"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.

Monday, January 31, 2011

Oil & Gold Retreat, Copper Strong - Metals & Miners Weekly Roundup



*** BREAKING NEWS *** NYMEX oil and COMEX gold reversed their descent at 09:30 AM ET. Oil has moved up to $92.43/bbl and gold to $1331.5/oz by 11:15 AM PT


Morning Miners!

It is 5:57 AM. Happy Lunar New Years (well almost, Thursday is the new moon)! Have a cup of Monday brew and let's see how we're closing out January before the Year of the Rabbit...

Oil & Gold Retreat, Copper Strong

Both oil & gold got a nice pop Friday on the deteriorating conditions in Egypt but have since retreated in early Monday trading. Dennis Gartman, the "Commodity King" and author of the respected Gartman Letter, told CNBC Business New that the Egypt and the possibility of trouble spreading in the region may have put a bottom in falling gold prices. Here is a link to his Friday interview on both commodities:

Dennis Gartman on Egypt, Oil & Gold (CNBC Business News, 1/28/2011)

NYMEX Oil broke $90 over the weekend but has since fallen back to $89.38/bbl. COMEX Gold dipped all the way to $1,309.10/oz before rallying Friday on the Egypt news. It couldn't quite break the $1,350/oz level and is now trading slightly above the Colonel's January "low ball" price of $1,320/oz at $1,326.7/oz. Reuters Amanda Cooper gives a nice summary of gold's ups and downs over the weekend:

Gold rally slips as safe-haven buying wanes (Amanda Cooper, Reuters, 01/31/2011)

Through all of this, and it is far from over, COMEX copper has remained strong trading at $4.4175/lb this morning. Bloomberg's Glenys Sims gives us an early morning wrap up on the red metal:


Copper Set for Seventh Monthly Gain on Demand Outlook, Inflation (Glenys Sim, Bloomberg News,01/31/2011, 12:40 AM PT)

Thursday is the first day of the Chinese New Year and we should see what their metal traders will be buying as they return from holiday. The Chinese New Year, further development of events in Egypt and Friday's monthly labor report should be enough news to keep our metals molten. Stay tuned.

Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line is the EMI with a low interest cap of 3% on 10-year Treasurys (LIRC) and adjustments for gold and silver prices (i.e., Au:Ag ratio). A 1-month moving average is given by the blue line. A larger and more readable chart appears near the bottom of this blog page.


This morning the Eureka Miner's Index(EMI) is above-par at 471.91, up from Friday's 447.91. We are below the 1-month moving average of 632.27 and the the EMI is now trending down from the high set on January 4th.

The 2011 record high for the EMI is now 816.78 set 01/04/2011; the 52-week low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners relevant to Eureka County.

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.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners. With supply and demand fundamentals driving the commodity space, diminishing correlations between key commodities are less alarming but trends should still be carefully monitored.

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

Oil/Au correlation +0.0.6964 (1-month) +0.4173 (3-month)
Cu/Au correlation +0.4981 (1-month) +0.0844 (3-month)
Cu/Oil correlation +0.5874 (1-month) +0.8662 (3-month)

Here are the numbers from the last roundup (01/24/2011):

Oil/Au correlation +0.4768 (1-month) +0.5857 (3-month)
Cu/Au correlation +0.3597 (1-month) +0.4024 (3-month)
Cu/Oil correlation +0.3542 (1-month) +0.9193 (3-month)

All these correlations remain positive which is a typically a bullish condition for the metals & miners but some bearish trends continue. The 3-month correlation of copper & gold continues to weaken threatening an inversion (i.e negative correlation) and copper exhibits a very over-valued state with respect to gold (5.3-standard deviations above the new January model "fair vale" line). This updated chart of copper versus oil shows just how out-of-whack these two metal prices are tracking (yellow line most recent data - a larger and more readable chart apppears near the bottom of this blog page):



Though less severe, oil and gold are showing divergence also in their 3-month numbers. Oil is presently overvalued with respect to gold by 4.5-standard deviations. The 3-month correlations of copper & oil remains have fallen below 0.9 suggesting copper and oil price correlation is starting to weaken. Copper is presently overvalued with respect to oil by 3.3-standard deviations.

One way to visualize these correlations over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations (aka "rho") as shown below in a graph of oil versus gold and copper versus gold. The blue line indicates the correlation trajectory since October 1st; the magenta line is recent data since December 1st (ref: China to the Rescue?):



In the case of oil versus gold, we start out on 10/1/10 in the "+,-" or "yellow" quadrant and move upward until both are positively correlated (i.e. in the "+,+" or "green" quadrant). Copper correlated positively faster than oil and has been in the green quadrant for this entire period. Correlation data in this region is typically considered bullish. The trend toward the "-,+" quadrant for oil has reversed which is bullish (white arrow), but the decline in both copper and oil 3-month correlations with gold is bearish (i.e. arrow points down).

Gold/Oil, Oil/Copper & Gold/Copper Ratios

The Report has been tracking the stability of the gold/oil, oil/copper & gold/copper ratios. Although they ended last year rock solid (<3% variation, 1-standard deviation/mean) the ratios continue to diverge. This is what prompted my January 14th comment to Adella Harding, Elko Daily Free Press, "The recent divergence of our lustrous friend [gold] from copper and oil...may signal a near-term correction for the overall metals and mining sector.".

