Thursday, October 7, 2010
Gold & Silver Step Out - Oil Joins the Parade
*** BEAKING NEWS *** There may be a reversal in gold underway on a late morning dollar rally...
It is 5:39 AM. Have a cup of Thor's Thunderous Java and let's go right to the record books for our daily posting. Excuse the noise outside, our favorite Norseman is out in the parking lot playing "Thunderclap" with Loquita. I don't what's worse, her barking or his sonic booms.
Gold & Silver Step Out - Oil Joins the Parade
Gold and silver hit new highs at the COMEX and London spot exchanges. Copper is taking a rest but oil hit a new 4 1/2-month high.
COMEX gold $1366.0/oz 04:20:00 ET, 10/7/2010 (December contract, most active), new record
COMEX Silver $23.530/oz 04:20:00 ET, 10/7/2010 (December contract, most active), 30-year high
NYMEX Oil $84.43 09:00:00 ET, 10/7/2010 (November contract, most active), since mid-May
Most of this is driven by a continuing decline in the U.S. dollar - the euro hit $1.4028, its cheapest level since January (1/28/10); the U.S. dollar index plumbs new depths at 77.35. The yen is at 82.31 below the last intervention at 83. In the "race to debase" sovereign currency the U.S. now leads Japan.
This morning is noteworthy not only because of gold & silver charge on but oil has finally re-established a positive relation with gold (see below). I don't like mid-$80/bbl oil but its lack of participation in the metals rally has been troubling. I wouldn't doubt some profit taking tomorrow across the commodity space after tomorrow's monthly Labor Report together with consolidation before the weekend.
Oil & Gold Correlation Go Positive
Oil/gold have had a negative 3-month correlation since May (5/11/10) - a bearish condition for metals & miners since oil, like copper, is a reliable proxy for global growth. The Report tracks oil/gold, copper/gold and copper/oil faithfully and reports their correlations in our weekly roundup on Monday mornings.
Here are the latest correlations given this morning's NYMEX/COMEX trading:
Oil/Au correlation +0.7736 (1-month) +0.0513 (3-month)
Cu/Au correlation +0.9634 (1-month) +0.8444 (3-month)
Cu/Oil correlation +0.7971 (1-month) +0.2152 (3-month)
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)
All three correlations being in positive territory for the short & near-term (1-month & 3-month) suggests a continuation of the metals rally although it is likely that we may see some pullbacks. A dollar short-covering rally (see note 1) or change in investor's expectation of further Federal Reserve quantitative easing could alter this picture. I'll stick with my prediction that copper sees $3.90/lb before Turkey-Day.
There goes another durn Thor thunderclap. Stay tuned, buckaroos.
Daily Market Roundup
Enough talk, let's walk the walk:
The Eureka Miner's Index(EMI) is above-par at 293.31, down slightly from yesterday's new record of 294.37 and a long way from the 6/7/10 low of 50.7. Today's number is above the lower trend level of 261.15 and very comfortably above support at 186.51. The 1-month moving average is 231.45. The previous 2010 record high for the EMI was 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.
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-$90s well 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 $0.76 in early trading at $83.99 (November contract, most active); Gold is up $9.3 to $1357.0 (December contract, most active); Silver is up $0.252 to $23.295 (December contract, most active); Copper is up $0.0090 to $3.7440 (December contract, most active)
Western Molybdenum Oxide is $15.00; European Molybdenum Oxide is $15.05; LME moly 3-month seller's contract is $15.42, LME cash seller is $15.20
Stock Market Morning Update
The DOW is down 4.28 points to 10963.37; the S&P 500 is down 0.72 to 1159.25. Miners are tired:
Barrick (ABX) $47.97 down 1.28%
Newmont (NEM) $63.43 down 1.99%
US Gold (UXG) $5.09 down 2.49%
General Moly (Eureka Moly, LLC) (GMO) $3.66 down 3.68%
Thompson Creek (TC) $10.85 down 1.72%
Freeport-McMoRan (FCX) $92.10 down 1.62% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are mixed (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $33.96 up 1.86% - global steel producer
POSCO (PKX) $119.96 down 0.42% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 1.28% to $1,561,127.31(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
(1) A U.S. dollar short-covering rally occurs when investors betting against the dollar in relation to other currencies get cold feet and pull their "short" bets off the table. Since the U.S. dollar index is dominated by European currencies (euro, pound sterling are 69.5%, throw in the Swiss franc and Swedish krona and you're up to 77.3%), any bad news from that neck of the woods could quickly reverse declines in our dollar.
Headline photograph by Colonel Possum