"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, March 18, 2011

Libya Cease-Fire, G7 Halts Yen, China Tightens

Morning Miners!

It is 5:47 AM. have a welcome cup of Raine's Friday Flag Raiser. It has been quite a week for news, let's see what headlines are rocking the metals & miners this morning...

Libya Cease Fire, G7 Halts Yen, China Tightens

The Wall Street Journal reports this morning that Libya's foreign minister Musa Kusa said, "...his country will abide by the U.N. resolution and will implement an immediate ceasefire and end to all military operations across the country." Apparently the threat of jets on their way was enough to cause Moammar Gadhafi to blink:

"Earlier on this morning, U.K. Prime Minister David Cameron said Britain had begun to deploy aircraft to enforce a no-fly zone in Libya, and Qatar became the first Arab nation to join the mission, after the United Nations Security Council authorized military force against Libyan leader Col. Moammar Gadhafi's regime." (WSJ, 03/18/2011)

Far from over, this is a major step in relieving some of the supply disruption fears coming from this oil rich region. NYMEX is still above $100/bbl but down from yesterday presently trading at $100.72/bbl (see Daily Oil Watch below).

The next headline of note is yesterday's intervention by the Group of Seven (G7) economies to halt the strengthening yen. Coordinated selling of the Japanese yen by some of the G7 members weakened the yen against the U.S. dollar and euro, the world's two other reserve currencies. The recent and dramatic rise in yen strength has been attributed to "repatriation" of Japan's currency in response to their earthquake-triggered multiple disasters. So far, it appears the euro benefited over the dollar trading presently at 1.4135 (EUR/USD) with the yen at 81.16 (USD/JPY). One euro now buys 114.7 yen (EUR/JPY). Yesterday, the U.S. dollar fell to a post-World War II low against the yen of 76.25 (USD/JPY).

So what do all these currency machinations do for metals? Most commodities are "dollarized" so a weakening dollar tends to support commodity prices. We saw everything from copper to corn bounce yesterday, due in part to the strengthening yen. However, the rise in the euro today against the dollar has actually pushed the U.S. dollar index (a basket of currencies including the yen and euro) to near November lows. Presently the index is at 75.83; the November low was 75.631 on 11/4. The net overall effect on commodity prices given the G7 intervention is therefore far from clear (at least to this ole boy). COMEX copper seems to be holding up alright down only $0.0100 from yesterday, trading at $4.3340/lb. The London Metal Exchange had a fitting headline for the morning's uncertainty, "Buying momentum stalls across [metal] complex, doubts cast on sustainability of bounce."

To add to the confusion, China raised banks’ reserve requirements for the third time this year. They reckon that inflation remains a bigger threat to the world’s second-largest economy than Japan’s earthquake and nuclear crisis. Any monetary tightening in China puts pressure on metal prices because traders begin to question the vigor of the global growth story. These worries were further aided by an Indian rate hike yesterday. News of currency instability together with inflation was apparently good for gold and silver prices; COMEX gold is up $12.6 to $1,416.8/oz, COMEX silver up $0.792 to $35.05/oz.

The broader markets are now open and it looks like at least the miners are liking the morning headlines as the Eureka Miner's Index(EMI) gets a nice bump up from yesterday (see below). Have a good weekend.

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 $100.72
ICE North Sea Brent crude $114.00
Spread (ICE- NYMEX) = $13.28 (yesterday $13.21 )

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $102.29
ICE North Sea Brent crude $113.64
Spread (ICE- NYMEX) = $11.35 (yesterday $11.45)

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 343.47, up from yesterday's 267.63 and below the 1-month moving average of 422.91. 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 just below 25; bellwether Freeport-McMoRan (FCX) is a tad below its 150-day moving average 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 RED light is turned on our Fuel Gauge with oil above $100

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 down $0.70 in early trading at $100.72 (April contract, most active); Gold is up $12.6 to $1416.8 (April contract, most active); Silver is up $0.792 to $35.05 (May contract, most active); Copper is down $0.0100 to $4.3340 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.00; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.92

Stock Market Morning Update

The DOW is up 144.70 points to 11,919.37; the S&P 500 is up 13.08 at 1286.80

Miners are mostly up:

Barrick (ABX) $49.33 up 1.80%
Newmont (NEM) $51.79 up 1.91%
US Gold (UXG) $7.27 up 1.96%
General Moly (Eureka Moly, LLC) (GMO) $5.03 down 0.40%
Thompson Creek (TC) $12.48 up 1.71%
Freeport-McMoRan (FCX) $52.59 up 1.13% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $34.79 up 2.02% - global steel producer
POSCO (PKX) $111.29 up 2.42% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.49% at $1,773,867.79 (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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