Tuesday, January 25, 2011
Sweet Ruby T & The Rock Pile
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?).
Write Colonel Possum at firstname.lastname@example.org 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