"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.

Tuesday, February 1, 2011

New Record for Copper, Is $100 Oil Next?

*** BREAKING NEWS *** The S&P 500 has again broken the psychologically important level of 1,300 hitting 1,301.07 at 10:41 AM ET

Morning Miners!

It is 5:55 AM. Have a cup of Tuesday brew - I'm drinking a cup of crow. Sweet Ruby T reminded me that the new moon is Thursday and scolded me for celebrating Chinese New Year a few days early. For penance the ole Colonel hung up the Marlboro Man sign she found at a Battle Mountain yard sale this weekend. Ruby is in good spirits, let's check out the new copper record she just hauled in on her lo-boy trailer...

COMEX copper sets a new record

COMEX copper broke above $4.50/lb in the wee morning hours reaching $4.5135/lb; the 12th record since the Pearl Harbor Day highs of last December. COMEX gold wishes it could boast a new record trading at $1337.3/oz, a long way down from its high of $1432.5/oz set on 12/7/2010.

For the record keepers, 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 $4.5135/lb 03:00:00 ET 02/01/2011, March contract most active

Our favorite London correspondent Claudia Carpenter reports a boost to the red metal as well as aluminum and nickel as base metals continue to be devoured by the insatiable dragon:

Copper Rises to Record, Aluminum, Nickel Climb as China Grows (Claudia Carpenter, Bloomberg News, 02/01/2011 5:45 AM PT)

Is $100/bbl oil next?

If you live in Europe the answer is yes, you're already there. The unfolding crisis in Egypt has pushed North Sea Brent crude over the $100/bbl mark trading today at $100.83/bbl on the ICE exchange. A difference in inventories has kept the U.S. benchmark oil price below par with NYMEX Oil now at $91.58/bbl. NYMEX uses West Texas intermediate (WTI) or Texas "light sweet crude oil" as the underlying commodity for oil futures contracts (see note 1).

Brent and light sweet crude are typically closer in price, an escalation in geo-political tensions could easily close the gap to $100/bbl oil for North America. Dr. Mohamed Abdulla El-Erian, CEO and co-CIO of PIMCO, warned CNBC Business News yesterday that the developments in his native country could be more far-reaching than many assume. His voice is important in markets because PIMCO is the world’s largest bond investor with over $1 trillion of assets under management. Dr. El-Erian said that classical analysis would say the Egyptian crisis is contained but that it ignores Egypt's role as an "enabler" for the region with respect to regional economics and as a peace-maker between Israel and the Arab world. He offered both a best and worst case scenario. Restoration of democracy in Egypt may serve as a good example and stabilizing influence for the entire region; a descent into chaos may become a real threat to the global economic recovery.

On December 10th of last year, I said that the we could very well see $100/bbl oil before mid-year. Last Friday's flare up in Egypt served as an example that gold remains a safe-haven play even though it has been abandoned lately by investors seeking interest bearing alternatives. If things begin to unwind abroad, it is not unrealistic to think that gold could recover some of its luster and head for $1400/oz or even $1500/oz territory.

This morning the 3-month gold/oil ratio is 15.67 with a 3.35% error (see note 2). If we apply $100/bbl oil to the present ratio we get $1,567/oz gold. I have cautioned that using commodity ratios to predict future prices is not reliable when the error exceeds 3% so we shouldn't take this calculation to the bank. The present ratio is 14.60 which gives us $1,460/oz gold with a 1-month oil-gold correlation of 0.68. Although accuracy is an issue, these simple calculations hopefully illustrate where gold may be headed on an oil spike. I intend to update my more detailed oil/gold models for February in the next several days.

The Colonel's 12/10/2010 price prediction for gold was $1,570/oz by the Fourth of July. Stay tuned buckaroos.

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 559.19, up from yesterday's 471.91. We are below the 1-month moving average of 622.23 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) is just at 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 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

NYMEX/COMEX: Oil is down $0.61 in early trading at $91.58 (March contract, most active); Gold is up $2.8 to $1337.3 (April contract, most active); Silver is up $0.181 to $28.350 (March contract, most active); Copper is up $0.0365 to $4.4950 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.69, LME cash seller is $17.51

Stock Market Morning Update

The DOW is up 69.29 points to 11,961.22; the S&P 500 is up 11.60 at 1297.72. Miners are up:

Barrick (ABX) $48.02 up 1.07%
Newmont (NEM) $55.70 up 1.14%
US Gold (UXG) $6.53 up 2.03%
General Moly (Eureka Moly, LLC) (GMO) $5.14 up 0.98%
Thompson Creek (TC) $14.11 up 4.21%
Freeport-McMoRan (FCX) $111.90 up 2.90% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.87 up 1.07% - global steel producer
POSCO (PKX) $104.15 up 1.97% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.31% at $1,794,903.40(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 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).

Note 2 - In this case "error" refers to the oil/gold ratio standard deviation divided by its mean over a 3-month record.

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

1 comment:

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