Monday, June 14, 2010
No News is Good News - Copper & Oil Rebound
It is 5:24 AM. Have a simmering cup of Monday java and let's get to work. There is an article in the Wall Street Journal that pretty well sums up the market climate these days in its opening sentence:
LONDON—The dollar sank in European trading hours Monday as the lack of any fresh negative news on euro-area banks and finances sent traders back to the euro. (WSJ, 6/14/2010)
If this is the first verse in a song, readers of this Report know the chorus: "Euro up, gold & dollar down/ Come'on oil & copper rebound!". Pretty dumb song but it's what's playing on the charts, pardner. NYMEX Oil is trading in the mid-$70s again while COMEX copper flirts with the key $3/lb level, a jump of more than 10% in a week. Nobody is really complaining about gold either as it takes a pause on its $1225/oz perch.
The broader markets will be open soon and I'll bet metals & miners will be singing a happy chorus too. While we're waiting, allow the ole Colonel to point out a commodity sleeper that doesn't give a hoot about the perils of foreign currency - domestic natural gas. I believe one of the fallouts of the BP Gulf disaster will be a move to more land-based production of natural gas. With new shale extraction techniques the United States has moved from a nine to ninety-nine year reserve estimate in the last several years for this important fuel. I predict the Gulf disaster will give new energy to the "T. Boone Picken's Plan" that promotes wind, solar and natural gas as the bridging domestic energy sources to greatly reduce our dependence on foreign oil. That oil-savy old timer has often pointed out that you need a fuel like natural gas to do the heavy hauling; a fancy battery won't move a Peterbilt down the highway. Yee-ha!
Since May's lows, natural gas has moved from $3.9 to $4.9 territory and natural gas stocks are in rally mode. My three favorites are EnCana (ECA), San Juan Basin Royalty Trust(SJT) and EOG Resources (EOG) which is the only oil & gas stock in the Eureka Miner's Grubstake Portfolio (what's this?). Why do we care about land-based oil & gas exploration in Eureka County? Although production has decreased over the past several years, Pine Valley is the second largest producer of oil in Nevada and some believe has the greatest future production potential. Just stuff to watch for buckaroos.
San Juan Basin is primarily a New Mexico play but shows the new interest emerging for land-based natural gas. SJT presently pays a monthly dividend with a 8.9% annualized return - that beats CD rates! Here's a one-year chart to illustrate the turnaround in stock price:
OK, the markets are open and the metals & miners are clearing their throats for song. Looks like a good'un so far.
Here's our molybdenum summary for last week which shows a convergence of spot and futures prices to $14 territory.
Western Moly Oxide (FeMo65) remains at $14.00/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)
Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) falls to $14.00/lb (the price reported in the Metals Bulletin)
LME Futures Contracts
LME cash seller moves to $14.60
3-Month (Buyer) $32,200/metric ton $14.60/lb
3-Month (Seller) $32,500/metric ton $13.83/lb
15-Month (Buyer) $32,200/metric ton $14.60/lb
15-Month (Seller)$32,500/metric ton $13.83/lb
Here is a chart of the LME 3-month contract (seller) from the February launch to the present:
This 1-month chart of Western moly oxide shows the recent downward pressure on price:
Enough talk, let's walk the walk:
Our newly minted Eureka Miner's Index (EMI - what's this?) popped up to 81.65 this morning, rebounding from last Monday's low of 50.7. Remember an EMI greater than 100 is good times for metals & miners - we're getting closer!
4-WD is ON - rough roads in the marketplace; The VIX or "fear index" is below 30, still above our 25 level threshold; metals & miners remain remain on shaky timber with benchmark FCX in the mid-$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 on for Commodity Reflation with copper trading below $3/lb
The GREEN light is turned on for Stable Markets the VIX finally falling below the 30 level (what's this?)
The YELLOW light is turned back on for Investor Confidence with the possibility of a 20% correction in the broader markets appearing less likely
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 up $1.92 in early trading to $75.70 (July contract, most active); Gold is down $4.3 to $1225.9 (August contract, most active); Silver is up $0.239 to $18.470 (July contract); Copper is up $0.0775 to $2.9815 (July contract)
Western Molybdenum Oxide remains at $14.00; LME moly 3-month seller's contract is at $14.74, LME cash seller moves to $14.60, Euro moly oxide sits at $14.00.
The DOW is up 62.27 points to 10,273.34; the S&P 500 is up 7.58 to 1099.18. The miners are mostly happy:
Barrick (ABX) $42.98 down 0.30%
Newmont (NEM) $55.87 down 0.68%
US Gold (UXG) $4.25 up 0.95%
General Moly (Eureka Moly, LLC) (GMO) $3.49 up 0.29%
Thompson Creek (TC) $9.43 up 3.17%
Freeport-McMoRan (FCX) $66.47 up 2.37% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are happy too, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $30.07 up 4.01% - global steel producer
POSCO (PKX) $96.99 up 2.48% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 1.32% to $1,356,113.71 (what's this?).
Write Colonel Possum at firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market
Headline photograph by Mariana Titus