Here is a plot of the variation for both ratios as well as the copper/oil ratio (a larger and more readable chart is given at the bottom of the blog page):



Once the ratios exceed 3% error, they become less useful in predicting the price moves of one commodity with respect to another in the ratio pair.

For the past 3-months we have these statistics given this mornings' numbers:

Au/Oil ratio

mean 15.70 bbl/oz
variation > 3.0% limit at 3.24% (1-standard deviation/mean)

Oil/Copper ratio

mean 21.29 lbs/bbl
variation > 3.0% limit at 3.02% (1-standard deviation/mean)

Au/Copper ratio

mean 334.53 lbs/oz
variation > 3.0% limit at 5.80% (1-standard deviation/mean)

Weekly Molybdenum Roundup



Spot prices for molybdenum oxide remain in $17/lb territory out West and in Europe. Moly futures are in a mild contango between spot prices and the London Metal Exchange (LME) 3-month and 15-month contracts (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).

The 3-month seller at $17.69/lb is comfortably above the Colonel's mid-range moly price target for 2010 of $15.71/lb but below my target of $20.21/lb for 2011. The Report will give moly prices a "yellow-green" light on the Eureka Outlook Dashboard for now because I do believe we could see much higher prices this year.

A faithful reader sent this excellent link on molybdenum price outlook. CPM Group is estimates an average price of $21.75/lb up slightly from my mid-range target of $20.21/lb:

MOLYBDENUM FOCUS - Molybdenum to average $21.75/lb in 2011 - CPM Group (Mark Shaw, FastMarkets, 1/21/2011)

Here is a detailed pricing summary for last week:

Western Moly Oxide $17.00/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.50/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $37300/metric ton $17.51/lb

3-Month (Buyer) $37,000/metric ton $16.78/lb
3-Month (Seller) $39,000/metric ton $17.69/lb

15-Month (Buyer) $38,200/metric ton $17.32/lb
15-Month (Seller) $40200/metric ton $18.23/lb

Here is a chart of the LME 3-month contract (seller) from the February launch to the present:


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is OFF - Markets are stable but caution is in the air; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 50-day moving average of 111.35 (1/24/11) but still well above its 200-day average of $83.07 (our new warning level, 01/05 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 up $0.04 in early trading at $89.38 (March contract, most active); Gold is down $15.00 to $1326.7 (April contract, most active); Silver is down $0.074 to $27.845 (March contract, most active); Copper is up $0.0445 to $4.4175 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.69, LME cash seller is $17.51

Stock Market Morning Update

The DOW is up 4.17 points to 11,827.87; the S&P 500 is up 2.79 to 1279.13. Miners are up except for US Gold:

Barrick (ABX) $47.37 up 0.15%
Newmont (NEM) $55.22 up 0.40%
US Gold (UXG) $6.56 down 0.12%
General Moly (Eureka Moly, LLC) (GMO) $5.07 up 0.20%
Thompson Creek (TC) $13.49 up 0.45%
Freeport-McMoRan (FCX) $108.48 up 2.18% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.55 up 1.30% - global steel producer
POSCO (PKX) $101.09 up 0.59% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.62% at $1,771,734.25 (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

Headline photograph by Mariana Titus

Friday, January 28, 2011

Gold & Silver Struggle, Copper Strong, Miss Moly Contangos


*** BREAKING NEWS **** 9:57 AM PT Trouble in Egypt just bounced COMEX gold price $20.4 to $1340.2/oz. Dennis Gartman is now a buyer of gold, the ole Colonel just packed a little dust.


Morning Miners!

It is 5:53 AM. Have a welcome cup of Raine's Red Label TGIF. Our heroes are sitting around the wood stove trying to warm up after a daring rescue. Thor found Ruby and Old Miner Woden high-centered on the north-west side of Lone Mountain by the old hot spring. They'd tried to make a run for 3-Bar Road but got stuck in the muck. Old Thor used a #7 thunderbolt to dry out the earth beneath her pickup and the three stumbled in just past midnight. The precious metals were doing a little stumbling at that hour too...

Gold, silver stumble then recover, copper stays strong

Gold hit a low note of $1,310.10/oz just after the clock struck midnight in COMEX country. The most active COMEX contract is now April for the glitter that's lost its shine. Silver followed gold down plumbing $26.58/oz in the wee hours. Both gained some courage and struggled back to very near the Colonel's January "low ball" estimate of $1,320/oz for gold at 1,319.9/oz and a more respectable $27.285/oz for silver.

Here is how gold and silver moved across the pond on the The London spot market:




The precious metals wish they had the zip of their base metal friends. Copper rose for a third day and tin shattered records for a fifth consecutive day at the London Metal Exchange. Some of the lift for the metals can be attributed to a healthy rise in U.S. gross domestic product (GDP). The U.S. is the second largest consumer of the red metal::

Copper Rises for Third Day as U.S. Economic Growth Strengthens (Dan Weeks, Bloomberg London, 01/28/2010 6:01 AM PT)

The Commerce Department reported the GDP, the broadest measure of all the goods and services produced, rose at an inflation-adjusted annual rate of 3.2% in the fourth quarter. This brings us back to pre-recession levels of growth. Not too bad.

