Thursday, December 2, 2010
A Rustler's Moon - LME Copper, Treasurys & U.S Gold (UXG)
It is 5:59 AM. Grab a cup and it's time to scratch our heads on a few curiosities this morning. Our favorite Norseman Thor told me he cranked up the day with a Rustler's Moon in the morning sky - a lunar sliver with just enough light to poach the herd but not enough to be seen by wary eyes. Happy "Thor's Day."
A Copper Rustler in the Market?
Yesterday we looked at the remarkable decline in copper inventories at the London Metal Exchange from early March to the present (a greater than 35% drop to today's level of 355,750 tonnes). This and a market condition called "backwardation" where nearby copper trades above longer-dated contracts is considered generally bullish for copper price in a supply-restricted market. Real global demand and strikes at the Anglo American Plc and Xstrata Plc’s Collahuasi copper mines have contributed to this condition. This is all great supply & demand market dynamics but there may be another factor in the mix. The Wall Street Journal ran an interesting piece this morning on a suspected "mystery buyer" who may own between 50%-80% of the remaining LME copper inventory:
At London Metal Exchange, Mystery Buyer Holds Bulk of Copper (TATYANA SHUMSKY and CAROLYN CUI, Wall Street Journal, 12/02/2010)
The reason behind this holding valued at some $1.5 billion is unknown but it is considered large enough to potentially influence the copper market. The ole Colonel has put a question into London and will keep you posted on any new insights coming my way. Copper has been our faithful canary in the global recovery mineshaft for many months, I don't want anyone anybody ruffling her feathers!
10-Year Treasury yield rises above 3.0%
Yesterday's impressive rally in the broader markets and mining sector (S&P 500 up 2.2%, Eureka Miner's Grubstake Portfolio up 2.6% to $1,776,902) has drawn money out of Treasurys causing a rise in yields (bond yields move in an inverse relation to price). The benchmark 10-year Treasury yield is presently above 3% at 3.005%. This is an important threshold since this report includes the 10-year rate in the calculation of the Eureka Miner's Index(EMI). A low interest rate environment is considered beneficial to miners unless the 10-year falls below 3% which may signal trouble ahead in the bond markets. Today's move is seen as a positive with the mining sector rally continuing a second day.
U.S. Gold (UXG) breaks $7
This report's favorite junior miners are General Moly (GMO) and U.S. Gold (UXG) which both have considerable interests in Eureka County; the Mt. Hope molybdenum project for the former and gold properties on the Eureka-Carlin trend for the latter. Yesterday U.S. Gold had another pop up surging nearly 35% in share price over the last 30 days. In early trading today UXG broke $7/share. In a race for impressive returns, U.S. Gold is closing fast on General Moly with both posting close to a 130% rise in share price over a 1-year period (GMO, 135%; UXG, 125%):
This report has often said (based on nothing more than the seat of the Colonel's britches) that U.S. Gold may be in the cross-hairs of one of our major miners. Stay tuned, it's great to have two rising stars with a footprint inside our County boundaries (U.S. Gold also has promising gold/silver prospects in Mexico).
Daily Market Roundup
Enough talk, let's walk the walk:
Eureka Miner's Index (EMI)
The Eureka Miner's Index(EMI) remains above its 1-month average on day two of a mining sector rally. The EMI is above-par at 587.70, up from yesterday's 533.85. The 1-month moving average is 473.93. The 2010 record high for the EMI is 661.28 set 11/9/2010; the low was set 6/7/2010 at 50.7. Although an EMI greater than 100 signals better times for the metals & miners relevant to Eureka County, the EMI reversed its upward trend after the November 9th high.
Eureka Outlook Dashboard
4-WD is OFF - Improving conditions in the marketplace; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is in the low-$100s above its 200-day average of $75.91 (our new warning level, 11/01 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 $0.20 in early trading at $86.55 (January contract, most active); Gold is up $2.1 to $1390.4 (February contract, most active); Silver is up $0.067 to $28.480 (March contract, most active); Copper is down $0.0020 to $3.9455 (March contract, most active)
Western Molybdenum Oxide is $15.75; European Molybdenum Oxide is $16.20; LME moly 3-month seller's contract is $16.19, LME cash seller is $15.94
Stock Market Morning Update
The DOW is up 75.68 points to 11331.46; the S&P 500 is up 9.37 to 1215.44. Miners are mostly happy:
Barrick (ABX) $53.06 up 1.18%
Newmont (NEM) $60.16 up 0.85%
US Gold (UXG) $6.96 unch ($7.11 day high)
General Moly (Eureka Moly, LLC) (GMO) $5.42 down 0.55%
Thompson Creek (TC) $13.09 up 1.71%
Freeport-McMoRan (FCX) $107.35 up 1.76% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are happy too (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $33.64 up 1.26% - global steel producer
POSCO (PKX) $102.61 up 1.98% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.60% to $1,787,509.36 (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
Headline image - "Rustler's Moon" a Larry Edgar painting of Jack Bliss, a notorious rustler, who operated in Northern Wyoming in the early 1890s. He was a product of the economically depressed area, caused by the severe winter of 1886-1887 and took to the outlaw trail like many cowboys of that era.