Metals & Miners Rock on China, U.S. Employment Data

Wōdnesdæg
Morning Miners!

It is 6:07 AM. Grab a well deserved cup of hump day java on this first day of December. Old Miner Woden is wasting no time hanging up lights in the hi-bay, his new adopted home for the winter. The ole Colonel is happy he's not freezing out at Lone Mountain as long I can still fetch a tool from the crib without tripping over his dad blame bedroll.

Metals & Miners Rock on China, U.S. Employment Data

It is great to start a new month without another European debt worry dominating the headlines. Better than expected manufacturing data from from China (and yes, even Europe) together with a strong pop in U.S. private sector jobs has surged the metals & miners this morning. According to today's Automatic Data Processing (ADP) report, November is the tenth consecutive month of gains and the largest one-month gain in three years adding 93,000 private sector jobs. The monthly Labor Department employment report will be out bright and early Friday.

Metals Underpinned by Fundamentals

Another positive sign is continued evidence of real supply/demand forces underpinning the metals market. At the London Metal Exchange (LME), base metal inventories including aluminum, copper,nickel and zinc are in decline with only lead showing accumulation. The LME cash/3-month copper contracts are in backwardation, the widest gap seen since October 2008. Backwardation is a futures market condition where front month copper trades above longer-dated contracts, often a sign of demand out pacing supply. A similar condition exists at the COMEX where the most active copper contract (March, 2011) is trading at $3.8880/lb above both July and December futures for next year ($3.8125/lb and $3.7775/lb respectively). Bloomberg News carries a good article on copper this morning:

Copper Gains for a Third Day on Stronger Chinese, European Manufacturing (Maria Kolesnikova, Bloomberg News, Dec 1, 2010 5:39 AM PT)

Below is a plot of 1-month LME copper inventories. Earlier this year, copper inventories exceeded of 550,000 tonnes; today's number sits at 356,550.


COMEX Gold comes within $2 of $1400/oz

Although it has since fallen back, COMEX gold nearly broke the $1400/oz level in the wee hours this morning ($1398.3/oz, 06:40 ET, February contract). The euro has halted its decline for now sitting above $1.30 at $1.3098 strengthening against the U.S. dollar and yen. This will no doubt put some downward pressure on gold until the next episode of the European sovereign debt melodrama. The Colonel remains bullish on gold price.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index (EMI)

The Eureka Miner's Index(EMI) has jumped back above its 1-month average on this morning's news. The EMI is above-par at 533.85, up dramatically from yesterday's 400.84. The 1-month moving average is 470.82. Today's number is also above the downward trend line of 485.02 The 2010 record high for the EMI is 661.28 set 11/9/2010; the low was set 6/7/2010 at 50.7. Although an EMI greater than 100 signals better times for the metals & miners relevant to Eureka County, the EMI reversed its upward trend after the November 9th high.

Eureka Outlook Dashboard

4-WD is OFF - Improving conditions in the marketplace; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is in the low-$100s 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 up $1.43 in early trading at $85.54 (January contract, most active); Gold is up $3.5 to $1389.6 (February contract, most active); Silver is up $0.228 to $28.440 (March contract, most active); Copper is up $0.0625 to $3.8880 (March contract, most active)

Western Molybdenum Oxide is $15.75; European Molybdenum Oxide is $16.20; LME moly 3-month seller's contract is $16.19, LME cash seller is $15.94

Stock Market Morning Update

The DOW is down 195.79 points to 11201.81; the S&P 500 is down 19.96 to 1200.51. Miners are full of holiday cheer:

Barrick (ABX) $52.21 up 1.08%
Newmont (NEM) $58.98 up 0.25%
US Gold (UXG) $6.83 up 4.12%
General Moly (Eureka Moly, LLC) (GMO) $5.64 up 2.17%
Thompson Creek (TC) $12.66 up 4.19%
Freeport-McMoRan (FCX) $104.47 up 3.11% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.06 up 4.36% - global steel producer
POSCO (PKX) $100.52 up 2.11% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 2.28% to $1,772,049.21 (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