Newmont's CEO Richard O'Brien is bullish on gold prices going forward. He told Reuters at the World Economic Forum in Davos that he expects gold prices to hit $1,400 to $1,500 an ounce this year and possibly $2,000 in the future. My kind of guy. Here is the complete Reuter's report:

Hedging and demand will push up gold, says Newmont (Reuters, 01/28/2010)

This is all fine and good but the divergence of base metal and gold prices is still very disturbing and may signal there is more pain before gain in the metals & mining sector. For example, gold and copper have now moved in the same direction less than 15% of the time over the last 3-months. The price de-correlation has been most severe since gold's 12/7/2010 high. In contrast, the 3-month correlation was at greater-than 90% levels between mid-October to early December when the miners enjoyed a robust rally.

My comment to Adella Harding on January 14th still applies from my viewpoint:

"I believe that copper and oil cannot continue to rise on falling gold. The recent divergence of our lustrous friend from copper and oil and the uncharacteristic resilience of silver compared to gold's weakness may signal a near-term correction for the overall metals and mining sector.." (Adella Harding article "Gold prices end week down", Elko Daily Free Press, 01/14/2011)

Miss Moly Contangos

To leave Friday on a positive note, molybdenum continues to trend up with recent moves in spot and futures pricing. Here is a nice textbook "contango" for our favorite minor metal:

Western Moly Oxide spot price: $17.00/lb
European Moly Oxide spot price: $17.50/lb
LME cash seller: $17.51/lb
LME 3-month seller's contract: $17.69/lb
LME 15-month seller's contract: $18.23/lb

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.

More on this bright and early Monday, have a good weekend.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 564.90, down from yesterday's 570.62. We are below the 1-month moving average of 648.02 and the the EMI is now trending down from the high set on January 4th.

The record high for the EMI is 816.78 set 01/04/2011; 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.

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 ON - The metals & miners have hit a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 50-day moving average but still well above its 200-day average of $83.07 (our new warning level, 01/05 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 up $1.23 in early trading at $86.87 (March contract, most active); Gold is up $0.1 to $1319.9 (April contract, most active); Silver is up $0.254 to $27.285 (March contract, most active); Copper is up $0.0055 to $4.4085 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.69, LME cash seller is $17.51

Stock Market Morning Update

The DOW is up 12.98 points to 11,998.42; the S&P 500 is up 2.42 at 1299.05. Miners are mixed:

Barrick (ABX) $46.47 up 0.22%
Newmont (NEM) $55.04 down 0.60%
US Gold (UXG) $6.33 down 0.31%
General Moly (Eureka Moly, LLC) (GMO) $5.31 down 1.12%
Thompson Creek (TC) $13.64 down 0.51%
Freeport-McMoRan (FCX) $106.51 down 1.07% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.28 down 0.75% - global steel producer
POSCO (PKX) $103.57 down 0.85% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.43% at $1,764,774.88(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

Headline photograph by Mariana Titus

Thursday, January 27, 2011

Easy Money, Easy Times for Miners?



Þūnresdæg
Morning Miners!

It is 6:17 AM. Grab a cup of search and rescue coffee. I just sent our favorite Norseman Thor out to Lone Mountain to look for Ruby and Old Miner Woden. Those two took off yesterday to check on Woden's claim and haven't been seen since. I'll bet they got stuck in the flats. If we don't hear back from Thor we may be headed for a short one next week without a Tuesday, Wednesday or a Thursday! In the meantime, have a happy "Thor's Day!" Speaking of search and rescue how are the metals & miners doing today?

Easy Money, Easy Times for Miners?

Yesterday the Federal Open Market Committee (FOMC) voted unanimously to push ahead with its controversial $600-billion asset purchase program. With the Fed's target interest rate expected to remain near-zero for a long time to come there are a lot of easy dollars floating around the globe. In contrast, the European Central Bank is signaling they may be forced to increase key rates to counter rising inflation. This possibility coupled with declining fears about Europe's sovereign debt crisis have boosted the euro and sent the U.S. dollar index down the mineshaft. Easy money plus falling dollar sends commodity prices ever higher.

On the day after the DOW Jones broke the psychologically important level of 12,000 it is reasonable to wonder why the miners haven't joined the party lately with rising stock markets and inflated commodity prices. The ole Colonel thought it might be interesting to look at the broad commodity index or CRB, the S&P 500 and our bellwether miner Freeport-McMoRan (FCX) over the last six months. The comparison may surprise you.

August 2, 2010

CRB 274.71
S&P 500 1125.86
FCX $74.8/sh

Yesterday, January 26, 2011

CRB 333.83 up 21.2%
S&P 500 1296.63 up 15.2%
FCX $110.32/sh up 47.5%

Say, that's a pretty impressive move by Freeport. Over the same 6-month period COMEX copper prices have risen 26.0%, a little better than the overall commodity index rise of 21.2%. Copper giant Freeport-McMoRan has risen a jaw-dropping 47.5%, nearly twice the rise in copper and more than three times the move up in the S&P 500.

On the 12th of this month, FCX hit an intraday high of $122.69 or 64% above its early August price. It has corrected down 10% since but still posts the strong performance numbers given in our table.

