"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, March 17, 2011

Dollar Plummets, Copper Rallies, Euro Moly Drops



Morning Miners!

It is 5:57 AM. Have a cup of Irish coffee. Oh, too early for you? Here's some Red Label. There are few things sillier than watching our favorite Norseman Thor trying to look Irish. He's painted his cap green and made a mess of the shop. Have a happy St. Paddy's!

U.S. Dollar plummets, copper rallies

One of the other casualties of the horrific earthquake, tsunami and nuclear crisis in Japan has been the poor ole greenback. The so-called "yen repatriation" trade has sent the U.S. dollar to a post-World War II low against the yen of 76.25 in very early Asian trading (i.e. one U.S. dollar buys only 76.25 Japanese yen). It has since recovered some; now trading now at 78.69, yesterday's dollar close was a higher 79.85.

Since most commodities are "dollarized", dollar weakness has lifted many this morning from copper to corn. The London Metal Exchange says it all in their morning headline, "Metals extend corrective bounce, dollar weakness aids trend." As we mentioned yesterday, the other part of the metallic rebound is the idea that Japan reconstruction will eventually support future metal demand. COMEX Copper is presently trading at $4.30/lb up more than 5% from its intraday bottom of $4.0760/lb on Tuesday.

Even though the euro has shown some weakness against the yen, it has rallied against the dollar too driving the U.S. dollar index below its 52-week low (the U.S. dollar index or .DXY is a basket of currencies that include the euro and yen). The three reserve currencies of the world are the U.S. dollar, yen and euro putting us in an unenviable third place for comparable value. Dennis Gartman, the Commodity King and respected author of the Gartman Letter has said that gold has become the world's other "reserve currency" but it has been suffering this week along with the greenback. We watched COMEX gold dip into $1,300/oz country yesterday and it has barely returned to $1,400/oz pasture. COMEX gold is presently trading at $1,400.9/oz.

Nuts. The ole Colonel thinks this currency tsunami is a bit overdone. I believe we'll see the dollar regain its mojo against both the yen and euro and that gold will resume its trek to the $1,500+/oz highlands. Why? The Japanese will no doubt resort to quantitative easing to support their massive rebuild and Europe sovereign debt bugaboos will crawl back out from under the EU rug sooner or later. Even though our second round of quantitative easing is underway and we certainly have debt problems of our own, I'm betting our U.S. economic recovery will surprise to the upside later this year. Gold will get some wind in its sails too due to quantitative easing and global inflation fears.

On days like this I buy the DB US Dollar Bullish Fund (UUP) just to be a contrary old cuss. Please do your own research, I may be dead wrong.

The Colonel wins a bet, Euro Moly drops

One thing I've been right about is downward pressure on European molybdenum prices. Even though Western Moly has been steady-eddy for some time, changes in Euro moly oxide prices are important because Europe, with a high molybdenum content in their steels, creates a major share of global demand . On February 23rd we put the London Metal Exchange moly futures contracts to a test when the ole Colonel said:

"In Europe we've gone from contango to backwardation on the 3-month seller contract and spot price. I'm willing to place a bet that we'll see a fall in European spot prices soon. Here's a good Irish beer bet: European Moly Oxide will break below $17.50/lb before St. Patrick's day 2011." (Eureka Miner's Market Report, 2/23/2011)

Yesterday, European moly oxide prices dropped from $17.60/lb to $17.00/lb. On February 23rd Euro moly oxide was $17.82/lb - somebody buy me a beer!

We are now back to an orderly LME contango with respect to spot prices*:

Spot prices:

Western moly oxide $17.00/lb
Europena Moly Oxide $17.00/lb

LME futures contracts:

3-month seller $17.15/lb
15-month $17.58/lb

* Moly price is still predominantly determined by supply and demand and not speculative interest in the LME futures market. Although thinly traded, molybdenum futures have lately been behaving more or less like the major metals with periods of contango and backwardation of the 3-month and 15-month contarcts compared to moly oxide spot prices (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).

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 and North Africa. 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 key front month contracts as of this morning:

NYMEX light sweet crude $99.91
ICE North Sea Brent crude $113.12
Spread (ICE- NYMEX) = $13.21 (yesterday $12.07 )

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $101.50
ICE North Sea Brent crude $112.95
Spread (ICE- NYMEX) = $11.45 (yesterday $10.47)

Although prices are off their crisis highs, we still have $100+ Brent and NYMEX in June favoring higher prices for the summer if supply disruption outweighs demand destruction fears in the oil markets. The Colonel's December prediction that we would 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 267.63, down from yesterday's 297.53 and well below the 1-month moving average of 436.65. The EMI continues to be down from the high set on January 4th and a trend reversal in the short term is questionable.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. 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 of 100 is the boundary between good lands and bad lands for the metals & miners.

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 in a real rough patch; The VIX or "fear index" is above 25; bellwether Freeport-McMoRan (FCX) is between its 100-day and 150-day moving average again and above its 200-day average of $44.85 (our new warning level, 03/04 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, 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 $1.93 in early trading at $99.91 (April contract, most active); Gold is up $4.8 to $1400.9 (April contract, most active); Silver is down $0.012 to $34.370 (May contract, most active); Copper is up $0.1025 to $4.3000 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.00; LME moly 3-month seller's contract is $17.15, LME cash seller is $16.92

Stock Market Morning Update

The DOW is up 123.75 points to 11,737.05; the S&P 500 is up 15.41 at 1272.29

Miners are up:

Barrick (ABX) $48.56 up 0.37%
Newmont (NEM) $50.53 up 0.28%
US Gold (UXG) $7.00 up 0.86%
General Moly (Eureka Moly, LLC) (GMO) $4.93 up 2.28%
Thompson Creek (TC) $12.09 up 3.07%
Freeport-McMoRan (FCX) $51.48 up 2.37% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.89 up 3.20% - global steel producer
POSCO (PKX) $108.12 up 2.87% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.53% at $1,730,117.94 (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).

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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