"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.

Friday, September 17, 2010

Silver Breaks $21 - A Little (More) Advice from Mark Twain

"There are two times in a man's life when he should not speculate: when he can't afford it, and when he can." Mark Twain

Morning Miners!

It is 5:36 AM, clean cups are on the hook and the coffee is hot. The ole Colonel is going to chat a bit with the old timers this morning but the young folks are welcome to stay in the break room, there might be something here for everyone. I was sitting on my favorite bench in front of Raine's Market the other day with my faithful sidekick, Loquita. By the by, if you're having a difficult day go sit there a spell, I swear that bench has magical qualities for soothing the soul. I must ask Scott about its history, maybe it has been there since the old Kitchen Market days.

Actually, it is 5:41 AM. I wrote the above paragraph over 15 months ago (A Little Advice from Mark Twain, 6/4/2009) and thought it might be fitting to do a little followup. If Mark Twain were alive today he might enjoy the Raine's bench as much as I do. Scott Raine's mother wasn't too sure of its history when I asked her, so Samuel Langhorne Clemens may have sat there once on a Eureka visit from his beloved Virginia City. See there, that's how to start a rumor! (Of course, to make this tall tale work, the Raine's bench would have been in front of a prospector's tent in those days and our American author/journalist wouldn't have known he was in Eureka because it wasn't a town yet).

Silver was big news in Nevada then and it is a big story again. In overnight electronic trading COMEX silver pegged $21.02/oz (3:15 a.m. ET, December contract, most active). Less than a month ago this Report threw up a flag on silver (Good Time to Buy Silver...?, 8/23/2010) when it was trading in $17/oz territory.

What's going on with Silver?

Federal civilian pensions began in 1920. That was a decade after Mr. Clemens passed but he would know what pensions were since they have been around in one form or another since the Revolutionary War. Given today's headline quote from the old sage, I'm sure he would be shocked to learn some private pension funds are now looking at mining companies. With fewer places to find returns and the uncertainty of global economics, investors have been piling into gold for sometime. Now silver, copper, other metals and the mining companies that produce them are experiencing a surge of investor interest (... Pensions Head for the Mineshaft, 9/16/2010)

Silver futures this morning hit their highest level since 1980, the year the Hunt brothers tried to corner the market driving silver prices to $48.70/oz. Individual investors are snapping up new Silver Eagle and antique coins and hedge funds have been plowing money into the metal since midyear. Hedge funds binged on silver before the Lehman Brothers bankruptcy and it was the first treasure thrown overboard when things went south. I can remember silver in the $9/oz basement after several big liquidations. Be careful investing in this white metal buckaroos.

Dennis Gartman, the "Commodity King", made a funny comment on CNBC Business News yesterday about the latest rally, "I'm getting too old to invest in silver!" The ole Colonel found this particularly amusing since I'm older than Gartman. I'm holding on to my silver for now but I've got the Model '73 cocked and one eye looking out the window. If Mr. Clemens were here I'm sure he'd give the ole Colonel covering fire (see note 1).

The Return of Your Money

In the June, 2009 blog, I talked about another Mark Twain quote:

"I am reluctant to give anyone advice on what they should do with their money but am not shy about telling you what I'm doing. I'll leave the advice part to Mark Twain who once remarked, 'I am more concerned with the return of my money than the return on my money.' This is such a sage quote that it was repeated by Will Rogers during the Great Depression and is sometimes attributed (incorrectly) to the famous British economist, John Maynard Keynes. Keynes is important to my story because he had the radical idea that governments should spend money they don't have in hard times to save the ship."

Gee, my story hasn't changed much at all - our government is still spending the money they don't have to kick start this economy! At that time, I suggested to old timers like myself that they shouldn't fret too much about a lousy 2% return on a 1-year bank CD. Inflation was near zero then and a 2% "real return" (i.e. interest less inflation rate) was just fine - at least you'd get back all your money back plus a little. The government just released the new core inflation number for August and it is a meager 0.9%. Unfortunately, you now have to buy a 5-year CD to capture a 2% annual return (2.34% national average in a 52-week Lo/Hi range of 2.32% to 2.71% for a 5-year CD). A quick check of CD rates this morning shows a 1-year CD today can be found anywhere from roughly 0.75% to 1.5%. Looking back 15 months, that 2% 1-year CD was a really good deal!

"So what's your durn point, Colonel?"

If you're near retirement or already fishing, I'd be a little cautious about jumping into precious metals at these levels - especially silver. Keep both of Mark Twain's quotes in mind before you throw too many more Silver Eagles in your buckboard. Stay tuned, buckaroos.

Daily Market Roundup

Enough porch sitting, let's walk the walk:

The Eureka Miner's Index(EMI) is above-par at 234.14, up from yesterday's 221.47 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 below a lower trend level of 240.50 but 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.

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 $0.05 in early trading at $75.79 (November contract, most active); Gold is up $5.6 to $1279.4 (December contract, most active); Silver is up $0.029 to $20.800 (December contract, most active); Copper is up $0.0190 to $3.5125 (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) $46.30 up 0.87%
Newmont (NEM) $63.31 up 0.21%
US Gold (UXG) $5.38 down 0.19%
General Moly (Eureka Moly, LLC) (GMO) $3.18 unchanged
Thompson Creek (TC) $10.50 up 1.35%
Freeport-McMoRan (FCX) $81.82 up 0.11% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.71 up 0.58% - global steel producer
POSCO (PKX) $109.83 down 0.88% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.15% to $1,467,867.39 (what's this?).


Colonel Possum

Note 1: As a point of disclosure the ole Colonel fired his first round at 11:23 a.m. (PT) when COMEX silver was at $20.850. He had three silver bullets, now he only has 2. The Colonel holds iShares Silver Trust (SLV) Exchange Traded Fund. The price at sale was $20.38/share.

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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