"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 13, 2010

Copper & Gold Head for Vegas - Metals & Miners Weekly Roundup

Morning Miners!

It is 5:30 AM. Have a cup of Monday-got-here-too-damn-quick java and let's get to work. The Colonel is smiling this morning - copper and gold are back in the saddle and galloping off to a Las Vegas sunset. I hope they get hitched there, I did. Many moons ago my Luziana sweetheart and I were married at the famous Candlelight Wedding Chapel by the old Riviera casino. We passed it a few years ago and the poor Candlelight had lost her flame and steeple and was waiting to be carried off to a new location (headline photograph). I guess even marriage sanctuaries can't stand in the way of "bigger-is-better" casinos (see note 1).

I'm sure copper and gold will find their own wedding chapel if they don't take to squabbling again. If you're just catching up on their domestic quarrel, you may want to checkout my blog of July 28th, Will Gold & Copper Ever Make Up? This Report looks at the relation of copper and oil with respect to gold to better understand the health of the global economy. Gold is a good reference for these commodities because it isolates the analysis from the arcane world of currency fluctuations (i.e. gold and oil are traded in U.S. dollars).

The best environment for the metals & mining sector is when oil, copper and gold move in the same direction as long as oil prices don't go too high. Positive correlations of oil & copper with gold were a "sweet spot" for metals & miners during the second-half of 2009 until the debt crisis in Dubai in late November.

Things improved briefly in 2010 then fell apart this spring and summer with concern about the European sovereign debt crisis followed by slower-than-expected growth expectations for the recovery. Fears of a double-dip recession drove gold up and oil & copper down. It looks like that relation is now changing as the double-dip scenario appears less likely (note 2). These two 1-year charts of oil & copper (red line) versus gold (green line) tell the story. Note the almost mirror image movements of oil & copper with gold since May 2010, followed by a more in-step behavior recently:

Here are two morning articles from London (Bloomberg) and Australia (AAP) that characterize the new sentiment:

Copper Gains as Chinese Industrial Production Exceeds Analysts' Estimates(Anna Stablum, London Bloomberg News, 9/13/2010)

Shares led by miners, banks (Business AAP, 09/13/2010)

The release of new Chinese economic data that was anticipated to give headwinds for the metals & miners now points to a "soft economic landing" for the hungry dragon with a renewed appetite for natural resources. That's good, pardner.

A technical analysis of the oil/gold & copper/gold relation is given below in our weekly correlation watch. Let's see what's new with Miss Moly first...

Weekly Molybdenum Roundup

Molybdenum prices remain in a stable range with Western moly oxide still at $15.50/lb sitting a bit below European moly at $15.80/lb. The LME 3-month seller contracts is still $16.33/lb ($36,000/metric ton). The Report's mid-range price target for 2010 moly prices is $15.71/lb.

Western Moly Oxide (FeMo65) $15.50/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $15.80/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $35,500/metric ton $16.10/lb

3-Month (Buyer) $34,000/metric ton $15.42/lb
3-Month (Seller) $36,000/metric ton $16.33/lb

15-Month (Buyer) $34,000/metric ton $15.42/lb
15-Month (Seller)$36,000/metric ton $16.33/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 (9/10/2010). 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 larger more readable chart appears at the bottom of this blog page.

The Eureka Miner's Index(EMI) is above-par at 207.93; a nice jump from Friday's close of 186.51 and a long way from the 6/7/10 low of 50.7. The EMI high for the year was 259.35 on 4/12/2010 - the same day that COMEX copper peaked. Today's number is just above a lower trend level of 204.41 and comfortably above support at 178.59. 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. The graphs above are up to Friday's close (9/10/2010).

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

Oil/Au correlation -0.1125 (1-month) -0.3865 (3-month)
Cu/Au correlation +0.7737 (1-month) +0.1341 (3-month)
Cu/Oil correlation +0.3271 (1-month) +0.0963 (3-month)

Last week's numbers:

Oil/Au correlation -0.7300 (1-month) -0.3902 (3-month)
Cu/Au correlation +0.5691 (1-month) -0.0204 (3-month)
Cu/Oil correlation +0.0132 (1-month) +0.1514 (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 low-$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 $0.89 in early trading to $77.34 (October contract, most active); Gold is down $2.2 to $1244.3 (December contract, most active); Silver is up $0.110 to $19.955 (December contract, most active); Copper is up $0.0845 to $3.4890 (December contract, most active)

Western Molybdenum Oxide is $15.50; European Molybdenum Oxide is $15.80; LME moly 3-month seller's contract is $16.33, LME cash seller is $16.10

Stock Market Morning Update

The DOW is up 68.64 points to 10531.41; the S&P 500 is up 9.88 to 1119.43. Miners are up except for the gold diggers:

Barrick (ABX) $44.36 down 0.81%
Newmont (NEM) $60.41 down 0.44%
US Gold (UXG) $5.08 down 0.18%
General Moly (Eureka Moly, LLC) (GMO) $3.14 up 2.61%
Thompson Creek (TC) $9.76 up 4.05%
Freeport-McMoRan (FCX) $81.69 up 3.00% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.91 up 2.46% - global steel producer
POSCO (PKX) $111.66 up 3.84% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.26% to $1,439,822.69 (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

Note 1: The new Candlelight Wedding Chapel location is 2855 Las Vegas Boulevard South, Las Vegas, NV 89109

Note 2: Not all economists agree with the story commodities are telling: "Three in five economists surveyed by The Wall Street Journal expect the U.S. Federal Reserve to resume large-scale purchases of securities in the face of a deteriorating economic outlook—but, by a 3-to-2 margin, most of them also think that would be a mistake." (WSJ, 9/13/2010) This Report believes in the commodities, especially base metals.

Headline photograph by Mariana Titus

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