Easy Money, Easy Times for Miners?

Þūnresdæg
Morning Miners!

It is 6:17 AM. Grab a cup of search and rescue coffee. I just sent our favorite Norseman Thor out to Lone Mountain to look for Ruby and Old Miner Woden. Those two took off yesterday to check on Woden's claim and haven't been seen since. I'll bet they got stuck in the flats. If we don't hear back from Thor we may be headed for a short one next week without a Tuesday, Wednesday or a Thursday! In the meantime, have a happy "Thor's Day!" Speaking of search and rescue how are the metals & miners doing today?

Easy Money, Easy Times for Miners?

Yesterday the Federal Open Market Committee (FOMC) voted unanimously to push ahead with its controversial $600-billion asset purchase program. With the Fed's target interest rate expected to remain near-zero for a long time to come there are a lot of easy dollars floating around the globe. In contrast, the European Central Bank is signaling they may be forced to increase key rates to counter rising inflation. This possibility coupled with declining fears about Europe's sovereign debt crisis have boosted the euro and sent the U.S. dollar index down the mineshaft. Easy money plus falling dollar sends commodity prices ever higher.

On the day after the DOW Jones broke the psychologically important level of 12,000 it is reasonable to wonder why the miners haven't joined the party lately with rising stock markets and inflated commodity prices. The ole Colonel thought it might be interesting to look at the broad commodity index or CRB, the S&P 500 and our bellwether miner Freeport-McMoRan (FCX) over the last six months. The comparison may surprise you.

August 2, 2010

CRB 274.71
S&P 500 1125.86
FCX $74.8/sh

Yesterday, January 26, 2011

CRB 333.83 up 21.2%
S&P 500 1296.63 up 15.2%
FCX $110.32/sh up 47.5%

Say, that's a pretty impressive move by Freeport. Over the same 6-month period COMEX copper prices have risen 26.0%, a little better than the overall commodity index rise of 21.2%. Copper giant Freeport-McMoRan has risen a jaw-dropping 47.5%, nearly twice the rise in copper and more than three times the move up in the S&P 500.

On the 12th of this month, FCX hit an intraday high of $122.69 or 64% above its early August price. It has corrected down 10% since but still posts the strong performance numbers given in our table.

What's your point Colonel? I believe, as the data shows, the miners just got a little bit too far ahead of the pack and are presently undergoing an overdue market correction. As we pointed out yesterday, bellwether Freeport is struggling with its 50-day moving average (today, $111.56) but is still well above the 150-day at $90.71. Unless we fall into the nineties, I continue to maintain that the mining sector will regain momentum this spring and rise again with inflating metal prices.

What a minute, what about gold miners? I think gold will regain its mojo too. We got pretty close to my "low ball" estimate of $1320/oz for January on the 25th when prices dropped to $1321.90/oz. This morning we're back up to $1334.2/oz and most of the gold miners had a nice pop yesterday - junior miner U.S. Gold (UXG) jumped 12.5%. I'm sticking to my guns with my prediction of $1570/oz before the Fourth of July. If FCX drops into the low-nineties we may have to re-calibrate some of my expectations for the mining sector. Stay tuned.

Daily Market Roundup

Enough hollering, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 570.62, up from yesterday's 492.46. We are below the 1-month moving average of 652.44 and the the EMI is now trending down from the high set on January 4th.

The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI greater than 100 signals better times for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Eureka Outlook Dashboard

4-WD is ON - The metals & miners have hit a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 50-day moving average but still well above its 200-day average of $83.07 (our new warning level, 01/05 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

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 Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

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 $0.34 in early trading at $86.99 (March contract, most active); Gold is up $1.2 to $1334.2 (February contract, most active); Silver is up $0.472 to $27.600 (March contract, most active); Copper is up $0.0790 to $4.3460 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.92

Stock Market Morning Update

The DOW is up 12.98 points to 11,998.42; the S&P 500 is up 2.42 at 1299.05. Miners are mixed:

Barrick (ABX) $47.34 down 0.96%
Newmont (NEM) $56.54 down 0.89%
US Gold (UXG) $6.46 down 1.52%
General Moly (Eureka Moly, LLC) (GMO) $5.60 down 0.18%
Thompson Creek (TC) $13.91 down 0.22%
Freeport-McMoRan (FCX) $110.34 up 0.02% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.92 down 0.78% - global steel producer
POSCO (PKX) $105.53 down 0.91% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.42% at $1,803,386.68(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