Gold Pops, Copper Falls, Moly Up - China, China

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Walk on a rainbow trail; walk on a trail of song, and all about you will be beauty. There is a way out of every dark mist, over a rainbow trail. - Navajo Song


Morning Miners!

It is 5:50 AM. Have a cup of Tuesday joe. Sweet Ruby T is full of Navajo song and it looks like we're in for a good'un, pardner...

Gold Pops, Copper Falls

The Chinese returned from their lunar holiday with an interest rate surprise. Actually, it was expected that China's central bank would do something soon to combat rising inflation. Today they raised their benchmark deposit and lending rates by 0.25 percentage point each, the first rate increase this year. The People's Bank of China (PBOC) said they will raise the one-year yuan lending rate to 6.06% from 5.81%.

COMEX copper stumbled on the announcement, falling sharply at 05:30 ET to $4.5060/lb. Yesterday the red metal had posted another record high at $4.6375/lb. Copper futures are back up a bit to $4.5505/lb. Nothing to get too teary-eyed about when we remember that the price of copper has tripled from its December 2008 lows. The ole Colonel thinks this is a good response, daily metal records just ain't natural (although tin managed another high)!

Thankfully gold and silver headed the other direction from copper. Our two favorite PMs started their move at 08:20 ET and popped to $1365.90/oz for gold and $29.790/oz for silver by 08:35 ET. They are now trading slightly below their morning highs at $1,361.1/oz and $29.650/oz respectively.

The gold move is very important. Dennis Gartman, "Commodity King" and author of the respected Gartman Letter, said previously that gold may have bottomed just prior to the Egypt flare up (COMEX gold $1309.1/oz intraday low on 1/28/2011). As reported by Kitco News, Gartman had this to say just prior to today's gold move:

Gold’s recent performance has been “impressive’ given that the dollar has been largely steady lately, says Dennis Gartman, publisher of The Gartman Letter. This is especially the case since the Chinese and other Asian buyers have been out of the gold market in recent days due to Chinese New Year celebrations. “We get the sense that when the Asian buyers return from holiday that prices will firm up even more and we are prepared to be therefore even more bullish than we have been thus far,” Gartman says. Technically, he said, a move by gold through 850 sterling would be “quite impressive,” and rise through here coupled with a break above $1,360 “would be even more so,” Gartman concludes. (Kitco News Nugget, 02/08/2011)

Happy New Year Dennis, COMEX broke and is presently trading above $1,360/oz. Yee-ha!

Miss Moly on the march

Molybdenum futures nudged up again yesterday with an across-the-board move of 2.5%. Spot prices and the London Metal Exchange (LME) futures are in textbook contango* with both the 3-month and 15-month contracts in $18/lb territory:

Western moly oxide $17.00/lb
European Moly oxide $17.68/lb

LME 3-month cash seller $17.96/lb
LME 3-month seller $18.14/lb
LME 15-month seller $18.71/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 $18.14/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. Look for spot prices to make a move up soon. Go Miss Moly.

What about the Miners?

The broader markets are now open and predictably Barrick Gold (ABX), Newmont (NEM) and US Gold (UXG) are up for the morning on the gold move jumping 1%, 1.5% and 4%. With a drop in copper prices, bellwether miner Freeport-McMoRan (FCX) struggles again below its 50-day moving average. A setback of less than 1% from yesterday's FCX close is, however, reassuring.

As we'll see below, the Eureka Miner's Index(EMI) is off from yesterday's number a bit and now sits right at its 1-month moving average. If the EMI can move back up from its average in the next several days, we may be emerging from the corrective phase for the miners. If so, January 28th marks the bottom of the recent correction. If everything moves south, the correction may be quite a bit longer. It will be important to watch the correlation of copper and gold prices going forward - if the 3-month correlation remains negative, the latter case for the miners is more likely.

Daily Oil Watch

Last week we identified North Sea Brent crude oil as a good barometer for the developing crisis in Egypt. As tensions ease a bit, the most active front month contract has fallen below $100/bbl with a growing 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 the Middle East.

Here are the most active March contracts as of this morning:

NYMEX light sweet crude $86.53
ICE North Sea Brent crude $98.81
Spread (ICE- NYMEX) = $12.28 (yesterday $11.51)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $94.12
ICE North Sea Brent crude $100.26
Spread (ICE- NYMEX) = $6.14 (yesterday $5.86)

Although prices have fallen we still see $100+ Brent and mid-$90 NYMEX in June favoring higher oil prices for the summer. I'll stick with my December prediction that we will see NYMEX $100/bbl oil before the Fourth of July.

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 584.86, down from from yesterday's 607.25 sitting just a thin flat washer above the 1-month moving average of 584.33. Although a bullish sign, the EMI continues to trend 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 $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 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, R&R Partners parts ways with Nevada Mining Association

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.95 in early trading at $86.53 (March contract, most active); Gold is up $14.9 to $1363.1 (April contract, most active); Silver is up $0.307 to $29.650 (March contract, most active); Copper is down $0.0245 to $4.5505 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.68; LME moly 3-month seller's contract is $18.14, LME cash seller is $17.96

Stock Market Morning Update

The DOW is up 16.88 points to 12,178.51; the S&P 500 is up 0.69 at 1319.74. Miners are mixed:

Barrick (ABX) $48.34 up 1.07%
Newmont (NEM) $58.01 up 1.50%
US Gold (UXG) $7.39 up 3.94%
General Moly (Eureka Moly, LLC) (GMO) $5.52 unchanged
Thompson Creek (TC) $14.15 down 0.56%
Freeport-McMoRan (FCX) $55.14 down 0.86% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $38.14 up 3.70% - global steel producer
POSCO (PKX) $108.34 up 1.19% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.99% at $1,779,687.41(what's this?).

Cheers,

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).

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