"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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.

Thursday, February 3, 2011

It's Déjà Vu All Over Again!


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*** BREAKING NEWS *** COMEX gold popped to $1,355.80/oz at 12:30:00 ET, the move started at 11:55:00 ET


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Morning Miners!

It is 5:49 AM. Have a cup of Thursday thunder. I've got Thor and Old Miner Woden in the break room looking at more of Mariana's Navajo Nation photographs, they don't give a hoot about the price of copper...or oil...

It's déjà vu all over again!

Borrowing a Yogi Berra quote to explain the red metal rise, COMEX copper bested yesterday's morning record with a very late evening rush to $4.58/lb, now the 14th record since the Pearl Harbor Day highs of last December. The reader may tire from all this emphasis on copper with our largest mine for the stuff in Ely, not Eureka. The ole Colonel reminds the faithful reader that the red metal and oil pretty much paint the picture for the metals & miners...oh, did I forget to mention gold?

That's right, gold does provide the bulk of wealth for our County but may soon need a performance review at the next Commissioners meeting - gold has been the lazy metal most of this new year. Since late January copper, aluminum, nickel, zinc, lead and tin have all had a lots of giddy-up go. Even molybdenum has been moving steadily higher with the European flavor popping another 10 cents to $17.60/lb yesterday.

Silver, which has been down with gold, has been a more resilient precious metal buoyed by a greater industrial use than her more glamorous sister. The closely watched gold/silver ratio has been below 50 since December 1st, it was in a range of 50-56 before the collapse of Lehman Brothers. At the height of the financial crisis the ratio spiked above the 80s; today it sits at a lowly 47.1 - weak gold, stronger silver.

Let's update our record books and then do a quick calculation. Here's where we stand for the big three:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $31.275/oz 08:15:00 ET 01/03/2011, March contract most active
COMEX Copper $4.580/lb 19:30:00 ET 02/02/2011, March contract most active

This morning these metals are trading at the following levels with respect to their recent highs:

COMEX gold 1334.1/oz down 6.9%
COMEX silver 28.350/oz down 9.4%
COMEX copper 4.5380/lb down 0.9%

Hmm, that's a surprise, silver looks like its down more than gold! You may want to look at the ratio of the gold silver highs to explain this seeming contradiction. Record-to-record the gold/silver ratio is a very low 45.8 which I read as strong gold, even stronger silver. I'm willing to say that silver got a little ahead of itself at the beginning of the year but doesn't change my mantra for the first quarter of 2011, "Rising copper on falling gold, resilient silver."

Here's another good copper update from Bloomberg this morning:

Copper Rises to $10,000 on Speculation Recovery Will Spur Demand (Maria Kolesnikova and Glenys Sim, Bloomberg News, 2/3/2011 4:09 AM PT)

And on the good fortunes of the entire commodity space:

Commodities Reach Two-Year High as Global Growth Drives Demand (Stuart Wallace and Claudia Carpenter, Bloomberg News, 2/3/2011 3:39 AM PT)

Oil Watch

On Tuesday we identified North Sea Brent crude oil as a good barometer for the developing crisis in Egypt. It is above $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 (which may not be for a long, long time).

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

NYMEX light sweet crude $91.18 up $0.13
ICE North Sea Brent crude $102.8 up $0.46
Spread (ICE- NYMEX) = $11.62

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $97.36 up $0.35
ICE North Sea Brent crude $103.62 up $0.41
Spread (ICE- NYMEX) = $6.26

The take-away is this pardner: the spreads are narrowing in favor of 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.

What about your $1570/oz gold prediction before fireworks day, Colonel? I'm sticking to my guns, gold will get back to work after a good kick in the pants from the Eureka County Commissioners!

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 532.52, down a bit from from yesterday's 541.72. We are below the 1-month moving average of 598.69 and the 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 just 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 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

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

Commodity Market Morning Update

SPECIAL NOTE: The Report will track both NYMEX Western Texas Intermediate and ICE Brent crude oil prices until things settle down in the Middle East. WTI is a benchmark for North America; North Sea Brent, for Europe (see note 1).

NYMEX/COMEX: WTI Oil is up $0.32 in early trading at $91.18 (March contract, most active); Gold is up $2.0 to $1334.1 (April contract, most active); Silver is up $0.061 to $28.350 (March contract, most active); Copper is down $0.0060 to $4.5380 (March contract, most active)

Brent Crude is up $0.46 at $102.8 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.60; LME moly 3-month seller's contract is $17.69, LME cash seller is $17.51

Stock Market Morning Update

The DOW is down 23.53 points to 12,018.44; the S&P 500 is down 2.46 at 1301.57. Miners are mixed:

Barrick (ABX) $47.63 up 0.21%
Newmont (NEM) $56.20 up 0.99%
US Gold (UXG) $6.66 up 1.33%
General Moly (Eureka Moly, LLC) (GMO) $5.60 up 0.90%
Thompson Creek (TC) $14.03 down 0.43%
Freeport-McMoRan (FCX) $56.01 down 0.45% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.10 down 1.45% - global steel producer
POSCO (PKX) $106.32 up 0.21% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.21% at $1,734,945.66(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

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