"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, October 4, 2010

$3.90 Copper by T-Day - Metals & Miners Weekly Roundup

Morning Miners!

It is 5:50 AM. It's a BIG 10-4 Monday, grab a cup and let's get to work. You only get a 10-4 on a Monday every seven years so make the most of it, pardner. Let's do some prognostication...

The Colonel's Metal Outlook for October

The Report hasn't had a metal outlook for several months because oil and copper have been in wicked inversions with respect to gold. We believe oil and copper together are reliable proxies for global growth. The 3-month correlation of oil and gold is still negative but improving; copper is now strongly correlated - a bullish sign for metals (see below).

After a strong run of records in the last several weeks, I'm going to guess that gold takes a pause this month and will pick a nominal price for COMEX gold of $1320/oz for October. Given this nominal, here is the Colonel's outlook for copper and silver:

The fair value of COMEX copper is $3.6619/lb in a range of $3.4203/lb to $3.9035/lb

The fair value of COMEX silver is $21.798/oz in a range of $20.995/oz to $22.602/oz

The top range for either copper or silver would set new records (see below) so I'll stick my neck out with the turkey and predict that copper breaks $3.90/lb before Thanksgiving.

For you chart buffs, the following shows COMEX copper versus gold based on the last 3-months of futures data. The magenta line is "fair value"; the aqua lines represent the upper and lower bounds of the price range. The squiggly lines connect actual price data; yellow is most recent (3-months), blue is older data (a larger and more readable chart is given near the bottom of the blog page):

Record Highs

I thought it would be helpful to include the latest records for gold, silver and copper in our Monday morning weekly roundup. This Report looks for intraday highs over the market week. Highs set on weekend or holiday electronic trading will be noted as "weekend wonders" but not counted as official. The Report occasionally asks London Bloomberg News to confirm records and dates.

COMEX gold $1322.00/oz 10:15:00 ET, 10/1/2010 (December contract, most active, new record
COMEX Silver $22.170/oz 11:00:00 ET, 10/1/2010 (December contract, most active), 30-year high (1)
COMEX Copper $3.7220/lb 09:45:00 ET, 10/1/2010 (December contract, most active), 26-month high (2)

Eureka Miner's Index(EMI) 274.66 Friday market close, 9/24/2010, 2010 year-to-date closing high

(1)"Weekend wonder" record: Silver $22.235/oz 18:15:00 ET, 10/3/2010, Sunday (December contract, most active)
(2)Confirmed - London Bloomberg, 11:13 a.m. PT, 10/1/2010: since 7/30/2008

Weekly Molybdenum Roundup

Moly prices remain in a stable range for the year but are below mid-range with Western moly oxide at $15.00/lb just above to European moly at $14.95/lb. The LME 3-month seller contract moved down to $14.97 from $15.65/lb. The Report's mid-range price target for 2010 moly prices is $15.71/lb.

Western Moly Oxide $15.00/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $14.95/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $32,400/metric ton $14.70/lb

3-Month (Buyer) $32,000/metric ton $14.52/lb
3-Month (Seller) $33,000/metric ton $14.97/lb

15-Month (Buyer) $32,000/metric ton $14.52/lb
15-Month (Seller)$33,000/metric ton $14.97/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 new 1-month moving average has been added (blue line). A larger and more readable chart appears near the bottom of this blog page.

The Eureka Miner's Index(EMI) is above-par at 245.81, down from Friday's close of 263.18 but a long way from the 6/7/10 low of 50.7. Today's number is below the lower trend level of 249.37 but very comfortably above support at 186.51. The 1-month moving average is 217.49. The new 2010 record high for the EMI is 274.66 set Friday, 9/24/2010. Remember an EMI greater than 100 is good times (or at least better times) for the metals & miners relevant to Eureka County.

200-day averages used in the EMI to normalize current mining company share price are updated monthly. Upper and lower trend lines are updated weekly.

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 the April COMEX copper high of $3.68/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 approaching the 4/27/2010 starting point - 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 3-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 +0.5862 (1-month) -0.2204 (3-month)
Cu/Au correlation +0.8939 (1-month) +0.8018 (3-month)
Cu/Oil correlation +0.6548 (1-month) +0.0621 (3-month)

Last week's numbers:

Oil/Au correlation +0.3871 (1-month) -0.4053 (3-month)
Cu/Au correlation +0.8194 (1-month) +0.6866 (3-month)
Cu/Oil correlation +0.5107 (1-month) +0.0847 (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 high-$80s above its 200-day average of $74.59 (our new warning level, 10/01 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 YELLOW light is turned on our Fuel Gauge with oil above $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 $0.51 in early trading at $82.09 (November contract, most active); Gold is down $1.1 to $1316.7 (December contract, most active); Silver is up $0.010 to $22.070 (December contract, most active); Copper is down $0.0135 to $3.6770 (December contract, most active)

Western Molybdenum Oxide is $15.00; European Molybdenum Oxide is $14.95; LME moly 3-month seller's contract is $14.97, LME cash seller is $14.70

Stock Market Morning Update

The DOW is down 9.46 points to 10820.22; the S&P 500 is down 2.45 to 1143.79. Miners are down:

Barrick (ABX) $46.58 down 0.91%
Newmont (NEM) $63.09 down 0.93%
US Gold (UXG) $4.93 down 1.00%
General Moly (Eureka Moly, LLC) (GMO) $3.64 down 1.09%
Thompson Creek (TC) $10.79 down 0.46%
Freeport-McMoRan (FCX) $88.13 down 1.12% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.61 down 0.082.63% - global steel producer
POSCO (PKX) $115.89 down 0.63% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.74% to $1,524,819.96 (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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