"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.

Wednesday, January 5, 2011

How Good Were the Colonel's Predictions for 2010? What's Up for 2011?

Morning Miners!

It is 6:08 AM. Let's celebrate the first hump day of the new year with a hot cup of coffee. This hump may have a bump. Old Miner Woden borrowed my dollar store readers and is watching precious metal prices in London. Ouch!

Gold & Silver Correct

COMEX gold continued its descent in the early morning hours hitting a low of $1367.5/oz before coming back up to $1369.5/oz. COMEX silver dropped below the $30/oz level for a low of $29.140/oz and is presently trading at $29.225 . The gold/silver ratio is still a very low 46.9 but up from yesterday's 46.0 suggesting some fear may be creeping back into the precious metals market together with a lot of profit taking.

Here is what caught Old Miner Woden's attention in the London spot markets for gold & silver:

The precious metal correction was aided by a stronger dollar against both the euro ($1.3141) and the yen (83.12, two-week high) with the U.S. Dollar Index popping more than 1% (a large move in currency markets). Improving economic outlook for the United States supported by an encouraging U.S. private-sector jobs report today has provided headwinds for the precious metals. The big government nonfarm payrolls report will be released Friday morning. Stay tuned.

The ole Colonel continues to believe this is a temporary pullback for gold and will stick with his prediction that the lustrous stuff will break $1570/oz before July 4th.

Copper follows Gold & Silver down

Copper prices chose to follow their well-to-do metallic cousins down the correction mineshaft. Bloomberg's Glenys Sim gives us some insight into the change in direction for the red metal:

Copper Falls the Most in Two Weeks on Speculation Prices Climbed Too High (By Glenys Sim, Bloomberg News, 01/05/2010, 2:43 AM PT)

A strong dollar and rapidly rising inventories at the London Metal Exchange are behind some of this move. The Colonel remains bullish on copper for 2011 but did take profit on copper giant Freeport-McMoRan (FCX) yesterday.

How Good Were the Colonel's Predictions for 2010?

As I've said many times before, it is a fool's errand to predict commodity prices but I'm a happy fool (so far). Let's see how the Colonel's Beer Derby is doing (you can find this in the column to your right near the bottom of the blog page).

In 2009 I made 14 beer bets; I won 10, the readers 4 for a prediction accuracy of 71.4%. For 2010 there were 15 bets and 6 remain open for 2011 & 2012. Of the close-outs, the Colonel won 7, the readers 2 for a prediction accuracy of 77.8%.

Here are the close-outs for 2010 in descending order of when each bet was placed (date in parentheses):

1- (12/13/10) COMEX copper will break $4.25/lb before New Year's Eve 2010 - beer, Colonel
2 - (10/04/10) Copper will break $3.90/lb by Thanksgiving Day - beer, Colonel
3 - (04/12/10) Western Moly Oxide will break $20/lb before Summer Solstice - beer, Readers
4 - (03/19/2010) The S&P 500 will break 1251 before Christmas - beer, Colonel
5 - (03/19/2010) The S&P 500 will break 1193 before Memorial Day - beer, Colonel
6 - (03/04/10) Silver will break $19 before Memorial Day - beer, Colonel
7 - (02/19/10) The closing price for molybdenum on Friday, 2/26 will be higher than for Friday, 2/19 - beer, Colonel
8 - (02/03/10) Molybdenum will be north of $15/lb before Chinese New Year - beer, Colonel
9 - (2/02/10) Oil will see $80 before $70 by April Fool's Day - beer, Readers

The following open bets roll into 2011-12:

1 - (12/30/2010) Western Moly Oxide will break $20/lb before July Fourth 2011
2 - (12/29/2010) General Moly (GMO) will break $10/share before New Year's Eve 2011
3 - (12/10/10) COMEX silver will break $36/oz before July Fourth 2011
4 - (12/10/10) COMEX gold will break $1570/oz before July Fourth 2011
5 - (12/10/10) NYMEX light crude will break $100/bbl before July Fourth 2011
6 - (04/01/10) The DOW will break 12,901 before the End of the World on 12/21/2012

The Good, the Bad and the Ugly

Let's start out with the ugly for 2010. Betting on the price of oil is always an ugly proposition. In 2009, I was reminded to NEVER bet on an expected price decline in the slippery stuff. I may have been a little smarter in 2010 (bet #9) to believe light crude would break $80/bbl by April Fools but missed the time window. We're trading at $88.68/bbl this morning and should be happy we've left $90/bbl territory for now. I'm still betting we'll see $100/bbl by mid-year 2011 (open bet #5). Hopefully I'll lose this bet too!

It was a bad bet to think in April 2009 that Western Moly Oxide would break $20/lb before Summer Solstice (bet #3). By the end of May, prices were flirting with $18/lb but the European sovereign debt crisis put a damper on global growth expectations and we plunged to $14/lb in the spring and never really got close to $20/lb by the summer. I think we've got a lot better chance to see $20/lb this year (open bet #1) with some experts predicting a $30/lb spike before mid-year. My 2011 mid-range price target for the London Metal Exchange (LME) 3-month seller contract is $20.21/lb.

My other two moly wagers (bets #7 & #8) paid out. Bet #7 is interesting because the timing brackets the debut of molybdenum futures contracts on the LME (introduced 4/22/2010). It is almost always a good bet to expect a price rise when a new way to speculate on commodity prices is introduced to the markets. Look for a similar bounce in copper prices as copper exchange traded funds come online this year.

My other metal bets (two for copper - bets #1 & #2, and one for silver - bet #6) were derived from my models that showed a strong rising trend for copper later in 2010 and strength in silver before last summer. It is almost funny to think of $19/oz silver today when it has been above $30/oz recently. Of course as we've witnessed this week - what goes up, comes down. I'm still bullish on silver and will stick to my guns for $36/oz in 2011 (open bet #3).

Other good bets were on the broader market direction for 2010 (bets #4 & #5). I felt we could get to pre-Lehman Brother levels last year and we did (S&P 500 above 1,250). The ole Colonel is just an incurable market optimist...well, most of the time. Hang in there buckaroos.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) got whacked by falling commodity prices dropping to 644.76, down from yesterday's record 816.78. This broke the fourth straight record setting market day for the EMI. We are now below the 1-month moving average of 678.13, a potentially bearish sign. Let's see what the morrow brings.

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, 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 but there could be rough roads ahead; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in the low-$100s 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 $0.79 in early trading at $88.68 (February contract, most active); Gold is down $9.3 to $1369.5 (February contract, most active); Silver is down $0.283 to $29.225 (March contract, most active); Copper is down $0.0295 to $4.3395 (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 down 18.58 points to 11,672.60; the S&P 500 is down 1.77 to 1268.43. Miners are not happy:

Barrick (ABX) $50.43 down 2.40%
Newmont (NEM) $57.62 down 2.47%
US Gold (UXG) $7.33 down 4.18
General Moly (Eureka Moly, LLC) (GMO) $6.40 down 1.54%
Thompson Creek (TC) $14.65 down 1.74%
Freeport-McMoRan (FCX) $116.34 down 2.03% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.13 down 4.27% - global steel producer
POSCO (PKX) $111.57 up 0.27% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 2.18% at $1,886,806.42 (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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