What's your point Colonel? I believe, as the data shows, the miners just got a little bit too far ahead of the pack and are presently undergoing an overdue market correction. As we pointed out yesterday, bellwether Freeport is struggling with its 50-day moving average (today, $111.56) but is still well above the 150-day at $90.71. Unless we fall into the nineties, I continue to maintain that the mining sector will regain momentum this spring and rise again with inflating metal prices.

What a minute, what about gold miners? I think gold will regain its mojo too. We got pretty close to my "low ball" estimate of $1320/oz for January on the 25th when prices dropped to $1321.90/oz. This morning we're back up to $1334.2/oz and most of the gold miners had a nice pop yesterday - junior miner U.S. Gold (UXG) jumped 12.5%. I'm sticking to my guns with my prediction of $1570/oz before the Fourth of July. If FCX drops into the low-nineties we may have to re-calibrate some of my expectations for the mining sector. Stay tuned.

Daily Market Roundup

Enough hollering, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 570.62, up from yesterday's 492.46. We are below the 1-month moving average of 652.44 and the the EMI is now trending down from the high set on January 4th.

The record high for the EMI is 816.78 set 01/04/2011; 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.

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 ON - The metals & miners have hit a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 50-day moving average but still well above its 200-day average of $83.07 (our new warning level, 01/05 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 $0.34 in early trading at $86.99 (March contract, most active); Gold is up $1.2 to $1334.2 (February contract, most active); Silver is up $0.472 to $27.600 (March contract, most active); Copper is up $0.0790 to $4.3460 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.92

Stock Market Morning Update

The DOW is up 12.98 points to 11,998.42; the S&P 500 is up 2.42 at 1299.05. Miners are mixed:

Barrick (ABX) $47.34 down 0.96%
Newmont (NEM) $56.54 down 0.89%
US Gold (UXG) $6.46 down 1.52%
General Moly (Eureka Moly, LLC) (GMO) $5.60 down 0.18%
Thompson Creek (TC) $13.91 down 0.22%
Freeport-McMoRan (FCX) $110.34 up 0.02% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.92 down 0.78% - global steel producer
POSCO (PKX) $105.53 down 0.91% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.42% at $1,803,386.68(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

Headline photograph by Mariana Titus

Wednesday, January 26, 2011

Who Knows What Evil...? Freeport Knows!


*** BREAKING NEWS **** The DOW Jones 30 Industrial Average crested the psychologically important 12,000 level at 7:13 AM PT

"Who knows what evil lurks in the hearts of men? The Shadow knows!" The Shadow radio program (1930s)


Wōdnesdæg
Morning Miners!

It is 5:51 AM. Have a cup of hump day bliss and help me throw a spare Handyman in Ruby's pickup. She's driving Old Miner Woden out to his diggings on Lone Mountain for a winter look-see and I don't want them getting stuck in the mud. On our first coffee, Woden was reminiscing about the 1930s radio program The Shadow and it got me thinking about the metal & miners...

"Who knows what evil lurks in the hearts of large investors? Freeport knows!"


Yesterday we tried to gauge how bad the present correction in the metals & mining sector may become. I've been bullish predicting momentum will return in the spring. That's all fine but it's nice to back up happy thoughts with some data and understand what could change the ole Colonel's mind. Copper giant Freeport-McMoRan (FCX) is a terrific bellwether for market direction since they mine not only the red metal but gold and molybdenum too. Freeport stock is the darling of many institutional investors and hedge funds and when things turn bad she is often the first pretty gal left behind on the dance floor.

Last January provides a good example. Dennis Gartman, the "Commodity King" and author of the Gartman Letter, declared Freeport "technically broken" on 1/28/2010. The stock had fallen more than 20% from its high set earlier that month ($88.20 intraday high on 1/8/2010) and perhaps more ominously, had broken its 150-day moving average ($71.06).

FCX managed to bounce back to the early January level in April ($88.30 closing high 4/6/2010) then fell all the way down to $58.86 on June 7th, last year's worst day for the metals & miners. On that day the Eureka Miner's Index(EMI) recorded a dismal 50.7. By comparison yesterday' EMI was 492.5, the January 4th high was a lofty 816.8. The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County.

OK, that's some recent history, so what? We noted yesterday that Freeport-McMoRan has fallen through its 50-day moving average (MVA) but remains above both its 100-day and the fateful 150-day averages. The broader markets are now open and thankfully the metals & miners are enjoying a relief rally today. FCX is up 0.7% to $107.18 in early trading. These are the latest averages:

50-day MVA (01/26/2011) $111.27
100-day MVA (01/26/2011) $101.48
150-day MVA (01/26/2011) $90.12

Here is a 1-year chart of FCX plotted with its 150-day moving average (green line):


I wouldn't expect Gartman to start shooting flares until we see $90 country for FCX. If we can stay in the $100s, I'm not changing my outlook - break that 150-day and the Colonel heads for the exits with Dennis.

Another thing to note is the reduced marketplace fear compared to last year at this time. We use both the S&P 500 volatility index (.VIX) and gold/silver ratio (Au:Ag ratio) to measure fear when the report computes the EMI; bigger numbers typically indicate greater fear.

