"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.

Wednesday, December 22, 2010

Copper Stalls, Gold Sleeps, Euro Moly on the Rise



Wōdnesdæg
Morning Miners!

It is 6:15 AM. Have a cup of last-minute-shopping java and don't be surprised to see Old Miner Woden ho-ho-ing down Main Street. He's all dressed up like Santa and headed to Raine's to buy something for his sweetheart. He didn't tell me who but I understand things have been pretty lively in senior housing since he moved in last week...

Copper Stalls

If you can explain copper's latest mysteries, you can probably predict what's in store for the metals & miners next year. Yesterday the S&P 500 passed pre-Lehman Brothers highs and COMEX copper set yet another record late in the day at $4.2960/lb. We have supply tightness, mining strikes in Chile and persistent hoarding rumors to keep the red metal center stage in a rapidly evolving drama in the base metals. "Is it real or is it Memorex?" as the old ad line used to go.

The Wall Street Journal broke unusual goings on at the London Metal Exchange (LME) earlier this month (Rustler's Moon) and has another bombshell this morning. Carolyn Cui & Andrea Hotter tell us that:

"...a single trader has reported it owns 80%-90% of the copper sitting in London Metal Exchange warehouses, equal to about half of the world's exchange-registered copper stockpile and worth about $3 billion." (WSJ, 12/21/2010)

Earlier it was reported that J.P. Morgan held a substantial position for its clients. Surprisingly these large holdings extend to other base metals:

"Single traders also own large holdings of other metals. One trader holds as much as 90% of the exchange's aluminum stocks. In the nickel, zinc and aluminum alloy markets, single traders own between 50% and 80% of those metals, and one firm has 40%-50% of the LME's tin stockpiles." (WSJ, 12/21/2010)

It is suspected that investor's are increasingly turning to metals as an alternative asset class for investment and this may explain these large holdings. For example, a copper exchange traded fund will soon be launched backed by physical holdings of the red metal. What will this do to base metal prices? Stay tuned.

Bloomberg's Maria Kolesnikova in Moscow provides more pieces to the copper puzzle with further details on the Collahuasi copper mine strike and recent the rise in LME inventories:

Copper Fluctuates in London Before U.S. Growth Report, as Stockpiles Gain (Maria Kolesnikova, Bloomberg News, Dec 22, 2010 4:36 AM PT)

Below is a chart of the continued uptick in LME copper inventories, you may remember that they have been in nearly constant decline since the early year highs of 550,000 metric tons:



In early trading, copper price futures appear to be taking a breather as traders digest the up-revision to U.S. GDP for the third quarter; 2.6% versus the last reported 2.5%. It still falls below economist's expectation of 2.9%. Meanwhile, inflation is milder than expected. The government's price index for personal consumption showed a 0.8% rise July through September, compared to a previously estimated 1.0% increase. Stay tuned.

Gold Sleeps

The Report has also been less than impressed by the lackluster performance of gold lately especially in relation to copper and oil. Yesterday, we pointed to a statistically dramatic departure of copper and gold prices (nearly 7-standard deviations from the Colonel's fair value line for December). Today NYMEX oil broke the $90/bbl level chasing Brent crude that topped it yesterday. With oil and copper on a tear, COMEX gold has been sleep-walking in the $1,380/oz neighborhood for most of this week. Below are the 3-month of COMEX copper versus NYMEX oil and COMEX gold.

First, copper (blue) versus oil (orange):



Note that for the most part copper and oil prices have risen together - copper moving up 20%; oil, 14%. Now here is copper (blue) versus gold (orange).



Although over this 3-month period copper and gold initially rose together, gold essentially flat-lined for December as copper spiked higher. For copper's 20% move over this period, gold has only come up 7%.

Euro Moly Oxide on the Rise

European molybdenum oxide nudged up another 15 cents to $16.45/lb. Although these are small steps, they have been fairly constant for euro-moly which is now just a thin flat washer above the LME 15-month futures contract at $16.42/lb. The backwardation (see note 1) with respect to the 3-month contract is more noticeable which has stayed at $15.88/lb for some time. By comparison, Western moly oxide has been pretty steady at $16.00/lb.

Although not dramatic the latest spot and futures prices suggest healthy near term demand and long term stability - not a bad place to be in these volatile days for the other industrial metals.

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 704.16, up slightly from yesterday's 697.07. The 1-month moving average is 581.45. 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 ORANGE light is turned on our Fuel Gauge with oil above $90

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 $0.46 in early trading at $90.28 (February contract, most active); Gold is up $0.8 to $1389.6 (February contract, most active); Silver is down $0.019 to $29.375 (March contract, most active); Copper is down $0.0115 to $4.2645 (March contract, most active)

Western Molybdenum Oxide is $16.00; European Molybdenum Oxide is $16.45; LME moly 3-month seller's contract is $15.88, LME cash seller is $15.74

Stock Market Morning Update

The DOW is up 4.35 points to 11,537.51; the S&P 500 is up 2.30 to 1256.90. Miners are down except for Freeport:

Barrick (ABX) $51.47 down 0.41%
Newmont (NEM) $59.82 down 0.37%
US Gold (UXG) $7.52 down 0.79%
General Moly (Eureka Moly, LLC) (GMO) $5.53 down 1.07%
Thompson Creek (TC) $13.45 down 0.52%
Freeport-McMoRan (FCX) $116.43 up 0.20% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.95 down 0.55% - global steel producer
POSCO (PKX) $106.86 down 0.28% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.35% at $1,860,732.52 (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

Note 1 - Contango occurs when the price of a commodity for future delivery is higher than the spot price, or a far future delivery price is higher than a nearer future delivery; backwardation is the opposite of contango.

Headline photograph by Mariana Titus

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