mariana's headline photo of a foreboding sky for a morning like this. For quite some time this Report has held the premise that an environment of low interest rates and low fear in the marketplace attracts money to commodities and allows the metals & miners to prosper. Low interest rates have not been a problem with the Fed target unchanged near zero and the benchmark 10-year note dropping in yield since early April.


On the other hand there have been enough concerns about the health of the global recovery to fan the flames of fear. The 10-yr yield peaked around 4% (3.986% on 4/5) about the same time copper made its year-to-date high of $3.64/lb on 4/9 (COMEX July contract). It has been a tough slog ever since with the 10-year plunging below 3% this morning (2.987%) and COMEX copper again failing to hold the key $3/lb level ($2.998/lb). Gold has realigned with metals as investors turn to U.S. Treasuries as the preferred safe haven. The shine in our pan has fallen from an all time high last week of $1266.5/oz (COMEX August contract, 6/21) to a more sobering $1228.7/oz in early trading.

What's got everybody spooked? Nearly everything would not be a bad answer, checkout this Wall Street Journal summary this morning:

"Treasurys have garnered strong demand [i.e. driving prices higher and yields lower] in recent sessions as concerns rose that an economic recovery could falter in the second half of the year as government stimulus fades away.

Recent data in the U.S. have showed a struggling housing market, and the Federal Reserve last week turned more cautious in its assessment on the economy. Investors increasingly are coming around to the view that the Fed's ultra-low interest-rate policy will remain in place for the rest of the year and even into 2011.
The anxiety was further heightened as a gauge of the economic outlook for China, one of the world's leading growth engines, was revised sharply lower than previously thought. The fear pushed down riskier assets from stocks to commodities." (WSJ, 6/29/2010)

The London Metal Exchange (LME) morning headline says it a bit more compactly, "Base metals under pressure as risk aversion resurfaces." Hey, yesterday these same guys said, "Metals maintain strength in open-outcry sessions, risk in vogue." What's going on here? Market volatility, pardner. The broader markets just opened and the volatility index or VIX (what's this?) is back above 30 as the DOW drops below the psychologically important 10,000 level. Ouch.

Bringing this a little closer to home, the Eureka Miner's Grubstake Portfolio (what's this?) is down 2.85% dropping nearly $40,000 in less than an hour. All twelve stocks are in the red with the steels and benchmark moly producer, Thompson Creek (TC), the worst hit; the gold miners, the least. Negative sentiment on global growth is a bone crusher when timbers start breaking in this mineshaft. Our new Eureka Miner's Index (EMI - what's this?) has dropped to 72.9 from yesterday's sub-par 95.9 but is still above the 6/7 low of 50.7.

Nuts. This could be a tough close going into the end of the quarter tomorrow. Stay tuned buckaroos.

Enough talk, let's walk the walk:

4-WD is ON - rough roads in the marketplace; The VIX or "fear index" is above 30; metals & miners remain on shaky timber with benchmark FCX trading in the the low-$60s well below its 200-day average of $76 (our new warning level), 10-year Treasurys are safely below 4% preserving a low-interest rate environment

The YELLOW light is turned back on for Commodity Reflation with copper trading below $3/lb

The YELLOW light is turned on for Stable Markets the VIX above the 30 level (what's this?)

The YELLOW light is turned back on for Investor Confidence as the specter of further market corrections remains

The GREEN light remains turned on our Fuel Gauge with oil below $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 $2.48 in early trading to $75.77 (August contract, most active); Gold is down $9.9 to $1228.7 (August contract, most active); Silver is down $0.178 to $18.540 (September contract, most active); Copper is down $0.0123 to $2.9485 (September contract, most active)

Western Molybdenum Oxide is at $16.00; European Molybdenum Oxide is at $15.00; LME moly 3-month seller's contract is $15.65, LME cash seller is $15.42

The DOW is down 233.45 points to 9,905.07; the S&P 500 is down 26.15 to 1048.42. The miners are in pain:

Barrick (ABX) $45.28 down 1.97%
Newmont (NEM) $60.75 down 1.16%
US Gold (UXG) $5.15 down 0.77%
General Moly (Eureka Moly, LLC) (GMO) $3.24 down 2.70%
Thompson Creek (TC) $9.32 down 5.48%
Freeport-McMoRan (FCX) $62.27 down 3.70% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $27.82 down 5.57% - global steel producer
POSCO (PKX) $96.05 down 5.02% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 2.78% to $1,361,911.03 (what's this?).

Cheers,

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