"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, September 27, 2010

Barrick $1500+ Gold for 2011 - Metals & Miners Weekly Roundup

Morning Miners!

It is 5:40 AM. Grab a cup of record breaking java and let's get to work. Last week was quite a week with our favorite metals setting records or new highs. This morning it looks like COMEX silver made another new high of $21.645/oz in the wee hours but has pulled back since (03:00:00 ET, 12/10 contract). COMEX Gold is a thin flat washer below $1300/oz and copper is off its 5-month high set Friday.

London Bloomberg is predicting some softness in the red metal after Chinese selling and broader concerns about more financial woes emerging from Europe.

Copper May Decline as Prices at Five-Month High Spur Selling by Investors (Anna Stablum, London Bloomberg News, 9/27/2010)

Barrick Gold's Jamie Sokalsky, Chief Financial Officer, is willing to put a number on next year's gold outlook. On CNBC Buisness News last week, President and CEO Aaron Regent, wouldn't discuss levels but only the direction of their lustrous product (Outlook for Barrick Gold). As reported by Mineweb, Mr. Sokalsky suggested greater than $1,500/oz is in the cards for next year.

Gold could easily rise above $1,500 in the next year - Barrick (Mineweb, Jan Harvey, Reuters, 9/27/2010)

He told Reuters on the sidelines of a recent London Bullion Market Association event:

"From what we're hearing, there are still significant new buyers coming into the market...My view is that we could see much stronger prices still from here," he said, adding: "I can see gold easily taking out new highs and going above $1,500 an ounce in the next year." (Mineweb, Jan Harvey, Reuters, 9/27/2010)

He also said the company's Cortez Hills mine was likely to outstrip its current production target expecting to exceed guidance of 1.1 million ounces on the order of 5-10%.

With all this good news in our sails it will be important to watch this week's economic data on automotive sales and housing together with events in Europe to determine whether we're at the top or setting the stage for even better numbers for the metals & miners. The Eureka Miner's Index(EMI) set a new high of 274.66 for the year as the markets closed last Friday - that's not all bad buckaroos (see below).

Let's start our weekly roundup with Miss Moly...

Weekly Molybdenum Roundup

Moly prices remain in a stable range for the year but slipped a little last week with Western moly oxide at $15.00/lb close to European moly at $15.05/lb. The LME 3-month seller contract moved down to $15.65 from $16.33/lb. The Report's mid-range price target for 2010 moly prices is $15.71/lb.

Western Moly Oxide (FeMo65) $15.00/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $15.05/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $34,000/metric ton $15.42/lb

3-Month (Buyer) $32,500/metric ton $14.74/lb
3-Month (Seller) $34,500/metric ton $15.65/lb

15-Month (Buyer) $32,500/metric ton $14.74/lb
15-Month (Seller)$34,500/metric ton $15.65/lb

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

Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line is the EMI with a low interest cap of 3% on 10-year Treasurys (LIRC) and adjustments for gold and silver prices (i.e., Au:Ag ratio); the gray line is the EMI without these corrections. A new 1-month moving average has been added (blue line). A larger more readable chart appears at the bottom of this blog page.

The Eureka Miner's Index(EMI) is above-par at 263.74, down from Friday's record 274.66 and a long way from the 6/7/10 low of 50.7. Friday's closing high exceeds the old EMI high of 259.35 set on 4/12/2010 - the same day that COMEX copper peaked. Today's number is also above the lower trend level of 243.04 and very comfortably above support at 186.51. The 1-month moving average is 185.53. Remember an EMI greater than 100 is good times (or at least better times) for the metals & miners relevant to Eureka County.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners. One way to visualize these correlations with gold over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations (aka "rho") as shown below in these two graphs (ref: China to the Rescue?):

In the case of copper versus gold, we start out on 4/27/10 with both positively correlated (i.e. in the "+,+" or "green" quadrant). This is the day after the 2010 S&P 500 high and shortly after COMEX copper high of $3.5840/lb (4/12/10). Unfortunately we soon descended into negative territory (i.e. in the "-,-" or "red" quadrant) as the financial crisis in Europe worsened (blue line). Presently we are back in the "+/+" or "green" quadrant - the magenta line and arrow show the most recent data and direction. To sustain optimism for copper prices we need to stay in the "+,+" green pasture.

Oil versus gold has a similar trajectory starting 5/4/2010 moving from the "+/+" to "-/-" quadrant. Oil needs a breakout to the positive to end the bearish cycle of the past few months but has shown some improvement from last week's 3-month correlation although the 1-month has slipped some. The graphs above are up to Friday's close.

Here are the latest correlations given this morning's NYMEX/COMEX trading:

Oil/Au correlation +0.3871 (1-month) -0.4053 (3-month)
Cu/Au correlation +0.8194 (1-month) +0.6866 (3-month)
Cu/Oil correlation +0.5197 (1-month) +0.0847 (3-month)

Last week's numbers:

Oil/Au correlation +0.4197 (1-month) -0.4341 (3-month)
Cu/Au correlation +0.7650 (1-month) +0.4437 (3-month)
Cu/Oil correlation +0.6439 (1-month) +0.1002 (3-month)

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is OFF - improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners are on firm timber with bellwether Freeport-McMoRan (FCX) in the mid-$80s above its 200-day average of $74.48 (our new warning level, 9/03 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is still some deflationary caution now that we are sub-3%.

The YELLOW light is turned back on for Commodity Reflation. Although copper is trading above $3/lb, the 10-yr T-Note is below 3.00%

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

The YELLOW light is turned on for Inflation/Deflation Watch as the Federal Reserve resumes buying back Treasurys and the 10-yr T-Note remains below 3.00%

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets but the bond markets still signal trouble ahead

The GREEN light is 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?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.51 in early trading at $77.00 (November contract, most active); Gold is up $1.3 to $1299.6 (December contract, most active); Silver is up $0.121 to $21.520 (December contract, most active); Copper is down $0.0105 to $3.6075 (December contract, most active)

Western Molybdenum Oxide is $15.00; European Molybdenum Oxide is $15.05; LME moly 3-month seller's contract is $15.65, LME cash seller is $15.42

Stock Market Morning Update

The DOW is down 12.95 points to 10847.31; the S&P 500 is down 2.69 to 1145.98. Miners are mixed:

Barrick (ABX) $46.73 up 0.78%
Newmont (NEM) $63.78 up 0.60%
US Gold (UXG) $5.03 up 0.82%
General Moly (Eureka Moly, LLC) (GMO) $3.26 unchanged
Thompson Creek (TC) $11.06 up 0.87%
Freeport-McMoRan (FCX) $82.02 down 0.68% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.25 down 0.08% - global steel producer
POSCO (PKX) $110.52 down 0.31% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.15% to $1,501,076.50 (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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