Friday, September 3, 2010
Jobs Report Surprise- Gold Down, Silver Steady, Copper Bounces
It is 5:40 AM. Have a brimming hot cup of Raine's Holiday Special TGIF coffee! Tastes extra good this morning, pardner. I just watched the U.S. Labor Department's Jobs Report roll out on CNBC Business and you could hear some trader in the pits holler, "Good!" Nowadays "good" is such a relative term that Einstein might be tempted to tweak his theory on the subject if he were alive today. What did our metals say? CLUNK went spot gold in London, clink went silver and BING went copper. These three charts ring the metallic chorus better than words:
So why do we need the metal's Special Theory of Relativity to understand the news? If gold drops and silver remains steady, what market player just headed for the exits?
Very good class. If gold drops and copper bounces, what just soared?
"Our fearless canary in the global recovery mineshaft?"
Right again. Forget currencies, the value of copper with respect to gold just jumped. That's good! Class dismissed, have a happy and safe Labor Day Weekend!
Oh wait, I forgot to explain how "bad" means "good" in these crazy economic badlands. Nonfarm payrolls fell by 54,000 last month according to U.S. Labor Department early morning report; our economy has now shed jobs for three straight months. That's bad.
These August job losses were less than half the 110,000 predicted by economists in a Dow Jones Newswires survey. That's good!
The unemployment rate edged up to 9.6%, as expected, after holding at 9.5% for previous two months. That's bad.
Private-sector companies added 67,000 jobs, following an upwardly revised 107,000 gain in July. That's good! The ole Colonel is tempted to say "real good" since the job growth in the non-government world is the only thing that will rescue us from this mineshaft.
The big payroll number is negative because private sector hiring isn't enough to offset job losses in the government, which is continuing to let go temporary workers hired for the 2010 census. I can live with that, this goofy census can't last forever. Job cuts by state governments facing budget pressures are more worrisome but if people go back to real jobs that helps state and municipal revenues. Go private sector!
All in all, this report is a lot more good than bad. The broader markets are now open and it looks like they agree with the base metals - the DOW and S&P are both up nicely.
Hmm...there is one more hand up in the back row.
"Hey Colonel, you've been saying for weeks that copper and gold need to move in the same direction to sustain a metals rally. Why are you now happy with gold down and copper up?"
Gold's drop on today's employment news is fear leaving the marketplace plain and simple. Some of that money went right back into the "risk trade" which includes the base metals. Silver didn't react too negatively because it has a much greater industrial use than gold. If the global recovery is really back on track (i.e. double-dip recession gets out of Dodge), silver as well as copper should benefit. For this scenario, I expect gold to re-correlate with oil and copper similar to its behavior in the second-half of 2009 (until the Dubai credit crisis). Right now, I'd be happy if gold just stabilized and moved sideways for awhile. The ole Colonel will update the correlations of oil and copper with gold after we get back from holiday.
That's it, have a happy!
Daily Market Roundup
Enough talk, let's walk the walk:
The Eureka Miner's Index(EMI) hits an above-par 184.49, moving up from yesterday's 172.66 (see note 1) and a long way up 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 confirms a new up-trend. Remember an EMI greater than 100 is good times (or at least better times) for the metals & miners relevant to Eureka County.
Eureka Outlook Dashboard
4-WD is OFF - improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners are on firmer timber, bellwether Freeport-McMoRan (FCX) remains above its 200-day average of $75.3 as of 8/05. The new 200-day average is $74.51 (EMI update pending); 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is 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 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 with continuing favorable news on the global recovery although 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 $0.05 in early trading to $75.07 (October contract, most active); Gold is down $10.5 to $1242.9 (December contract, most active); Silver is down $0.042 to $19.630 (December contract, most active); Copper is up $0.0340 to $3.5295 (December contract, most active)
Western Molybdenum Oxide is $15.50; European Molybdenum Oxide is $16.08; LME moly 3-month seller's contract is $16.33, LME cash seller is $16.10
Stock Market Morning Update
The DOW is up 68.35 points to 10388.45; the S&P 500 is up 7.83 to 1097.93. Miners are up except for the golds:
Barrick (ABX) $44.98 down 0.52%
Newmont (NEM) $60.20 down 1.92%
US Gold (UXG) $5.04 down 3.08%
General Moly (Eureka Moly, LLC) (GMO) $3.19 up 1.27%
Thompson Creek (TC) $9.37 up 2.74%
Freeport-McMoRan (FCX) $78.06 up 1.10% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are mixed (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $31.56 up 1.25% - global steel producer
POSCO (PKX) $102.38 down 1.04% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 0.12% to $1,409,519.04 (what's this?).
Write Colonel Possum at firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market
Note 1: Yesterday, the Report incorrectly reported the EMI to be 200.77 for 9/2/2010. It should have been 172.66 which is the 200.77 number corrected for a low interest rate cap of 3%.
Headline Photo by Mariana Titus, "The Colonel's Flag"