CPI Report, Barrick raised to $46

Morning Miners!

It is 5:50 AM and the coffee is hot! The big news today is the Consumer Price Index or CPI:

WASHINGTON -- U.S. annual inflation slid deeper into negative territory in May as consumer prices posted their largest annual decline in almost 60 years. Still, a slight rise from the prior month and an increase in core prices that exclude food and energy support the growing sentiment at the Federal Reserve that deflation risks have waned. However, there's little evidence that inflation is taking hold, either, a concern that has crept into bond markets in recent weeks. (WSJ, 6/17/09).

We visited the Producer Price Index or PPI yesterday and the conclusion was similar, no inflation fear for the near term. There's an important lesson here, just because the government is printing Monopoly money today doesn't mean you'll be hauling your dollars in a wheelbarrow to shop at Raine's tomorrow. Next year? Maybe.


Mark Spitznagel who made a fortune predicting the "black swan" that hit markets last year says yes to out-of-control inflation down the road. "Black swan" alludes to the once-widespread belief that all swans are white -- proved false when European explorers found black swans in Australia. A black-swan event is something extreme and highly unexpected. He is creating a fund that places bets on options tied to assets expected to benefit from a big leap in prices, including commodities such as corn and crude oil, and options on shares of oil drillers and gold miners. It also will short (i.e. bet against) Treasury bonds, likely to weaken in an inflationary economy.*

Is this feller right? Who knows, but the ole Colonel is going to sock away a little more gold just in case. The London gold spot market dipped to $928.50 presumably on the CPI news. If we get to $920 in the next week or so, I'm backing up the truck for a little chunk of glitter.

There is a second bit of good news today. The Barrick (ABX) price target was raised by Toronto Dominion from $41 to $46 this morning. If ABX gets to $32, I'm picking up some of that Canadian glitter getter too.

Enough talk, let's walk the walk:

Oil is down $0.80 to $69.67 in early trading (July contract); Gold is down $0.3 to $931.9 (August contract); Silver is down $0.035 at $14.095 (July contract); Copper is down 0.0200 to $2.2355(July contract); Molybdenum hold steady at $10.58.

The DOW is down 20.71 points to 8483.96; the S&P 500, down 4.90 points to 907.07. The miners are down:

Barrick (ABX) $32.83 down 1.74%
Newmont (NEM) $41.49 down 0.93%
General Moly (Eureka Moly, LLC) (GMO) $2.13 down 7.79%
Freeport McMoran (FCX) $50.61 down 3.40% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are down (a "tell" for General Moly):

Nucor (NUE) $46.16 down 1.49% - domestic steel manufacturing
ArcelorMittal (MT) $30.92 down 3.97% - global steel producer
POSCO (PKX) $82.57 down 1.41%- South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is in the red falling 2.43% to $990,509.82.

Cheers,

Colonel Possum

* WSJ Article, "Black Swan Trader Bets on Inflation", 6/16/2009

The Road from Eureka to Yekaterinburg

Morning Miners!

It is 5:52 AM, the coffee is hot and we're packed to do some traveling eastbound. Tucked away in the Ural mountains of Russia is the historic city of Yekaterinburg, namesake of Tsar Peter the Great's wife Empress Catherine I. It is also where nobility came to a bloody end when the royal family was executed by Bolsheviks during the Russian Revolution. Yekaterinburg is deep in the heart of Russian copper mining country and this week hosts the first summit meeting of the so-called BRIC group — Brazil, Russia, India and China.


Why is this important to Eureka, Nevada? The BRIC countries comprise 15% of the world economy and remain for the most part on a solid growth path even in the shadow of a global downturn (see note 1 below). Equally important, the BRIC holds 40% of the world's currency reserves. Coupled with a voracious appetite for raw materials, they are exerting increasing influence on the fate of the US dollar. Dollar denominated commodities are at the center of Eureka County's economy so it is important to watch the actions of these powerful emerging economies.

Yesterday, the Russian minister, Alexei Kudrin, said his country had "full confidence" in the U.S. dollar and it was "too early to speak of an alternative" reserve currency.

Today Russian President Dmitry Medvedev seemed to contradict his minister in a speech to the summit. He said that the world needed new reserve currencies, "We have to consolidate the international monetary system, not only through the consolidation of the dollar but the creation of new reserve currencies."

Interestingly, the Kudrin comment contributed to Monday's pop in the dollar, drop in gold and sell off of dollar-denominated commodities. The Eureka Miner's Grubstake portfolio (a measure of Eureka's future economic health) dove 4.7%, the largest daily drop since its inception.


In early morning trading, the direction of the dollar, gold and commodities is back on the rise. Can this be attributed to the Medvedev speech? This is debatable since there are other factors (e.g., positive housing and PPI news) that are also moving the markets. The ole Colonel will say that the goings-ons in Yekaterinburg are something to watch as carefully as a rattler in the sage. Even less comforting was the surprise appearance of President Mahmoud Ahmadinejad at the summit today. His attendance had not been expected due to the post-election turmoil in Iran. What's this joker doing there anyway? (see note 2)

OK, let's close on a happier note with another positive signpost for Eureka County:

"Tuesday's [Producer Price Index or PPI] data suggest that while deflation risks may be waning amid rising oil prices, the falling U.S. dollar and apparent stabilization in the economy, there is little evidence that inflation is taking root." (WSJ, 6/19/09)

Enough feel good stuff, let's walk the walk:

Oil is up $1.47 to $72.09 in early trading (July contract); Gold is up $7.2 to $934.7 (August contract); Silver is up $0.150 at $14.180 (July contract); Copper is down 0.0155 to $2.2695(July contract); Molybdenum got another little shove up to $10.58.

The DOW is up 10.21 points to 8622.34; the S&P 500, up 2.73 points to 926.45. The miners are mostly up:

Barrick (ABX) $33.81 up 2.77%
Newmont (NEM) $42.30 up 1.73%
General Moly (Eureka Moly, LLC) (GMO) $2.48 up 0.41%
Freeport McMoran (FCX) $55.10 down 0.07% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are up (a "tell" for General Moly):

Nucor (NUE) $47.97 up 4.85% - domestic steel manufacturing
ArcelorMittal (MT) $33.47 up 2.10% - global steel producer
POSCO (PKX) $85.51 up 2.96%- South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.58%.

Cheers,

Colonel Possum

Photos from Google Earth and Associated Press

Note 1: The aggregate GDP 2009 growth for BRIC is estimated to be +3.4% with a global GDP contracting more than 2.0% over the same period. The ole Colonel used the IMF GDP dollar estimates for 2008 derived from purchasing power parity (PPP) calculations together with GDP predictions for each country cited in the latest Economist (June 13, 2009). For the number geeks, here are my calculations:

Brazil 2008 GDP $1.98T down 1.5% in 2009 = $1.95T
Russia 2008 GDP $2.26T down 5.0% in 2009 = $2.15T
India 2008 GDP $3.29T up 5.0% in 2009 = $3.45T
China 2008 GDP $7.92T up 6.5% in 2009 = $8.43T

BRIC Total 2008 = $15.45T
BRIC Total 2009 = $15.98T
BRIC aggregate growth 2009/2008 = 3.4%

Note 2: There is at least a marginally valid reason for Ahmadinejad's attendance. This first BRIC summit occurs together with the ninth annual Shanghai Co-operation Organisation (SCO) which brings together Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. India, Pakistan, Iran and Mongolia have joined as observer members. I count more foxes than chickens in this hen house!