"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.

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?).


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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