Japan Intervenes on Yen - U.S Dollar Up

Wōdnesdæg
Morning Miners!

It is 5:44 AM. Have a hot cup of Hump Day Special with Old Miner Woden and the Colonel. He and I have been working this morning on a link to the Report's recent seven-part series on the historic Homestake Mine in the Black Hills of South Dakota. I'm being a little generous here, the Old Miner has about as much use for computers as a 3-piece suit.

"That gizmo don't even make a good wheel chock, Colonel!"

OK, OK. If you look to your right below the metal price charts there is a photo you can click on to link you to the series. In later years, Homestake Mining operated our Ruby Hill Mine in the late 1990s until it was acquired by Barrick Gold in 2001. Our thanks again to this Report's friend and contributor who provided the photographs and background for this series (see note 1).

Japan Intervenes on the Yen

The market mover for metals & miners today is the Japanese foreign-exchange intervention to weaken their soaring yen. The bank of Tokyo sold an estimated total of 1 trillion yen ($12 billion U.S. dollars) throughout the Asian trading day. Predictably the U.S. dollar strengthened against the yen. When the intervention began the yen was at a 15-year low of 83 yen (JPY) for one U.S. dollar (USD); this morning it had moved up to 85.63 or a 2.8% rise, the U.S. dollar index (.DXY) rose nearly 1%. The .DXY has since fallen back to a 0.7% rise as the broader markets open on these shores.

.DXY low (9/14) 81.00 (12:46 p.m. EDT)
.DXY high (9/15) 81.76 (4:51 a.m. EDT) up 0.94%
.DXY market open 81.57 (9:31 a.m. EDT) up 0.70%

Ho-hum, at least for now. COMEX gold is at $1270.0/oz and COMEX copper is about where it was yesterday at this time at $3.4435/lb (versus $3.4495/lb). Theory says a stronger dollar should generate headwinds for dollarized commodities and this may indeed be the case going forward, COMEX oil has dropped a $1.75 to $75.05/bbl. So far no big shakes.

Japan made this bold move to prop up their flagging export market and possibly arrest their decades long deflationary cycle. Markets are driven by two basic laws; supply & demand and fear & greed. External disturbances such as government intervention or something coming out of left field ("exogenous events" such as the 9/11 attack) can upset the marketplace in unexpected ways. Currency interventions are always a little scary.

Tokyo is determined to intervene further if deemed necessary, we'll just have to sit tight and see how all this plays. So far, the miners are down for the day except the big gold diggers and the Eureka Miner's Index(EMI) is only slightly behind yesterday's number (below).

The Report use two gauges of marketplace fear, the the S&P Volatility Index (VIX) and the gold-to-silver ratio (Au:Ag or GSR). The former is below our fear threshold of 25 at 22.36 edging up only slightly from yesterday's 21.61. The GSR is at its lowest level (i.e. decreasing fear) since we started computing the EMI in early June:

GSR 6/4/2010 high 69.942
GSR today, 9/15/2010 62.042

In happier days before the Great Recession, the GSR was in a range of 50-56 so we're moving in the right direction.

Shucks! Low fear + strong gold & copper - I remain bullish on metals & mining. Stay tuned, buckaroos.

Daily Market Roundup

Enough talk, let's walk the walk:

The Eureka Miner's Index(EMI) is above-par at 215.24, down a tad from yesterday's 217.20 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 222.46 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 $1.75 in early trading at $75.05 (October contract, most active); Gold is down $1.7 to $1270.0 (December contract, most active); Silver is up $0.038 to $20.470 (December contract, most active); Copper is down $0.0250 to $3.4435 (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 up 2.99 points to 10529.48; the S&P 500 is down 1.71 to 1119.39. Miners are down except for the big gold diggers:

Barrick (ABX) $45.44 up 0.49%
Newmont (NEM) $62.97 up 0.19%
US Gold (UXG) $5.25 down 0.19%
General Moly (Eureka Moly, LLC) (GMO) $3.15 down 0.33%
Thompson Creek (TC) $10.22 down 1.45%
Freeport-McMoRan (FCX) $80.66 down 0.96% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.37 down 0.83% - global steel producer
POSCO (PKX) $112.45 up 0.64% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.30% to $1,456,873.09 (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 Mill Sites in Lead, South Dakota.

Note 1: The headline and Homestake Series 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.