"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.

Monday, January 3, 2011

Cu, Ag, FCX, TC, UXG New Highs - Metals & Miners Weekly Roundup

Morning Miners!

It is 6:06 AM. Feels like a short New Year's break to me - who the devil decided to jam 5 Mondays into this January? Europe is shut down today but there is plenty of excitement for the metals & miners. Quit your whining and let's whistle our way to work!

Copper & Silver new highs, Gold lags

If you believe the old adage that what starts well ends well, we're on our way to a good 2011. Optimism about the domestic economy gaining momentum, supply tightness in key industrial metals like copper and the emerging world's continued hunger for raw materials propells the markets. Headwinds of $90+/bbl oil, rising interest rates and uncomfortable inflation rates in China have yet to slow this juggernaut. Friday's labor report and more words from Chairman Bernanke will be key tests this week for all these animal spirits.

COMEX copper came within a thin flat washer of $4.50/lb in the wee morning hours at $4.4980/lb; 10 records in the last 19 trading days by my count. COMEX silver pegged a new record too just a few hours later at $31.275/oz. COMEX gold is still feeling the holidays and fell short of its Pearl Harbor high hitting an early morning top at a respectable $1424.4/oz. All three metals have retreated some as we near daylight in the West.

For the record keepers, here's where we stand for the big three:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $31.275/oz 08:15:00 ET 01/03/2011, March contract most active
COMEX Copper $4.4980/lb 05:45:00 ET 01/03/2011, March contract most active

Freeport-McMoRan (FCX), Thompson Creek (TC), US Gold (UXG) post new 52-week highs

The broader markets are now open and it looks like we've got a humdinger for the New Year. The DOW is trading at 2-year highs up 114.96 points to 11,692.47; the S&P 500 is also in taller grass, up 13.51 points to 1271.15. Copper giant Freeport-McMoRan (FCX), benchmark moly producer Thompson Creek (TC) and junior gold miner US Gold (UXG) have all posted new 52-week highs ($122.37, $15.39, $8.17 respectively). The Eureka Miner's Index (EMI) has posted its third consecutive high nearly breaking the 800-level at 796.0 (see below). In the darkest hour of 2010, the EMI bottomed at 50.7. This lends a dramatic backdrop to the progress achieved by the market sectors that have the greatest impact on mining in Eureka County.

Weekly Molybdenum Roundup

Spot prices for molybdenum oxide remain in $16/lb territory in the West and Europe. Moly futures indicate a mild contango between spot prices and the London Metal Exchange (LME) 3-month and 15-month seller contracts both of which are now above $17/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).

The 3-month seller at $17.01/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 $16.00/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $16.70/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $37500/metric ton $17.01/lb

3-Month (Buyer) $36,500/metric ton $16.56/lb
3-Month (Seller) $37,500/metric ton $17.01/lb

15-Month (Buyer) $37,625/metric ton $17.07/lb
15-Month (Seller) $38,625/metric ton $17.52/lb

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

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) sets a new record at 796.00, up from Friday's record of 795.98. The 1-month moving average is now 629.60.

The 2011 record high for the EMI is now 796.00 set 01/03/2011; the 52-week 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.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners.

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

Oil/Au correlation +0.3851 (1-month) +0.8179 (3-month)
Cu/Au correlation +0.2525 (1-month) +0.7293 (3-month)
Cu/Oil correlation +0.7668 (1-month) +0.9257 (3-month)

Here are the numbers from the last Monday's roundup (12/27/2010):

Oil/Au correlation +0.4723 (1-month) +0.8103 (3-month)
Cu/Au correlation +0.3132 (1-month) +0.7126 (3-month)
Cu/Oil correlation +0.9117 (1-month) +0.9191 (3-month)

All these correlations remain positive which is a typically a bullish condition for the metals & miners but some bearish trends are still present. The correlation of copper & gold continues to weaken with copper showing a very over-valued state with respect to gold (nearly 8-standard deviations above the December model "fair vale" line, a new model will be released soon). Though less severe, oil and gold are also showing some divergence. Oil is presently overvalued with respect to gold by nearly 3-standard deviations. The 3-month correlations of copper & oil remains above 0.9 suggesting copper and oil prices continue to move in lockstep although the 1-month correlation has dropped below 0.8.

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 both oil & copper is worrying and potentially bearish (white arrow).

Gold/Oil & Oil/Copper Ratios

The Report has been tracking the recent rock solid stability (<3%) of the gold/oil and oil/copper ratios. This morning's gold/oil ratio is 15.4 suggesting $90/bbl oil should support $1386/oz gold; $100/bbl oil, $1540 gold. The oil/copper ratio is presently 20.7 suggesting $90/bbl oil should support $4.35/lb copper; $100/bbl oil, $4.83/lb copper.

For the past 3-months we have these statistics:

Au/Oil ratio

mean 16.07 bbl/oz
variation 2.87% (1-standard deviation/mean)

Oil/Copper ratio

mean 21.63 lbs/bbl
variation 1.90% (1-standard deviation/mean)

Daily Market Roundup

Enough talk, let's walk the walk:

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 $0.74 in early trading at $92.12 (February contract, most active); Gold is down $2.3 to $1419.1 (February contract, most active); Silver is down $0.047 to $30.890 (March contract, most active); Copper is up $0.0050 to $4.4465 (March contract, most active)

Western Molybdenum Oxide is $16.00; European Molybdenum Oxide is $16.70; LME moly 3-month seller's contract is $17.01, LME cash seller is $16.78

Stock Market Morning Update

The DOW is up 114.96 points to 11,692.47; the S&P 500 is up 13.51 to 1271.15. Miners are whistling:

Barrick (ABX) $53.57 up 0.73%
Newmont (NEM) $61.84 up 0.68%
US Gold (UXG) $8.30 up 2.85%
General Moly (Eureka Moly, LLC) (GMO) $6.64 up 2.47%
Thompson Creek (TC) $14.99 up 1.83%
Freeport-McMoRan (FCX) $121.57 up 1.23% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $38.65 up 1.36% - global steel producer
POSCO (PKX) $108.95 up 1.17% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.44% at $1,987,196.39 (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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