"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, February 25, 2011

Buy Freeport (FCX)? Moly Oxide Under Pressure

Morning Miners!

It is 5:50 AM. Have a welcome cup of Raine's TGIF. It has been quite a week...

The Dollar, Gold & Oil

Nothing like a little chaos in the Middle East to set the markets on their head. There are a few rays of light this morning with NYMEX oil below $100/gal and COMEX copper enjoying a nice bounce. Oil and gold - two key indicators of how the world markets see the path going forward. I thought it might be good to look at both in relation to COMEX gold and the U.S. dollar index to gauge just where we are in this dipsy-doodle. Our first chart is COMEX gold (blue) versus the U.S. Dollar Index (DXY, orange) for the last three months:

Both fell together during January but gold got a nice lift when the crisis in Egypt errupted. It pulled back but then resumed its ascent to $1400+/oz territory when Lybia exploded. This is their 3-month relative performance:

COMEX gold up 2.5%
US Dollar Index (DXY) down 4.2%
DXY with respect to gold down 6.7%

Poor old greenback. Remember when it was the safe haven play when geo-political times got scary? Of course gold isn't making records here either. Let's see how NYMEX oil (blue) fared against the U.S. dollar, here is their chart:

Oil naturally got its biggest lift from the Libyan conflagaration starting in mid-February. Our oil/dollar comparison is:

NYMEX Oil up 15%
US Dollar Index (DXY) down 4.2%
DXY with respect to oil down 19.2%

Ouch. The ole Colonel wishes he could fit a barrel of oil in his wallet, it sure would buy more than Uncle Sam paper these days. To finish our comparisons let's look at oil versus gold and forget about the greenback:

NYMEX Oil up 15%
COMEX gold up 2.5%
Oil with repect to gold up 12.5%

At today's trading an ounce of gold will buy you 14.4 barrels of oil. Around Turkey Day last year you could buy 16.5 barrels. Gold just ain't what it used to be, pardner.

Buy Freeport (FCX)?

Here's one for the brave (or foolish) at heart. The miners have been getting beat up something terrible since mid-January. Even the big gold miners which got a nice lift on Libya have not been spared. Newmont reported a 45% increase in earnings yesterday and its share price got clobbered on nervousness about an expected decline in production for 2011. One of the worst performers lately has been copper giant Freeport-McMoRan (FCX) which has been wallowing around between its 100-day and 150-day moving averages on a drop in copper prices and new concerns about global growth.

Terrific! Copper is getting a nice pop today, FCX share price has been rising on high volume for the past two days and the Eureka Miner's Index(EMI) may have put in a new bottom yesterday (see below).

COMEX Copper may have also put in a new bottom at $4.225/lb yesterday. Support was $4.20/lb and this morning we're up nicely to $4.3845/lb. There is an expected copper deficit for 2011 explaining some of this resilience in a backdrop of Middle East turmoil.

The Colonel threw a few shares of FCX in the buckboard this morning. We'll see soon if he's just an old fool. Stay tuned.

Moly Oxide Under Pressure

Wednesday's report suggested a drop in London Metal Exchange molybdenum futures prices may be a harbinger for lower prices in the moly oxide spot markets in the short term. Here is an interesting article from Platts Resources that backs up that concern:

Moly oxide slides on slow end-user buying and trader liquidations (Platts Metals, 2/24/2011)

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East. The most active front month contract remains above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in this volatile region.

Here are the most active front month contracts as of this morning:

NYMEX light sweet crude $97.45
ICE North Sea Brent crude $111.78
Spread (ICE- NYMEX) = $14.33(yesterday $14.51)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $99.69
ICE North Sea Brent crude $111.34
Spread (ICE- NYMEX) = $11.65 (yesterday $11.28)

Although prices are off their crisis highs, we still have $100+ Brent in June favoring higher oil prices for the summer. Unfortunately my December prediction that we will see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

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 473.91 up from yesterday's new low for 2011 of 424.80 and below the 1-month moving average of 545.52. The EMI continues to be down from the high set on January 4th and a trend reversal in the short term may again be in the works.

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 miners are still in a rough patch but conditions are improving; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is trapped between its 100-day and 150-day moving averages but still above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 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, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.17 in early trading at $97.45 (April contract, most active); Gold is down $9.1 to $1406.7 (April contract, most active); Silver is down $0.290 to $32.890 (May contract, most active); Copper is up $0.0580 to $4.3845 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.75; LME moly 3-month seller's contract is $17.28, LME cash seller is $17.01

Stock Market Morning Update

The DOW is up 51.66 points to 12,120.16; the S&P 500 is up 10.20 at 1316.30. Miners are mixed:

Barrick (ABX) $51.84 up 1.51%
Newmont (NEM) $55.75 up 1.81%
US Gold (UXG) $7.18 up 0.56%
General Moly (Eureka Moly, LLC) (GMO) $5.29 up 0.95%
Thompson Creek (TC) $13.57 down 0.07%
Freeport-McMoRan (FCX) $52.51 up 1.25% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $35.98 up 1.81% - global steel producer
POSCO (PKX) $102.25 up 0.64% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.99% at $1,776,901.66(what's this?).


Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

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