"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 20, 2010

Gold & Copper New Highs - Metals & Miners Weekly Roundup

*** BREAKING NEWS *** COMEX gold bested its new high early this morning with $1285.2/oz at 11:00 a.m. ET (December contract, most active)

Morning Miners!

It is 5:46 AM. Have a cup of Wedding-Bell-Monday coffee and let's pause to celebrate - Miss Copper & Gold finally got hitched. Both of this Report's favorite metals hit new highs in the wee hours of electronic trading on the COMEX:

COMEX Gold new high $1284.9/oz 02:45:00 ET (12/10 contract, most active)

COMEX Copper 5-Month high $3.5560/oz 02:45:00 ET (12/10 contract, most active)

If you missed some episodes of this soap opera, last Monday's roundup is a good place to start, Copper and Gold Head for Vegas. Copper and gold have had an on-again-off-again relation for many months, now they seem very happy together. The ole Colonel believes a sustained period of good times for the metal & mining sector can occur only when copper and gold prices move together in the up-up-and-away direction.

Copper price is a reliable indicator of global recovery due to its broad industrial uses including new construction. When the recovery is in doubt (e.g., recent fears of a global double-dip recession), gold prices rise as investors rush to a safe haven investment and copper prices fall as they leave riskier assets such as commodities. In good times, copper and gold correlate positively. There is a technical discussion in the roundup below on how the copper/gold correlation has improved dramatically in the last few weeks - a very bullish sign.

Both copper and gold are benefiting from a fall in the U.S. dollar and chatter of further quantitative easing in the United States. Copper is also in tight supply with London Metal Exchange (LME) inventories continuing their decline. The Federal Reserve announces its latest policy decision tomorrow which may signal the need to inject more stimulus into the domestic economy. Here is a good summary form London Reuters this morning:

Copper climbs to fresh five month highs (Michael Taylor, London Reuters, 9/20/2010)

Worldwide oil demand is also an important gauge for how we're doing in the Big Picture. As much as we do not like higher prices at the gas pump, rising crude oil prices are another indication that the global recovery is on tract. The jury is still out on oil's current relation to gold; like copper it has been a odds with the precious metal since the stock markets fell from highs set in April of this year. The short-term correlations with gold (1-month) are positive and promising. The near-term (3-month) are still in the red - a mixed signal from the slippery stuff.

The best environment for the metals & mining sector is positive correlations of copper & gold and oil & gold with oil prices not rising too high (this Report's threshold is $80/bbl). This morning NYMEX oil fell to $74.82/bbl as copper & gold set new highs. Some upward movement of the former would be welcome.

All in all we've had a pretty decent September so far with the Eureka Miner's Index (EMI) coming very close to its April 12th high which coincided with the peak in copper prices for the year. The S&P 500 is also nearing its level for that day (1,129.7 this morning versus 1,199.2 on 4/12) although it has some way to go to hit the high for the year of 1,219.8 on April 26th.

Let's look at how Miss Moly is doing and then we'll talk more about our metals & miners...

Weekly Molybdenum Roundup

Although historically molybdenum has experienced very high price volatility, it has been steady as a rock lately (to excuse the pun) when compared to other metals. The last time period we witnessed such low variability in prices was mid-April to late May. Moly prices remain in a stable range for the year with Western moly oxide at $15.50/lb sitting a bit below European moly at $15.65/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) $16.33/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $35,300/metric ton $16.01/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. 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 242.25, up from Friday's close at 240.42 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 above a lower trend level of 235.81 and comfortably above support at 186.51. 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 good improvement from last week's short-term (1-month) correlation. The graphs above are up to Friday's close.

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

Oil/Au correlation +0.4197 (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)

Last week's numbers:

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)

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 down $0.10 in early trading at $74.82 (November contract, most active); Gold is up $3.6 to $1281.1 (December contract, most active); Silver is up $0.004 to $20.820 (December contract, most active); Copper is up $0.0075 to $3.5145 (December contract, most active)

Western Molybdenum Oxide is $15.50; European Molybdenum Oxide is $15.65; LME moly 3-month seller's contract is $16.33, LME cash seller is $16.01

Stock Market Morning Update

The DOW is up 7.27 points to 10602.10; the S&P 500 is up 1.83 to 1126.49. Miners are mixed:

Barrick (ABX) $46.26 up 0.59%
Newmont (NEM) $62.79 down 0.35%
US Gold (UXG) $5.22 down 0.57%
General Moly (Eureka Moly, LLC) (GMO) $3.09 down 0.96%
Thompson Creek (TC) $10.57 down 0.09%
Freeport-McMoRan (FCX) $82.18 up 0.56% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.38 down 1.37% - global steel producer
POSCO (PKX) $109.32 down 0.62% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.31% to $1,459,487.17 (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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