A China Surprise - Gold Drops to 2-Month Low

Morning Miners!

It is a thin flat washer past 6:00 AM. Have a hot cup of Monday Joe and let's get to work. Most news headlines are like highway signs on a very long trip. Some catch your eye, some don't; their message is usually forgotten quicker than they become small dots in your rear view mirror. Once in a long while there is a sign not forgotten, one that perhaps changes your trip plan - "Let's go see the Grand Canyon, it's only a few miles north of here." Some may even change your destination, "Eureka seems like a nice town, why should I bother going any further?"

There is a headline in this morning's Wall Street Journal that caught my eye and deserves at least a rest stop on our trip down the global recovery highway: "China Becomes Top Energy Consumer."


Whoa, what's going on here? The United States has been the world's largest consumer of energy for more than a century - I bet since Grandpa Edison flipped the first switch! As the Chinese dragon's appetite has grown bigger and bigger, I seem to remember someone saying that this crossover would occur some time in the future - can we be there already?

According to this story, new data from the International Energy Agency (IEA) says yes:

"The Paris-based agency, whose forecasts are generally regarded as bellwether indicators for the energy industry, said China devoured 2,252 million tons of oil equivalent last year, or about 4% more than the U.S., which burned through 2,170 million tons of oil equivalent. The oil-equivalent metric represents all forms of energy consumed, including crude oil, nuclear, coal, natural gas and renewable sources such as hydropower." (WSJ, 7/19/2010)

The WSJ goes on to say that the old estimate for this baton hand off was five years. Apparently the recession has changed all that. Although we remain the largest energy consumer per capita (five times more than the average Chinese citizen), our economic slowdown and energy-efficiency programs have rapidly brought this date forward. IEA chief economist Fatih Birol says, "The fact that China overtook the U.S. as the world's largest energy consumer symbolizes the start of a new age in the history of energy."

This is a thought worth contemplating buckaroos. The diameter of this earth doesn't expand with population growth, especially with more new folks arriving around the world that want to live as we do. Demand for new energy sources and diminishing natural resources will write the history pages of this new century. That affects everyone but especially those who live in commodity-sensitive economies like our own.

Let's leave this rest stop for now and continue down our highway. I promise we'll stop again on this topic.

Gold started this week by dropping to 2-month lows on the London spot exchange:


We'll keep on eye on the glitter - copper moved up thankfully and, with the exception of the gold diggers, the metals & miners are recovering some from last week's malaise (Metals & Miners Call in Sick for Friday). Here's how Miss Moly fared last week:

Weekly Molybdenum Update

Molybdenum prices remain in a close but stable range with Western moly oxide price now slightly below European moly and LME futures seller contracts. The Report's new mid-range price target for 2010 moly prices is $15.71/lb.

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) moves up to 14.25/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $31,550/metric ton $14.31/lb

3-Month (Buyer) $31,000/metric ton $14.06/lb
3-Month (Seller) $32,000/metric ton $14.52/lb

15-Month (Buyer) $31,000/metric ton $14.06/lb
15-Month (Seller)$32,000/metric ton $14.52/lb

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



Eureka Miner's Index (EMI)

Below is a chart of the Eureka Miner's Index (EMI) through Friday's close. The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County.


(a larger, more readable chart is near the bottom of this blog page)

The Eureka Miner's Index remains sub-par at 81.30, slightly down from Friday's 82.13 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

Enough talk, let's walk the walk:

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is above 25; metals & miners remain on shaky timber with benchmark FCX trading in the low to 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 back on for Commodity Reflation with copper trading below $3/lb

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

The YELLOW light is on for Investor Confidence as further market corrections are possible.

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, U.S. House committee debates miner workplace safety bill

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

NYMEX/COMEX: Oil is up $0.08 in early trading to $76.46 (September contract, most active); Gold is down $5.6 to $1182.6 (August contract, most active); Silver is down $0.078 to $17.710 (September contract, most active); Copper is up $0.0090 to $2.9385 (September contract, most active)

Western Molybdenum Oxide is at $14.00; European Molybdenum Oxide is at $14.25; LME moly 3-month seller's contract is $14.52, LME cash seller is $14.31

The DOW is up 71.06 points to 10,168.96; the S&P 500 is up 7.92 to 1072.80. The miners are up except for the gold diggers:

Barrick (ABX) $41.30 down 1.08%
Newmont (NEM) $58.13 down 1.31%
US Gold (UXG) $4.43 down 2.64%
General Moly (Eureka Moly, LLC) (GMO) $3.03 up 1.00%
Thompson Creek (TC) $8.79 up 0.34%
Freeport-McMoRan (FCX) $60.58 up 0.83% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $29.95 up 3.10% - global steel producer
POSCO (PKX) $101.50 up 1.51% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.08% to $1,314,717.55 (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