"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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.

Tuesday, September 7, 2010

Silver Breaks $20, Gold Breaks $1260 - Dollar Bounce


Morning Miners!

It is 5:52 AM. Have a cup of Wish-Labor-Day-was-Labor-Week java and let's get to work. Ruby Tuesday blew through the break room early this morning with some fresh donuts from Ely, she didn't want us to start this week with low blood sugar. Some things in life go away that you are glad to forget until they return to remind you they never left. The European sovereign debt crisis is one example and the Wall Street Journal brought it back to prime time with an article on the much heralded summer "stress tests." Here's the Journal this morning reporting on itself:

"The Journal said Tuesday the recent euro-zone banking stress tests understated some banks' holdings of government debt. European bank shares slumped following the report, while investors dumped risky bonds tied to weaker European economies and crowded into the safe havens of German and British government bonds." (WSJ, 9/7/2010)

Although prices have retreated a bit, that article was enough to push COMEX gold past $1260/oz and COMEX silver over $20/oz in early trading (December contract, most active). The U.S. dollar rallied too - when the greenback runs up with the precious metals it is time to take notice. Unless you are a gold digger, an environment of strong gold/strong dollar is lousy for the metals & miners as we witnessed earlier this year. Predictably, our little red metal canary in the mineshaft of global recovery lost altitude this morning. COMEX copper dropped 1.28% to $3.4550/lb.

All the big investors in the U.S. and Europe are now back from summer break which is another market dynamic. Will they be "risk-on" or "risk-adverse" this autumn? Let's hope this is just one headline driven morning and not a new trend. Stay tuned.

Let's see what's new in this morning's roundups...

Weekly Molybdenum Roundup



Molybdenum prices remain in a stable range with Western moly oxide at $15.50/lb sitting a bit below European moly at $16.08/lb. The LME 3-month seller contracts is now $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) $16.08/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 (9/3/2010). 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 178.59, a drop from Friday's close at 210.30 but 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 remains above a lower trend level of 168.32 and support is 132.23. 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 in the "+/-" or "yellow" quadrant - the magenta line and arrow show the most recent data and direction. To sustain optimism for copper prices we need a return trip to the "+,+" good lands via this trip through "+,-" country first.

Oil versus gold has a similar trajectory starting May 4th moving from the "+/+" to "-/-" quadrant. Oil, like copper, needs a breakout to the positive to end the bearish cycle of the past few months. The graphs above are up to Friday's close (9/3/2010). Here are the latest correlations given this morning's COMEX trading:

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 firmer timber with bellwether Freeport-McMoRan (FCX) in the mid-$70s 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 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 Reserves 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 $1.07 in early trading to $73.53 (October contract, most active); Gold is up $8.2 to $1259.3 (December contract, most active); Silver is up $0.041 to $19.990 (December contract, most active); Copper is down $0.0450 to $3.4550 (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 down 83.89 points to 10364.04; the S&P 500 is down 10.25 to 1094.26 Miners are mixed:

Barrick (ABX) $46.04 up 1.63%
Newmont (NEM) $62.07 up 1.97%
US Gold (UXG) $5.11 up 0.59%
General Moly (Eureka Moly, LLC) (GMO) $3.19 down 1.85%
Thompson Creek (TC) $9.31 down 3.92%
Freeport-McMoRan (FCX) $76.49 down 2.62% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $31.22 down 1.08% - global steel producer
POSCO (PKX) $106.15 up 3.18% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.25% to $1,419,150.05 (what's this?).

Cheers,

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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