"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.

Tuesday, December 21, 2010

Copper, Oil, S&P New Highs - Where's Gold?

Morning Miners!

It is 6:08 AM. Nothing like a total lunar eclipse and the first day of Winter to bring in a new Tuesday - I'd say Sweet Ruby T out did herself. Grab a cup and enjoy one of her Christmas cookies on the tray. I like the silver frosted ones shaped like a Peterbilt 379 radiator grill...

General Moly Press Release

I posted this important General Moly press release in the afternoon for yesterday's blog. In case you missed it:

(2:16 PM PT, 12/20/10)

Copper & Oil set new Highs, Gold & Silver lag

The moon must have been pulling on our favorite metals in the early morning. COMEX copper was the first to rise setting a new record of $4.2895/lb at 5:30 a.m. PT. Supply concerns continue for the red metal after Chile's Collahuasi mine halted shipments and with a falling dollar supporting prices. COMEX Gold and silver followed copper 5 minutes later but fell short of their recent highs posting $1393/oz and $29.605/oz respectively.

It is important to note that copper led the charge ahead of the precious metals. My December copper/gold model indicates an amazing departure from the copper's fair value line (6.8 standard deviations). We would normally say that copper is extremely overvalued with respect to gold but in this case I'm tempted to turn the tables on gold.

Clearly copper is the value leader recently bolstered by supply tightness while gold continues to sell-off after intraday peaks. Some of this is end-of-the-year profit taking but Doug Kass of Seabreeze Partners Management sounded a more ominous warning yesterday on CNBC Business News. The ole Colonel tends to listen to Kass who called the S&P 500 bottom in 2009 but I am somewhat skeptical of his latest gold prediction. He claims that hedge funds will sell-off their gold holdings in 2011 to rotate into income producing assets as the world's economies pickup (gold does not generate income, it appreciates or depreciates in value). Kass sees a drop of at least $250/oz; at present levels this would get us down to $1135/oz territory. I'm sticking with my prediction that COMEX gold will see $1570/oz before the Fourth of July. I believe global currency instability, central banks and China retail sales will keep gold up for 2011. Stay tuned buckaroos.

This Report tracks NYMEX crude light oil on a daily basis and it stayed below its highs for the year so far today. However, it is important to note that front-month Brent crude on the ICE futures exchange hit a two-year high of $93.22. This may be a harbinger for higher oil prices as we enter the new year. This Report believes we will see $100/bbl oil before mid-year 2011.

The S&P 500 at the gate of the bull pasture

The broader markets are now open and the S&P 500 just broke the 1,251 level. Last March, I predicted that the S&P 500 would break 1,251 before Christmas, phew finally made it! (Still Fearless in 2010? The Colonel's Market Prediction, 3/19/2010). On the 14th of this month we talked about why this is important:

"The S&P 500 moving above the 1,250 level has some significance. Before the so-called 'Great Recession', the S&P 500 closing high was set 10/9/2007 at a lofty 1,565.15. Technically we entered a bear market when the index fell 20% from this peak or 1,252. That occurred in September 2008 as the collapse of Lehman Brothers accelerated the financial crisis. The market bottom followed on March 6, 2009 for an intraday low of 666.79. We've come a long way from the bottom of that canyon buckaroos."

Here we are at the gate of the S&P 500 bull pasture, time to head in or return to bear country? You know me, I'm an optimist until proved wrong!

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

The Eureka Miner's Index(EMI) is above-par at 697.07, down slightly from yesterday's 705.78. The 1-month moving average is 567.89. The 2010 record high for the EMI is 739.13 set 12/7/2010; the low was set 6/7/2010 at 50.7. An EMI greater than 100 signals better times for the metals & miners relevant to Eureka County, the EMI re-established an upward trend on Friday, 12/3.

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

Eureka Outlook Dashboard

4-WD is OFF - Markets are stable; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in the low-$100s above its 200-day average of $79.39 (our new warning level, 12/06 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

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 Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

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 down $0.22 in early trading at $89.15 (February contract, most active); Gold is down $0.9to $1385.2 (February contract, most active); Silver is down $0.185 to $29.170 (March contract, most active); Copper is up $0.0675 to $4.2735 (March contract, most active)

Western Molybdenum Oxide is $16.00; European Molybdenum Oxide is $16.30; LME moly 3-month seller's contract is $15.88, LME cash seller is $15.74

Stock Market Morning Update

The DOW is up 33.12 points to 11,511.25; the S&P 500 is up 4.25 to 1251.33. Miners are mixed:

Barrick (ABX) $51.47 down 0.81%
Newmont (NEM) $59.61 down 0.96%
US Gold (UXG) $7.27 down 1.36%
General Moly (Eureka Moly, LLC) (GMO) $5.44 up 0.55%
Thompson Creek (TC) $13.41 up 0.37%
Freeport-McMoRan (FCX) $114.60 up 0.49% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $38.52 down 0.21% - global steel producer
POSCO (PKX) $106.97 up 4.65% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is unchanged at $1,841,497.75 (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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