"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.

Friday, October 8, 2010

The Report Says ‘Happy Trails’ until November


“Copper remains hot, so far staying above $1.80, 2-bucks here we come.” Eureka Miner’s Market Report, 3/23/2009

“General Moly (GMO) opened up over 5% today with an intraday high...of $1.32. That's more than a 100% gain from its March 2 close of $0.64. Over one million shares traded yesterday. Somebody loves us. Yee-ha!” Eureka Miner’s Market Report, 3/25/2009

“Predicting the price of gold is a fool's errand but the ole Colonel is at least a happy fool...I'm sticking with my beer bet: Gold sees $929 before $844 on or before 5/15/09” Eureka Miner’s Market Report, 4/15/2009

“...Eureka sits at the crossroads of gold and molybdenum. Hell, I'm still bullish on both. Let's rock the clock!” Eureka Miner’s Market Report, 4/26/2009

*** BREAKING NEWS *** General Moly (GMO) broke $4.00/share this morning for an intraday high of $4.10 on high volume. The surge started at 11:39 ET and continued to 11:47 ET

GENERAL MOLY ANNOUNCES HANLONG'S RECEIPT OF KEY CHINESE GOVERNMENTAL APPROVAL

*** BREAKING NEWS *** COMEX copper hit a new high $3.8015/lb at 11:00:00 ET


Morning Miners!

It 1s 5:41 AM. Scott Raine dropped by some of his new Trail Blazer TGIF Coffee last night - hang on to your hat, pardner. The Report will be saying "Happy Trails" until sometime before Turkey-Day. The ole Colonel is traveling down to Louisiana to pickup his sweetheart and plans to return to Eureka in November. Loquita will be riding shotgun.

It's been an exciting 19-month ride with 375 market reports under our belt (The Report archive is on you right toward the end of the blog page). We stared a market commentary tailored for the mining interests of Eureka County just two weeks after the S&P 500 pegged its closing bottom of 676.53 (3/9/2009). It was a tough long pull from the depths of Great Recession Canyon as evidenced by the headline quotes from the early reports. Gold was then in the high-$800s; now, we get excited if we fall a few dollars from the mid-$1300s. General Moly had fallen to penny-stock levels, next summer fully-funded Mt. Hope mine construction begins.

Hopefully, a few more folks are aware of what goes on out here in the heart of North American gold country with a promising future in strategic minerals. Every state and territory in the Union has dropped by the break room at one time or the other along with 81 countries from as far away as Australia and Kazakhstan. We'll saddle up soon and get ready for a new ride into 2011. Thank you for your questions,contributions and support.

Monthly Jobs Report Down - Gold Up, Metals & Miners Up

I watched the release of the U.S. Labor Department monthly jobs report this morning on CNBC Business News. It was interesting because the Federal Reserve Bank of St. Louis President, James Bullard, was there to offer his comments on the data. Mr. Bullard is the most vocal proponent for additional quantitative easing (QE) by the Fed (loosely, this means print more money).

The report showed fewer jobs in September than expected, with private payrolls adding only 64,000 jobs and overall non-farm payrolls falling by 95,000. The unemployment rate remains at 9.6%. Mr. Bullard commented that the growth in private jobs was the most important number and not too different from what he expected. He needed to "plug that number into the models" and review the details of the report.

No doubt his comments only added to the market's expectation that the Federal Reserve will commence QE in November after the elections. Both London spot and COMEX gold went up then down then up again on the report.



In the strange calculus of further Fed action, the dollar fell to a new 15-year low on the yen (82.20, below the last Japanese intervention at 83) and the metals & miners rallied as the broader markets opened. The Eureka Miner's Index(EMI) just set a new record for 2010 breaking 300 at 310.24. Bellwether miner Freeport-McMoRan (FCX) is hitting new highs not seen since August, 2008.

What's Next for Gold?