Last year at the Gartman warning on 1/28/2010:

.VIX = 23.73
Au:Ag = 66.03

On the worst day for metals & miners (6/7/2010)

.VIX = 36.57
Au:Ag = 68.33

Today (1/26/2011)

.VIX = 17.37
Au:Ag = 49.67

There you go - don't worry (yet), be happy! You'll be the first to know if I change my mind about a good spring for the metals & miners.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 492.46, up a tad from yesterday's 460.37. We are below the 1-month moving average of 653.62 and the the EMI is now trending down from the high set on January 4th.

The record high for the EMI is 816.78 set 01/04/2011; 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.

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 ON - The metals & miners have hit a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in is below its 50-day moving average but still well above its 200-day average of $83.07 (our new warning level, 01/05 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 up $0.23 in early trading at $86.42 (March contract, most active); Gold is down $1.6 to $1330.7 (February contract, most active); Silver is down $0.015 to $26.790 (March contract, most active); Copper is up $0.0105 to $4.2365 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.92

Stock Market Morning Update

The DOW is down 1.48 points to 11,975.71; the S&P 500 is up 1.74 at 1292.92. Miners are up:

Barrick (ABX) $46.50 up 0.80%
Newmont (NEM) $56.31 up 0.77%
US Gold (UXG) $6.18 up 1.98%
General Moly (Eureka Moly, LLC) (GMO) $5.43 up 0.56%
Thompson Creek (TC) $13.63 up 1.64%
Freeport-McMoRan (FCX) $107.18 up 0.70% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.28 down 1.58% - global steel producer
POSCO (PKX) $106.72 up 1.27% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.66% at $1,766,265.87(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

Headline photograph by Mariana Titus

Tuesday, January 25, 2011

Sweet Ruby T & The Rock Pile



Morning Miners!

It is 5:50 AM. We may need a little fortification today, have a strong cup of Tuesday java. I found Sweet Ruby T sitting on a rock pile yesterday having a conversation with Old Mr. Pete - you know, that old beat up 379 parked down by Bullion and Main. Story has it that she spent some time in that cab learning the gears when she was much younger, nothing she talks about much anymore. One thing for darn sure is Ruby likes to chat with her old friend when the metals & miners are getting beat up like they have been lately...

Gold, silver, copper & oil take another level down

COMEX gold took another level down to $1,321.9/oz at 2:40 AM PT this morning, dangerously close to the ole Colonel's "low ball" gold price for January of $1,320/oz. It has since come back up to $1,327.9/oz but we could have another rough day for the metals & miners. COMEX silver and copper shared the same lift when they descended to there morning lows of $26.540/oz and $4.2360/lb just after 5:00 AM PT. Like gold both have recovered a tad to $26.845/oz and $4.2645/lb. To join the crowd down below, NYMEX oil has shaved off another buck to sit at $86.84/bbl. No one is crying over that.

Here is how gold and silver moved on the The London spot market this morning:




What the heck is going on?

At the risk of sounding like a broken record, we find ourselves in the midst of a correction I commented to Adella Harding about on January 14th:

"I believe that copper and oil cannot continue to rise on falling gold. The recent divergence of our lustrous friend from copper and oil and the uncharacteristic resilience of silver compared to gold's weakness may signal a near-term correction for the overall metals and mining sector.." (Adella Harding article "Gold prices end week down", Elko Daily Free Press, 01/14/2011)

If wishes were horses...copper and oil are no longer moving away from gold, and silver is looking a lot less perky. Yesterday we noted that our big gold miners are down 10% and the juniors 15-20% below their 2011 debut share prices of January 4th. We'll check on them in a minute when the broader markets open.

What the heck is going on? We started the month with increasing concerns about inflation in China and the possibility of further monetary tightening. The 2-week celebration of Chinese New Year began with the full moon and copper prices plummeted more than 5% from high-to-low plumbing $4.2285/lb on January 20. There is always a fog of uncertainty about metal prices when the dragon takes off to party.

Perhaps more significantly, China, Japan and now Russia have come to the aid of Europe with keen interest in buying The European Financial Stability Facility (EFSF) bonds. Demand, at 48 billion euros, towers over the 5 billion on offer to sale. This has brought new life to the euro at the expense of the U.S. dollar. Normally dollar weakness boosts gold prices but the inverse relation with the dollar has broken down lately. New confidence in Europe has drawn money from safe havens like gold. Improving economic data and speculation that the European Central Bank might raise interest rates, has pushed the euro to a two-month high and sent gold to lows not seen since last October.

To confuse the picture further, the U.K. announced a surprise contraction of GDP this morning that undermined confidence in the global economic recovery. Crude-oil futures dropped to seven-week lows and metals like copper took another hit. Oil and copper prices have moved in the same direction more than 90% of the time since early November (see note 1) because both are reliable proxies for global growth; oil down, copper down too. What do the miner's think about all this, the broader markets are now open...

Freeport-McMoRan (FCX) plummets

Our bellwether miner, copper giant Freeport-McMoRan (FCX), has been on the down slope since posting a 52-week closing high of $121.84 on January 12th. It has fallen through its 50-day moving average of $111.24 and is headed towards the 100-day level of $101.17 now trading at $105.85. Not a good omen. A December 2008 breakdown in Freeport presaged the S&P 500 bottom in 2009 and a second breakdown early last year proceeded the market lows in July. As copper goes, so goes Freeport, so go the metals & miners, so go the broader markets in my world.

