Metals Trifecta: Gold Breaks $1300 - Silver, Copper + EMI New Highs

Morning Miners!

It is 5:44 AM. Have some fresh-from-the-shelf Raine's Triple-X TGIF coffee, pardner. Happy to see you as always, we have an exciting day ahead with our favorite metals and the Eureka Miner's Index(EMI) all hitting new highs. Here is the latest from the COMEX:

(Note the following numbers were updated after Friday market close):

COMEX gold $1301.6/oz 09:15:00 ET (December contract, most active), updated
COMEX Silver $21.49/oz 15:45:00 ET (December contract, most active), updated
COMEX Copper $3.6360/lb 09:50:00 ET (December contract, most active), updated

Settlement prices (9/24/2010)

COMEX gold $1298.1/oz (December contract, most active)
COMEX Silver $21.399/oz (December contract, most active)
COMEX Copper $3.6180/lb (December contract, most active)

Gold is at a new record in today's dollars (the 1980 inflation-adjusted peak was $2300/oz) and silver is at its best level since 1980 (note 1). Intraday copper is at 5-month highs not seen since April 12th. Copper was just north of $4/lb pasture in mid-2008 before the financial crisis opened the trap door on base metal prices.

EMI hits a new high for the year, what's next?

Currency instability provides a positive environment for the precious metals as evidenced by Japan's latest actions to weaken their currency and the recent statement from our Federal Reserve. If you're catching up, this Report has discussed the yen intervention, Japan Intervenes on Yen, and the possibility of further quantitative easing by the Fed, Will gold Break $1300 Today or Tomorrow?

Interestingly, commodities have come along for the ride too buoyed by tight supply conditions (e.g., Russian wheat crisis, rapidly falling London Metal Exchange inventories) as well as a falling U.S. dollar. The one notable commodity that hasn't participated in this rally is crude oil although today's prices are above $75/bbl today with NYMEX crude trading at $75.94/bbl.

Oppenheimer's Carter Worth made the point yesterday on CNBC Business News that contrary indications like rising metal and falling oil prices are a sign that markets are at an equilibrium point, the number of bulls equals the number of bears.

Further evidence of this stable point is the S&P 500 which closed barely a percent above where we were at the close of 2009 although it looks like we're having a nice rally to the upside today. The S&P 500 200-day average is 1,116.77, the 12/31/2009 close was 1,115.10, yesterday's close was 1,124.83.

Fortunately, the metals & miners are setting new records against this backdrop of broader market malaise. The Eureka Miner's Index(EMI) is at a new high for the year at 273.78 and bellwether miner Freeport-McMoRan is trading above $85 at $86.63. This Report has said that oil, gold and copper moving in the same direction is the best environment for the metals & miners and perhaps a necessary condition to maintain this rally. Monday we'll take a closer look at the correlations of these three important commodities.

Reaction from Three Experts

The Wall Street Journal this morning gave the reaction of three experts to the Friday surge:

Alan Ruskin, Deutsche Bank: “We are seeing plenty of negative [U.S. dollar] trades expressed through commodities that go well beyond gold (a relative underperformer) with silver breaking to new highs another expression of [quantitative easing] debasement fears.”

Camilla Sutton, Scotia Capital: “The threat of quantitative easing in the U.S. and unsterilized currency intervention in Japan has led to some early skepticism over paper currencies. This is in part what has let to the rally in gold, but it is also being played out by a weakening [U.S. dollar]. We expect that downward pressure on the [U.S. dollar] will be sustained well into the fall.”

Andy Brenner, Guggenheim Securities: “The stronger tone of [emerging markets] continues to add to the commodity prices, which generates a big chunk of [emerging market] earnings … silver hit a new 30-year high while gold traded over $1,300… other commodities and softs remain strong. This is a big positive.”

A View from the Goldbugs

One of this Report's favorite London goldbugs, Lawrence Williams, wrote a good summary article in Mineweb just before the $1300/oz level was breached:

Gold on the $1300 brink - London silver fixes at $21.35 (Lawrence Williams, Moldon, Mimeweb 9/24/2010)

Mr. Williams reports on how safe haven investment-related buying of precious metals has more than offset the negative effect high prices have on jewelry demand in key markets like India, the Middle East and Turkey. He cautions gold may see some pullback in October.

Stay tuned, buckaroos.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

The Eureka Miner's Index(EMI) is above-par at 273.78, up from yesterday's 233.76 and a long way from the 6/7/10 low of 50.7. This exceeds the EMI high for the year of 259.35 set on 4/12/2010 - the same day that COMEX copper peaked. Today's number is also above an upper trend level of 268.67 and very comfortably above support at 186.51. Remember an EMI greater than 100 is good times (or at least better times) for the metals & miners relevant to Eureka County.

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) above the mid-$80s and 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 up $0.76 in early trading at $75.94 (November contract, most active); Gold is up $4.1 to $1300.4 (December contract, most active); Silver is up $0.212 to $21.425 (December contract, most active); Copper is up $0.0305 to $3.6210 (December contract, most active)

Western Molybdenum Oxide is $15.00; European Molybdenum Oxide is $15.15; LME moly 3-month seller's contract is $16.33, LME cash seller is $16.06

Stock Market Morning Update

The DOW is up 178.6 points to 10841.03; the S&P 500 is up 21.45 to 1146.28. Miners are mixed:

Barrick (ABX) $46.33 down 0.81%
Newmont (NEM) $63.41 down 0.69%
US Gold (UXG) $5.02 up 0.77%
General Moly (Eureka Moly, LLC) (GMO) $3.23 up 1.89%
Thompson Creek (TC) $10.91 up 4.00%
Freeport-McMoRan (FCX) $86.63 up 2.85% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.30 up 3.85% - global steel producer
POSCO (PKX) $110.34 up 1.91% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.66% to $1,494,844.98 (what's this?).

Cheers,

Colonel Possum

Note 1: Silver futures reached an all-time high of $50.35 in 1980, a year after the Hunt brothers tried to corner the market. The unadjusted peak price of gold in 1980 was $852/oz.

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