Been There, Done That - Gold Stumbles

Morning Miners!

It is 6:09 AM. Have a cup of Scott Raine's new Holiday TGIF Coffee, there's some turkey leftovers in the frig. Monday when we kicked off a new season for this report, I promised to "...explore whether early November was a [market] top or if there is more upside as we near year's end." Hmmm.

Been There, Done That...

If the ole Colonel had to vote based on this week's data, I'd have to say the metals & miners are setting up for a rough patch. Unfortunately, the European sovereign debt problems have re-emerged and seem to worsen every day. Ireland is negotiating a bailout from the European Union and Portugal and Spain may be next in line. This has been terrific for the U.S. dollar and not so hot for the metal complex. The Wall Street Journal reports this morning:

"Spanish Prime Minister Jose Luis Rodriguez Zapatero moved to dispel the growing anxiety surrounding the country's fiscal position Friday, saying there was 'absolutely' no chance the euro zone's fourth-largest economy would seek a bailout from the European Union." (WSJ, 11/26/2010)

This is what London spot gold and silver thought of his assurances:




You may remember the Irish made similar "no way" statements before they caved in, so did Greece earlier this year. Let's take a look at gold (blue line) versus the U.S. Dollar Index (orange line) over that time period:



Gold hit a bottom in early February but then moved up with the U.S. dollar as the Greece crisis developed. The dollar index reached a top in early June which marked the worst time for the metals & miners this year. By mid-September, gold and the dollar were moving in their more traditional opposition with gold hitting a top of $1424.3/oz on 11/9 and copper reaching its high of $4.0835/lb on 11/11. If the Europe situation doesn't improve, the dollar and gold may resume running together as investors seek safe haven in both. This may be supportive for gold price but is a bleak omen for base metals.

This Report uses the Eureka Miner's Index(EMI) to gauge market temperature for the sectors that have the greatest impact on mining in Eureka County. Here is how the EMI fared when compared to the PowerShares UUP which tracks the U.S. Dollar Index:

Early June

UUP high 25.84 (6/7/2010)
EMI low 50.7 (6/7/2010)

Early November

UUP low 21.91 (11/4/2010)
EMI high 661.3 (11/9/2010)

Today

UUP 23.25 (11/26/2010)
EMI 441.2 (11/26/2010)

LIBOR moves up

Another troubling sign is the recent upward movement of the London Interbank Offered Rate (LIBOR) reported yesterday by the Wall Street Journal:

LONDON–The market in which banks borrow and lend dollars among themselves is seeing early signs of stress after months of relative calm, with growing nervousness over the euro zone’s peripheral nations sparking concerns that banks from the region may find it difficult to get their hands on the dollars they need. (WSJ, 11/25)

The three-month dollar LIBOR on Thursday reached its highest level since mid-September at 0.29188%. During the Greece crisis the LIBOR rose above 0.5% (It's all about Oil, Gold...and LIBOR?). The Colonel will be hawking this number buckaroos.

Good News for POSCO?

Bloomberg carried an interesting piece on POSCO this morning:

Stainless Steel Demand in Asia to Climb as Posco Seeks to Cut Nickel Usage (Bloomberg, Nov 26 2010 7:21AM)

POSCO, the world’s second-biggest maker of stainless steel and 20% owner of Mt.Hope, has had some bumps lately with artillery rockets flying in Korea and a cut of its full-year profit forecast by 7 percent. An expected rise in China’s stainless-steel production may improve their outlook although margins are being pinched by the recent run ups in nickel price. Molybdenum, another important ingredient in the manufacture of stainless tell, has enjoyed much more stable prices than nickel and is presumably less a worry for POSCO. Stay tuned.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index (EMI)

The Eureka Miner's Index(EMI) has stumbled below its 1-month average on today's European headlines. This morning the EMI is above-par at 441.16, down from yesterday's 515.09. The 1-month moving average is 452.23. The 2010 record high for the EMI is 661.28 set 11/9/2010; the low was set 6/7/2010 at 50.7. Remember an EMI greater than 100 signals improving times for the metals & miners relevant to Eureka County.

Eureka Outlook Dashboard

4-WD is OFF - cautious going in the marketplace although we're still above our key warning thresholds; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in the high $90s above its 200-day average of $75.91 (our new warning level, 11/01 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 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/Deflation Watch as the Federal Reserve resumes buying Treasurys (QE2)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 may flag trouble ahead

The YELLOW light is turned on our Fuel Gauge with oil above $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 $0.67 in early trading at $83.19 (January contract, most active); Gold is down $19.1 to $1353.9 (December contract, most active); Silver is down $0.943 to $26.585 (December contract, most active); Copper is down $0.0395 to $3.7160 (December contract, most active)

Western Molybdenum Oxide is $15.75; European Molybdenum Oxide is $16.20; LME moly 3-month seller's contract is $15.65, LME cash seller is $15.88

Stock Market Morning Update

The DOW is down 79.88 points to 11107.40; the S&P 500 is down 6.46 points to 1191.89. Miners are calling in sick:

Barrick (ABX) $50.15 down 1.40%
Newmont (NEM) $58.84 down 1.84%
US Gold (UXG) $5.72 down 1.89%
General Moly (Eureka Moly, LLC) (GMO) $5.49 down 1.96%
Thompson Creek (TC) $12.27 down 2.46%
Freeport-McMoRan (FCX) $98.64 down 2.07% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $31.64 down 1.03% - global steel producer
POSCO (PKX) $97.90 down 1.36% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 1.73% to $1,681,374.79 (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