Wait a durn minute! The ole Colonel isn't ready to throw in the towel yet. Let's wait for the new moon when the Chinese return to buying metals with gusto. Let's wait for someone to say the U.K. Chancellor of the Exchequer George Osborne was correct in claiming the U.K. downturn in GDP was related to a severe snow storms in December and not the end of the world. Finally, even if everybody is buying European debt, Europe is still in debt and the euro may see rockier times ahead. Hang in there buckaroos, it' not time to join Ruby T on the rock pile - not yet.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 460.37, down from yesterday's 4483.43. We are below the 1-month moving average of 662.03 and the the EMI is now trending down from the high set on January 4th.

The record high for the EMI is 816.78 set 01/04/2011; 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.

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 ON - The metals & miners have hit a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in is below its 50-day moving average but still well above its 200-day average of $83.07 (our new warning level, 01/05 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 $1.03 in early trading at $86.84 (March contract, most active); Gold is down $17.3 to $1327.2 (February contract, most active); Silver is down $0.476 to $26.845 (March contract, most active); Copper is down $0.0840 to $4.2645 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.78

Stock Market Morning Update

The DOW is down 15.55 points to 11,964.97; the S&P 500 is down 1.91 at 1288.93. Miners are down:

Barrick (ABX) $45.851 down 1.12%
Newmont (NEM) $55.23 up 0.10%
US Gold (UXG) $6.10 down 3.33%
General Moly (Eureka Moly, LLC) (GMO) $5.66 down 1.74%
Thompson Creek (TC) $13.51 down 1.61%
Freeport-McMoRan (FCX) $105.85 down 2.42% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.65 up 0.64% - global steel producer
POSCO (PKX) $105.02 down 0.25% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 1.22% at $1,764,870.14 (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: The three-month copper/oil correlation has been greater than 0.90 since 11/08/2011.

Headline photograph by Mariana Titus

Monday, January 24, 2011

Resting Easy for the Moment - Metals & Miners Weekly Roundup


Morning Miners!

It is 5:50 AM. Grab a cup of Monday Joe. The metals & miners have been in a slump lately but gold and copper are up a bit today and western moly bounced a buck. I'd say that's not a bad way to start the week...

Resting Easy for the Moment

Ever since the close of this year's first market day, our poor metals & miners have been spending a lot of time in the lower levels of the mineshaft. This report has confirmed we are in a corrective phase but maintains the duration should be fairly short. Let's look at the numbers.

The Eureka Miner's Index (EMI) set an all time high on January 4th of 816.8 followed by Friday's considerably lower close of 477.6. This morning the EMI is up a bit to 483.5 (see below).

The EMI uses three benchmark miners for gold, copper and molybdenum together with interest rates, market volatility and metal prices to gauge how well the Eureka County mining interests should be doing. Here is a comparison of the benchmarks with Friday's close:

Barrick Gold (ABX) $49.95 (1/21 close) $51.67 (1/4 close) down 9.1%
Freeport-McMoran (FCX) $118.75 (1/21 close) $108.40 (1/4 close) down 8.7%
Thompson Creek (TC) $13.78 (1/21 close) $14.91 (1/4 close) down 7.6%

OK, that's not too bad - nobody is down 10% yet. What about the other miners in the Eureka Miner's Grubstake Portfolio?

Newmont Mining (NEM) $55.84 (1/21 close) $62.52 (1/4 close) down 10.7%
US Gold (UXG) $6.24 (1/21 close) $7.94 (1/4 close) down 21.4%
General Moly (GMO) $5.63 (1/21 close) $6.68 (1/4 close) down 15.7%

That's a little worse but junior miners (UXG & GMO) always get beat up more than the majors during corrections. Newmont is a big boy but is the only stock of the six that is below its 200-day moving average. Newmont being down a bit more than Barrick is therefore not unreasonable (10.7% versus 9.1%). The Grubstake Portfolio is down 10.1% over the same period.

Will things get worse? Maybe. I take a bullish view that although there may be more bad days ahead, we should regain momentum going into the spring. In her morning article, Reuter's Rebekah Curtis quoted Robin Bhar, an analyst at Credit Agricole, as saying, "The market's resting easy for the moment." He was referring to the base metal complex now that some China fears are easing a bit. The ole Colonel thinks this may be the proper sentiment for the entire metals & mining sector. Here is a link to Ms. Curtis complete article:

METALS-Copper up and tin at record on supply concerns
(Rebekah Curtis, Reuters, 01/24/2011)

Refreshingly, supply & demand forces are beginning to dominate again replacing the more monolithic "risk-on, risk-off trade" investor mentality of 2010. Supply is tightening in many areas so this should help rise the prospects for our miners. Copper is in short supply, molybdenum pricing is suggesting both near term and longer term rising demand (see below) and this report continues to claim that gold will break $1570/oz before July Fourth. Stay tuned.

Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line is the EMI with a low interest cap of 3% on 10-year Treasurys (LIRC) and adjustments for gold and silver prices (i.e., Au:Ag ratio). A 1-month moving average is given by the blue line. A larger and more readable chart appears near the bottom of this blog page.


This morning the Eureka Miner's Index(EMI) is above-par at 483.45, up slightly from Friday 477.61. We are below the 1-month moving average of 673.11 and the the EMI is now trending down from the high set on January 4th.

