S&P Breaks 1,280 - The Eureka Miner Bounces Back

Wōdnesdæg
Morning Miners!

It is 5:51 AM. Have a cup of hump day java and check out this neat trick. Old Miner Woden not only raised the sun for Wednesday but copper and silver prices too...

Copper and silver post a second good day, gold lags

COMEX copper and silver seem determined to return to their highs set on the first market day of 2011. Copper bounced to $4.408/lb early this morning before falling back to a respectable $4.3945/lb; COMEX silver made a run at $30 for a high of $29.740/oz and is now catching her breath at $29.440/oz. On January 3rd silver and her red metal friend posted new highs of $4.4980/oz and $31.275/lb. Where's their buddy gold?

Like someone still suffering from the holidays, COMEX gold huff and puffed to $1382.9/oz and is now sitting on the curb at $1379.1/oz - a few laps away from its Pearl Harbor Day high of $1432.5/oz set last December. The gold/silver ratio remains at a very low 46.7 down a tad form yesterday's 46.8.

A declining ratio is another way of saying, "weak gold, strong silver." In contrast, during last year's stock market "flash crash" this ratio spiked to 68.3 with silver trading at $18.2/oz and gold at $1241/oz. On arguably the worst day for the metals & miners during the Great Recession, the ratio was 79.2 on 12/5/2008 with gold at $745/oz and silver on fire sale for $9.40/oz - "strong gold, weak silver" pardner.

This report believes the gold/silver ratio is often a good gauge of marketplace fear - high ratio, high fear; low ratio, don't worry be happy. Marketplace fear has been recently stoked by credit worries in Europe. The recent participation of China and Japan in the European bond markets has served to soothe those fears as reported for a second day by Bloomberg's Moscow correspondent Maria Kolesnikova:

Copper Rises for a Second Day on Efforts to Contain European Debt Crisis (Maria Kolesnikova, Bloomberg News, 01/12/2011)

There is just not enough fear around to get gold back in shape, maybe he needs a personal trainer. In the meantime let's enjoy the copper and silver rallies.

Interestingly, gold is presently trading very near the Colonel's nominal price of $1380/oz for January. Monday, I gave these copper and silver prices consistent with that level:

The fair value of COMEX copper is $3.9869 in a range of $3.7132/oz to $4.2607/oz
The fair value of COMEX silver is $27.261 in a range of $24.513/oz to $30.009/oz

Given this morning's numbers, copper is beyond its upper bound ($4.3945/oz) and silver just below ($29.560/oz). In either case, both metals show an overvalued state with respect to gold. If gold bounces on some major calamity (Europe or elsewhere), watch out below for both copper and silver buckaroos.

S&P 500 breaks 1,280

A fearless broader market opened today with the S&P 500 breaking a key level of 1,280 at 1,280.52. To give this some perspective, we have been on nearly a straight line trend up since September 20 (if you ignore the month of November when the S&P dipped down, shot up and backed down to the trend by month's end). This is a 12% rise over that period and a 22% move from the August closing low of 1,049.33. I'd be tempted to say we're leaving bear country but I haven't had quite enough coffee yet.

The Eureka Miner's Index(EMI) bounces back

The ole Colonel has been flashing warning lights for the past several days as the Eureka Miner's Index(EMI) has lingered below its 1-month moving average. The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County. Until recently it has been trending up-up and away with the broader markets since last fall. Today we break a 5-day losing streak with the EMI lifting above its average to score an impressive 757.4. Maybe things are getting a little better...hmmm...not enough coffee to say that either. Stay tuned.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 757.42, up from yesterday's 668.30. We are now above below the 1-month moving average of 683.32 - a bullish sign. The average has, however, peaked at 688.06 January 10th - a bearish indication. Let's see what the next several days bring.

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, the EMI re-established an upward trend on Friday, 12/3 which is still under pressure.

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 OFF - Markets are good but there could still be rough roads ahead; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in the low-$120s 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 ORANGE light is turned on our Fuel Gauge with oil above $90

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 $0.44 in early trading at $91.55 (February contract, most active); Gold is up $5.2 to $1379.1 (February contract, most active); Silver is up $0.061 to $29.560 (March contract, most active); Copper is up $0.0455 to $4.3945 (March contract, most active)

Western Molybdenum Oxide is $16.00; European Molybdenum Oxide is $16.70; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.92

Stock Market Morning Update

The DOW is up 56.27 points to 11,728.15; the S&P 500 is up 6.04 at 1280.52. Miners are good but General Moly and Newmont are resting:

Barrick (ABX) $50.04 up 0.14%
Newmont (NEM) $57.71 down 0.86%
US Gold (UXG) $7.74 up 0.79%
General Moly (Eureka Moly, LLC) (GMO) $6.50 down 0.31%
Thompson Creek (TC) $15.42 up 2.25%
Freeport-McMoRan (FCX) $121.92 up 0.51% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.05 up 2.47% - global steel producer
POSCO (PKX) $111.65 up 0.79% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.50% at $1,936,433.66 (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