Tuesday, August 3, 2010
Goodbye Ruby Tuesday - Where do Copper & Gold Go Next?
It is 6:11 AM. Have a hot cup of Ruby Tuesday java. Some of you folks may be thinking of the restaurant by that name or the gold mine northwest of town or a song by the Rolling Stones of yore. I woke up thinking about that ruby red metal, copper.
The ole Colonel just wishes he could feel better about this copper rally. So far it has been a dandy. Nearly breaking $3.40/lb copper is flirting with her April highs after rising all the way from $2.80/lb lows in early June (a nearly 20% increase). COMEX copper has pulled back some today but is still trading at a very respectable $3.3595/lb. Why has gold missed all the fun?
The Report pointed out the lackluster performance of gold the other day (Will Gold & Copper Ever Make Up?). Last year copper and gold were constant companions after the S&P 500 bottom in March and raced each other to new highs until the spring of this year. Copper has regained her spirits in the last several weeks while gold seems trapped below $1200/oz. Disturbingly, the copper/gold 1-month and 3-month correlations remain negative, usually a bearish sign for a metals rally.
The other base metals have been faring well too with lead hitting a 3-month high and tin reaching a 23-month peak this morning. The London Metal Exchange (LME) inventories of lead, nickel, zinc and copper are finally showing some signs of bottoming and aluminum inventories are on the rise again. Here is the latest LME copper inventory which has been steadily falling until only recently:
I'll be trying to unravel the copper/gold mystery in the next several days. One clue (and possibly positive sign) is a declining correlation of gold and the U.S. dollar. As reported in the Wall Street Journal, VTB Capital analyst Andrey Kryuchenkov states:
"Gold has once again started decoupling from the U.S. dollar...Gold's rolling monthly correlation to the U.S. currency fell to around 68% from highs above 85% last month. So, given a further improvement in risk sentiment from here, the correlation is set to weaken even more with gold prices tracking firmer PGMs [platinum group metals]." (WSJ, 8/3/2010)
If this trend continues gold and copper may be back in the saddle again. The next question is whether they'll be riding together up or down recovery canyon. In the meantime do I hear gold's sad lament for his red metal sweetheart?
Goodbye, Ruby Tuesday
Who could hang a name on you?
When you change with every new day
Still I'm gonna miss you...
Enough singing old timer songs, let's walk the walk:
The Eureka Miner's Index(EMI) remains above par at 141.72, slightly up from yesterday's 138.26 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 (NOTE: at market close Friday, 7/23, the EMI was 112.61)
4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky but much firmer timber with benchmark FCX trading closer to its 200-day average of $75.4 (our new warning level, 7/27 update), 10-year Treasurys are safely below 4% preserving a low-interest rate environment
The GREEN light is turned back on for Commodity Reflation with copper trading above $3/lb
The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)
The GREEN light is turned back on for Investor Confidence as investors return to equities.
The YELLOW light is turned 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, 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 down $0.66 in early trading to $82.00 (September contract, most active); Gold is up $2.6 to $1188.0 (December contract, most active); Silver is up $0.032 to $18.420 (September contract, most active); Copper is up $0.0300 to $3.3595 (September contract, most active)
Western Molybdenum Oxide is $14.00; European Molybdenum Oxide is $14.55; LME moly 3-month seller's contract is $15.20, LME cash seller is $14.97
The DOW is down 61.76 points to 10,612.62; the S&P 500 is down 8.59 to 1117.27. The miners are mixed:
Barrick (ABX) $41.58 up 1.54%
Newmont (NEM) $55.92 up 0.58%
US Gold (UXG) $4.97 up 1.84%
General Moly (Eureka Moly, LLC) (GMO) $3.35 down 0.30%
Thompson Creek (TC) $9.58 down 0.73%
Freeport-McMoRan (FCX) $74.28 down 0.70% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are up, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $32.75 up 0.49% - global steel producer
POSCO (PKX) $107.79 up 0.16% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.32% to $1,405,024.91 (what's this?).
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Headline photograph by Mariana Titus