The 2011 record high for the EMI is now 816.78 set 01/04/2011; the 52-week low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners relevant to Eureka County.

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.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners. With supply and demand fundamentals driving the commodity space, diminishing correlations between key commodities are less alarming but trends should still be carefully monitored.

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

Oil/Au correlation +0.4768 (1-month) +0.5857 (3-month)
Cu/Au correlation +0.3597 (1-month) +0.4024 (3-month)
Cu/Oil correlation +0.3542 (1-month) +0.9193 (3-month)

Here are the numbers from the last roundup (01/18/2011):

Oil/Au correlation +0.4767 (1-month) +0.7377 (3-month)
Cu/Au correlation +0.3588 (1-month) +0.5664 (3-month)
Cu/Oil correlation +0.5206 (1-month) +0.9195 (3-month)

All these correlations remain positive which is a typically a bullish condition for the metals & miners but some bearish trends continue. The 3-month correlation of copper & gold continues to weaken and exhibits an over-valued state with respect to gold (3.9-standard deviations above the new January model "fair vale" line).

Though less severe, oil and gold are showing divergence also. Oil is presently overvalued with respect to gold by 3.0-standard deviations. The 3-month correlations of copper & oil remains above 0.9 suggesting copper and oil prices continue to move together although the 1-month correlation has dropped below 0.4. Copper is presently overvalued with respect to oil by 2.9-standard deviations.

One way to visualize these correlations over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations (aka "rho") as shown below in a graph of oil versus gold and copper versus gold. The blue line indicates the correlation trajectory since October 1st; the magenta line is recent data since December 1st (ref: China to the Rescue?):



In the case of oil versus gold, we start out on 10/1/10 in the "+,-" or "yellow" quadrant and move upward until both are positively correlated (i.e. in the "+,+" or "green" quadrant). Copper correlated positively faster than oil and has been in the green quadrant for this entire period. Correlation data in this region is typically considered bullish. The recent trend toward the "-,+" quadrant for both oil & copper has reversed which is bullish (white arrow), but the decline in 3-month correlations is bearish (i.e. arrow points down).

Gold/Oil, Oil/Copper & Gold/Copper Ratios

The Report has been tracking the stability of the gold/oil, oil/copper & gold/copper ratios. Although they ended last year rock solid (<3% variation, 1-standard deviation/mean) the ratios are starting to diverge. This is what prompted my recent comment to Adella Harding, Elko Daily Free Press, "The recent divergence of our lustrous friend [gold] from copper and oil...may signal a near-term correction for the overall metals and mining sector." The re-emergence of supply/demand fundamentals should make this correction one of short duration.

Here is a plot of the variation for both ratios as well as the copper/oil ratio (a larger and more readable chart is given at the bottom of the blog page):



Once the ratios exceed 3% error, they become less useful in predicting the price moves of one commodity with respect to another in the ratio pair.

For the past 3-months we have these statistics given this mornings' numbers:

Au/Oil ratio

mean 15.79 bbl/oz
variation > 3.0% limit at 3.23% (1-standard deviation/mean)

Oil/Copper ratio

mean 21.40 lbs/bbl
variation 2.69% (1-standard deviation/mean)

Au/Copper ratio

mean 338.2 lbs/oz
variation > 3% limit at 5.42% (1-standard deviation/mean)

Weekly Molybdenum Roundup



Western molybdenum jumped one dollar last week to close with an earlier move in Euro moly. Spot prices for molybdenum oxide are now in $17/lb territory out West and in Europe. Moly futures indicate a backwardation between European spot prices and the London Metal Exchange (LME) 3-month contract continuing to signal a pickup in near term demand overseas. Western and European spot prices continue a mild contango with the 15-month seller contracts (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).

The 3-month seller at $17.10/lb is comfortably above the Colonel's mid-range moly price target for 2010 of $15.71/lb but below my target of $20.21/lb for 2011. The Report will give moly prices a "yellow-green" light on the Eureka Outlook Dashboard for now because I do believe we could see much higher prices this year.

Here is a detailed pricing summary for last week:

Western Moly Oxide $17.00/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.50/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $37300/metric ton $16.92/lb

3-Month (Buyer) $37,000/metric ton $16.78/lb
3-Month (Seller) $37,700/metric ton $17.10/lb

15-Month (Buyer) $38,050/metric ton $17.26/lb
15-Month (Seller) $39,050/metric ton $17.71/lb

Here is a chart of the LME 3-month contract (seller) from the February launch to the present:



Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is OFF - Markets are stable but caution is in the air; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 50-day moving average of 111.35 (1/24/11) but still well above its 200-day average of $83.07 (our new warning level, 01/05 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 $0.77 in early trading at $88.34 (February contract, most active); Gold is up $3.7 to $1344.7 (February contract, most active); Silver is up $0.187 to $27.240 (March contract, most active); Copper is up $0.0195 to $4.3285 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.92

Stock Market Morning Update

The DOW is up 28.38 points to 11,900.22; the S&P 500 is up 0.72 to 1284.07. Miners are mixed:

Barrick (ABX) $47.16 up 0.45%
Newmont (NEM) $55.58 down 0.47%
US Gold (UXG) $6.30 up 0.90%
General Moly (Eureka Moly, LLC) (GMO) $5.59 down 0.71%
Thompson Creek (TC) $13.75 down 0.22%
Freeport-McMoRan (FCX) $109.00 up 0.55% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.80 down 0.11% - global steel producer
POSCO (PKX) $105.63 up 2.45% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.09% at $1,778,826.80 (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

Headline photograph by Mariana Titus

Friday, January 21, 2011

Gold & Dollar Down , Newmont Rocks, Euro Moly Up



Morning Miners!

