Silver Breaks $19, Euro-Moly Moves to $16 - Animal Spirits?

Þūnresdæg

Morning Miners!

It is 6:00 AM sharp. Have a thunderous cup of Thor's lightening-tempered java. I'm still trying to teach our favorite Norseman that electricity can flow down wires as easily as clouds. We're making progress - no more fires in the parking lot to heat the Thor's Day coffee. The ole Colonel still has to plug in the pot but Thor has discovered how to turn on the T.V. His favorite show? The Weather Report.

Weekly Jobless-Claims Surprise to the Upside

Weather may improve in the markets today with a positive surprise in the week's jobless-claims numbers. The Labor Department reports that initial unemployment claims declined by 31,000 to 473,000 in the week ending Aug. 21. Economists surveyed by Dow Jones Newswires had predicted filings would decline by 10,000. That's promising but the big boy Labor Report for the month of July will come out next Friday before the Labor Day weekend. The GDP report tomorrow, followed by the monthly labor report and well-heeled investors returning after Labor Day from their August vacation in the Hamptons will all be market moving events buckaroos. Stay tuned.

Silver on a Tear

There is nothing more tiresome than an "I-told-you-so." The ole Colonel will take a little credit, however, for suggesting it may be time to buy silver earlier this week (Good Time to Buy Silver or Sift Sand for Bean Gold?). COMEX silver dipped to an intraday low of $17.735/oz on Tuesday; early this morning COMEX silver peaked to $19.165/oz before falling back some to $19.020/oz. The move from low to high was a respectable 8.1% for a bounce in gold of only 2.7% for the same period.

The gold-silver ratio (Au:Ag ratio) is presently 64.99 down from 68.21 Monday. At these levels a decrease in Au:Ag signals that fear is receding from the marketplace (at least for today).

A "Liquidity Trap" Could Hurt Metals & Miners


I listened to a very interesting interview on CNBC news this morning before Thor turned on the Weather Channel. Mohamed El-Erian who runs PIMCO, the world's largest bond trading firm, gave an update on his big picture. You may remember that El-Erian coined the term "new normal" last year to describe a world going forward with lower economic expectations and slower growth prospects. Today he expanded on what he describes now as a "liquidity trap" for the Federal Reserve. With the Fed's target rate near zero, Uncle Ben has fewer remedies in his medicine bag to revive a muddling economy. Low interest rates typically move investors to riskier assets such as commodities as fear recedes from the marketplace. The Fed would also like banks to lend more and for companies to invest their piles of rainy day cash. If everyone stops taking these risks a liquidity trap occurs with the threat of deflation down the road. According to Mr. El-Erian the only thing that will save us will be "animal spirits" returning to the markets or a change in monetary policy (he didn't say what that change should be). If this scenario is correct a "liquidity trap" could be potentially devastating for the metals & miners sector. With policy changes doubtful in the near term, I guess optimists like me need to pray to the animal spirits. Looking at this morning's markets it appears the animals are back in charge (at least for a day). Copper is up; Moly futures on the London Metal Exhange (LME) and European Moly Oxide are all above $16.00/lb - that's a Colonel Yee-ha!

Daily Market Roundup

Enough talk, let's walk the walk:

The Eureka Miner's Index(EMI) rebounded to an above-par 119.44; a big bounce from yesterday's sub-par 98.64 and a long way from the 6/7/10 low of 50.7. Today's number is promising but we now need to break resistance levels of 139.53 and then 151.54 to break the recent trend reversal to the downside. Remember an EMI greater than 100 is good times (or at least better times) for this sector.

4-WD is ON - rough roads in the marketplace; The VIX or "fear index" is above 25; metals & miners are still on shaky timber but bellwether Freeport-McMoRan (FCX) has returned to the high-$60s but below its 200-day average of $75.3 (our new warning level, 8/05 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is some deflationary caution now that we are sub-3%.

The YELLOW light is turned back on for Commodity Reflation. Although copper is trading above $3/lb, the 10-yr T-Note is solidly below 3.00%

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation/Deflation Watch as the Federal Reserves resumes buying back Treasurys and the 10-yr T-Note remains below 3.00%

The YELLOW light is turned back on for Investor Confidence as the bond markets signal trouble ahead

The GREEN light is turned on our Fuel Gauge with oil below $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

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

NYMEX/COMEX: Oil is up $0.26 in early trading to $72.78 (October contract, most active); Gold is down $3.8 to $1236.10 (December contract, most active); Silver is down $0.006 to $19.020 (September contract, most active); Copper is up $0.0685 to $3.2795 (September contract, most active)

Western Molybdenum Oxide is $14.75; European Molybdenum Oxide is $16.00; LME moly 3-month seller's contract is $16.67, LME cash seller is $16.44

The DOW is up 23.61 points to 10083.67; the S&P 500 is up 4.55 to 1059.88 The miners are up:

Barrick (ABX) $45.76 up 1.40%
Newmont (NEM) $59.11 up 0.63%
US Gold (UXG) $4.94 up 1.65%
General Moly (Eureka Moly, LLC) (GMO) $3.05 up 2.35%
Thompson Creek (TC) $8.56 down 1.18%
Freeport-McMoRan (FCX) $68.16 up 2.25% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $28.62 up 0.85% - global steel producer
POSCO (PKX) $102.43 up 0.44% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.12% to $1,356,149.18 (what's this?).

Cheers,

Colonel Possum

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Headline photo: Homestake Mine in Lead, South Dakota. The headline and other old time photos can be seen at the Homestake Visitor Center on 160 West Main Street, Lead, South Dakota. Please pay them a visit on your next pass through.

Our thanks again to the faithful reader that made these wonderful photographs available to the Report.