My favorite gold and metals analyst, Jim Wyckoff, gave a good summary of what may lie ahead for gold after yesterday's sharp reversal:

P.M. Kitco Metals Roundup: Comex Gold Hit With Profit-Taking; Near-Term Technical Damage if More Selling Pressure Friday
(Jim Wyckoff, Mineweb, 10/7/2010)

Thursday's gold and oil futures had an "outside day" down which means higher-highs, lower-lows followed by a lower close than the previous day. It was a real whipsaw with gold moving nearly $40 between ups and downs:

COMEX gold

9/6 1351.0 (high) 1340.0 (low) 1347.7 (close)
9/7 1366.0 (new record) 1326.5 (low) 1335.0 (close)

NYMEX oil

9/6 84.09 (high) 82.29 (low) 83.23 (close)
9/7 84.43 (new high since 5/10) 81.00 (low) 81.40 (close)

Outside days can indicate a top especially if today's close confirms yesterday's action as a "key reversal." So far things are looking up with COMEX gold presently trading at $1357.0/oz and NYMEX oil at $81.84/bbl. We'll just need to wait and see. My horse sense tells me that gold will pause some this month and then head north on the heels of QE and a falling dollar.

On Monday, The Report picked a nominal gold price of $1320/oz for this month. Although this estimate may be a bit low in light of today's events, it does not preclude copper from hitting $3.90/lb. If gold moves higher, it is possible that copper can re-enter $4/lb territory. If FCX holds up and oil prices stay above $80/bbl, I'm optimistic going into November.

Oil & Gold Correlation Remains Positive

Before the ole Colonel heads for the door, let's update our correlations one last time. Yesterday we noted that oil and gold were back in the saddle breaking a negative 3-month correlation that began in May (5/11/10). This change is a bullish condition for metals & miners as long as oil prices don't rise too much higher. 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 which will resume in November.

Here are the latest correlations given this morning's NYMEX/COMEX trading:

Oil/Au correlation +0.7808 (1-month) +0.1007 (3-month)
Cu/Au correlation +0.9609 (1-month) +0.8619 (3-month)
Cu/Oil correlation +0.8054 (1-month) +0.2529 (3-month)

Monday's numbers:

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 remain in positive territory for the short & near-term (1-month & 3-month) suggesting 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.

Happy trails to you, until we meet again.
Happy trails to you, keep smilin' until then.
Who cares about the clouds when we're together?
Just sing a song and bring the sunny weather.
Happy trails to you, 'till we meet again.

Some trails are happy ones,
Others are blue.
It's the way you ride the trail that counts,
Here's a happy one for you.

Happy trails to you, until we meet again.
Happy trails to you, keep smilin' until then.
Who cares about the clouds when we're together?
Just sing a song and bring the sunny weather.

Happy trails to you, 'till we meet again.

(Lyrics, Dale Evans Rogers)

Daily Market Roundup

Enough singing, let's walk the walk:

The Eureka Miner's Index(EMI) is above-par atand sets a hew high for 2010 of 310.24, up from yesterday's 293.31 and a long way from the 6/7/10 low of 50.7. Today's number is above the lower trend level of 265.08 and very comfortably above support at 186.51. The 1-month moving average is 235.36. The previous 2010 record high for the EMI was 294.37 set Wednesday, 10/6/2009. 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 $0.17 in early trading at $81.84 (November contract, most active); Gold is up $5.4 to $1340.4 (December contract, most active); Silver is up $0.171 to $22.755 (December contract, most active); Copper is up $0.0535 to $3.7330 (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 $15.24

Stock Market Morning Update

The DOW is up 17.25 points to 10965.83; the S&P 500 is up 1.70 to 1159.76. Miners are QE happy, except for Newmont:

Barrick (ABX) $47.92 up 0.50%
Newmont (NEM) $62.94 down 0.14%
US Gold (UXG) $5.12 up 1.39%
General Moly (Eureka Moly, LLC) (GMO) $3.70 up 0.82%
Thompson Creek (TC) $10.92 up 1.58%
Freeport-McMoRan (FCX) $93.30 up 2.11% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $34.62 up 2.06% - global steel producer
POSCO (PKX) $118.94 down 1.01% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.84% to $1,566,472.96 (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

(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 Mariana Titus

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