It is 5:52 AM. Have a cup of Raine's TGIF Red Label and let's be glad it's Friday. The week hasn't been all that bad, gold is down but Old Miner Woden is back whistling in the hi-bay and we've got spring in January. If you haven't got stuck in the mud lately, life is still good in the Great Basin.

Gold & Dollar Down

The euro pegged an 8-week high this morning at $1.3529, the U.S. dollar is taking another leg down and gold is falling toward my "low ball" number for January. On January 10th I asked if the metals & miners were in a correction. Based on this week's market performance, the answer is "yup!"

We identified a trading range for gold with key support at $1298.0/oz and key resistance at 1413.00/oz. Within this range I choose a nominal COMEX gold price of $1380/oz gold for January and a "low ball" price of $1320/oz. This morning we're trading at $1340.3/oz with a low of $1338.3/oz set in the wee hours.

Our trusty Eureka Miner's Index(EMI),, which measures the market temperature for the sectors most important to mining in Eureka County, has reversed course and is now trending down form the high set on January 4th of 816.8. This morning's EMI is a sobering 531.8 up a bit from yesterday's sell-off but still way below our 1-month moving average of 685.3 (see below).

So what? I still contend this correction will be short in duration and that COMEX gold will break $1570/oz before July 4th. How's that for a little fighting spirit. To put some money where my mouth is, I threw a few shares of Newmont (NEM) in the buckboard this morning. They're sitting side-by-side with a few Barrick Gold (ABX) shares that I high-graded on January 11th.

Do we really think all the problems in Europe are over? Will the euro remain strong? What about a slowdown in China? The Chinese are off celebrating their New Year from now until it actually starts with the new moon February 3rd. They may be worried about inflation but I doubt if the dragon will lose its appetite for gold and raw materials when everyone returns from the party. Hang in there buckaroos, I'm betting on a falling euro, rising gold and better times for the good ole U.S.A. Stay tuned.

Newmont Rocks

The sterling (or should I say "golden") example of fighting spirit was Newmont Mining yesterday. As the Eureka Miner's Grubstake Portfolio closed down a dismal 2.99%, Newmont closed up on the day. Why? Shucks, they posted a great report:

Newmont Announces Preliminary 2010 Production and Operating Results; Portfolio Continues to Deliver (Press release, 1/20/2011)

Adella Harding, mining editor for the Elko Daily Free Press, did a terrific job of summarizing their performance in her article yesterday:

Newmont reports gold, copper production figures (Adella Harding, Elko Daily Free Press, January 20, 2011 2:15 pm)

Newmont Mining announced that gold production for all of 2010 totaled a whopping 5.4 million ounces and copper production totaled 327 million pounds. Not a bad time to take advantage of rising copper prices. In Nevada alone, Newmont estimated attributable sales of 1.7 million ounces of gold for 2010 and costs for sales of $565/oz. Our $1340/oz on the day doesn't look all that bad does it! Take heart.

On Wednesday, the ole Colonel asked the question, "Buy Barrick? Buy Newmont?" You know my answer now. Please do your own research, pardner - I could be dead wrong...or maybe not.

Euro Moly Up

European moly oxide nudged up a little more to $17.50/lb this week widening the gap with Western molybdenum that stubbornly sits at $16.00/lb. Spot Euro Moly is paying a premium of $0.40/lb with respect to the London Metal Exchange (LME) 3-month seller contract of $17.10/lb suggesting rising near term demand overseas. A little more good news.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 531.82, up slightly from yesterday's 499.50. We are below the 1-month moving average of 685.28 and the the EMI is now trending down.

The record high for the EMI is 816.78 set 01/04/2011; 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.

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 ON - The metals & miners have hit a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in is below its 50-day moving average but still well above its 200-day average of $83.07 (our new warning level, 01/05 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 $0.16 in early trading at $89.43 (March contract, most active); Gold is down $6.2 to $1340.3 (February contract, most active); Silver is down $0.258 to $27.215 (March contract, most active); Copper is up $0.0105 to $4.2825 (March contract, most active)

Western Molybdenum Oxide is $16.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.10, LME cash seller is $17.69

Stock Market Morning Update

The DOW is up 64.78 points to 11,887.58; the S&P 500 is up 8.86 at 1289.12. Miners are mixed:

Barrick (ABX) $46.81 down 0.36%
Newmont (NEM) $55.32 down 0.70%
US Gold (UXG) $6.23 down 2.96%
General Moly (Eureka Moly, LLC) (GMO) $5.62 up 1.44%
Thompson Creek (TC) $14.28 up 0.99%
Freeport-McMoRan (FCX) $109.83 down 0.96% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.20 up 3.77% - global steel producer
POSCO (PKX) $104.29 down 0.52% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.02% at $1,786,207.39 (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

Headline photograph by Mariana Titus