Gold Scares $1280 - Pensions Head for the Mineshaft

*** REMINDER *** Don't forget to attend the Eureka Moly Community Appreciation Picnic, Saturday, 10/2/2010 behind the old elementary school and across from the swimming pool. For more information contact Carri Wright at (775)237-7700 or Elaine Barkdull-Spencer at (775)340-2045


Þūnresdæg
Morning Miners!

It is 5:46 AM. Have a cup of Thor's thunderous java - looks like a good day, pardner. Oh, ignore our favorite Norseman sitting over in the corner of the break room. He's been in a huff ever since Jerry chased him out of Windfall Range yesterday. Thor was pitching thunderbolts when he started a small brush fire at the 200-yard target. He says he was just getting his arm in shape for the winter season. I guess the ole Colonel can expect a call from Mike today to keep a closer eye on this rascal, we don't want a September wildfire! Hey, there's a lot of good stuff going on today for the metals & miners...

A New Role for Gold, Silver & Copper?

I heard noted economist David Malpass propose a new thought on precious metals the other day on CNBC Business News. He said the recent run-up in gold price and U.S. Treasurys is less about investors seeking "safe haven" and more about "equity aversion." After the so-called "flash crash" and the 2008-2009 downturn, many folks have just given up on the stock markets as a wise place to put their money.


The Malpass observation explains why copper and gold are now in a rally together. Typically when investors rush to safe havens, gold goes up and copper falls down the mineshaft. Some investors now view commodities and the companies that produce them as a safer bets than the broader stock market. This 6-month chart of the Philadelphia Gold/Silver Index (.XAU) versus the S&P 500 tells part of the story:



The Philadelphia Gold and Silver Index is an index of eleven precious metal mining companies that is traded on the Philadelphia Stock Exchange and includes most of our favorite miners (e.g., Barrick, Newmont, Kinross, Goldcorp and Freeport-McMoran). In the last six months (which includes the highs of last April) the S&P 500 is down 4% and the XAU is up 12%.

Copper is a good example for the other piece of the puzzle. Since late August, the red metal has been on a tear nearly reaching its April highs. COMEX copper is up 10% since August 25th while the S&P 500 has only risen 6%. Not all stocks are being shunned - the miners have been hot with copper giant Freeport-McMoRan (FCX) rising 23% over the same period.

This morning COMEX gold, silver and copper all had a very good bounce. Here are the highs so far today:

COMEX gold $1279.5/oz (4:30 a.m. PDT, December contract, most active)
COMEX silver $20.795/oz (4:30 a.m. PDT, December contract, most active)
COMEX copper $3.5115/oz (6:20 a.m. PDT, December contract, most active)

The broader markets are now open and our metals are up but have pulled back a tad. The S&P 500 is starting out in the red.

Pensions Head for the Mineshaft

Some of the most conservative investors are pension fund managers and it seems they are now heading for the mineshaft too. Here is a morning article from Reno reporter Dorothy Kosich.

Pension funds to invest more as global mining sector M&A heats up (Dorothy Kosich, Mineweb, Reno 09/16/2010)

She reports on a recent PricewaterhouseCoopers (PwC) study which says more large pension funds will invest in mining, "one of the few bright spots in the global economy." One of the drivers has been recent mergers,"...As the potential for commodity scarcity escalates, M&A activity in the global mining sector will likely intensify, mimicking a ‘global arms race.'"

One example of such mergers is the acquisition of Red Back Mining Inc. by Kinross Gold Corp. as reported by Adella Harding of the Elko Daily Free Press:

Voters OK Red Back acquisition (Adella Harding, Elko Daily Free Press, 9/15/2010)


This Report has stated previously (based on no more information than the seat of the Colonel's britches) that a junior miner like U.S. Gold (UXG), that owns properties on the Eureka-Carlin trend, could be in the cross-hairs of the gold giants given this environment. Stay tuned, buckaroos!

Daily Market Roundup

Enough idle speculation, let's walk the walk:

The Eureka Miner's Index(EMI) is above-par at 221.47, up from yesterday's 215.24 and a long way from the 6/7/10 low of 50.7. The EMI high for the year was 259.35 on 4/12/2010 - the same day that COMEX copper peaked. Today's number is below a lower trend level of 231.48 but comfortably above support at 178.59. Remember an EMI greater than 100 is good times (or at least better times) for the metals & miners relevant to Eureka County.

Eureka Outlook Dashboard

4-WD is OFF - improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners are on firm timber with bellwether Freeport-McMoRan (FCX) in the low-$80s above its 200-day average of $74.48 (our new warning level, 9/03 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is still 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 below 3.00%

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/Deflation Watch as the Federal Reserve resumes buying back Treasurys and the 10-yr T-Note remains below 3.00%

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets but the bond markets still 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?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.77 in early trading at $75.25 (October contract, most active); Gold is up $7.2 to $1275.9 (December contract, most active); Silver is up $0.129 to $20.700 (December contract, most active); Copper is up $0.0435 to $3.5100 (December contract, most active)

Western Molybdenum Oxide is $15.50; European Molybdenum Oxide is $15.65; LME moly 3-month seller's contract is $16.33, LME cash seller is $16.01

Stock Market Morning Update

The DOW is down 20.47 points to 10552.26; the S&P 500 is down 3.60 to 1121.47. Miners are up:

Barrick (ABX) $45.41 up 0.93%
Newmont (NEM) $63.33 up 0.68%
US Gold (UXG) $5.23 up 1.18%
General Moly (Eureka Moly, LLC) (GMO) $3.23 up 0.31%
Thompson Creek (TC) $10.23 up 0.29%
Freeport-McMoRan (FCX) $81.95 up 0.68% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.46 down 0.70% - global steel producer
POSCO (PKX) $110.45 down 2.46% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.22% to $1,464,616.69 (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 photograph by Mariana Titus