"Tweener Day" Jitters for Metals & Miners

Morning Miners!

It is 5:53 AM. Have a hot cup of Ruby Tuesday and try something different in your routine today. Why not? The ole Colonel plans to take his sidekick, Loquita, for an extra long morning walk. I'll call this 10th of August a "tweener day" for the markets because we're between not knowing what happens next and the Federal Reserve's thoughts on the matter which will be released at 11:15 AM (PDT). In the waiting room most things opened red this morning. Gold is down (COMEX $1193.1/oz), Silver is down (COMEX $18.015/oz) and copper is down (COMEX $3.2865/lb). This 24-hour chart of copper spot prices is a good example of "tweener" jitters in the metal complex:



The Report has been signaling for some time that the recent metals rally may have challenges ahead (Will Gold & Copper Ever Make Up?). Oil & gold and copper & gold continue to be in a nasty inversion, a bearish indication for things to come (a correlation inversion occurs when a commodity price moves in the opposite direction to a reference price, in our case gold). The 3-month inversion of both oil and copper with respect to gold began May 13th and is not showing much sign of changing its mind although gold is heading down the mineshaft in the same direction as the other metals this morning (for more on this correlation flip-flop checkout China to the Rescue?).

The broader markets are now open and the DOW and S&P 500 are taking a pounding (down more than 1%) and but not as bad as our poor metals & miners (bellwether Freeport-McMoRan off more than 2.5%, Barrick down 2%). The Eureka Miner's Index(EMI) is 127.8, nearly a 24 point drop from yesterday's healthy 151.5.

Besides waiting for Uncle Ben Bernanke to utter some soothing words about what he might do if all hell breaks loose, there are two other clouds on this morning's horizon. London Bloomberg correspondent Anna Stablum wrote a nice piece on the China real estate bubble losing air and its possible effect on copper demand:

Copper Slides on Concern China's Cooling Property Market May Curb Demand (Anna Stablum, Bloomberg News, 8/10/2010)

Finally, the Wall Street Journal reports this morning that U.S. productivity took an unexpected turn down:

"Nonfarm business productivity dropped at a 0.9% annual rate in the April to June period, the Labor Department said Tuesday. It was the first decline since the fourth quarter of 2008, when productivity fell by 0.1%. Economists polled by Dow Jones Newswires were expecting productivity to rise by 0.3% in the second quarter." (WSJ, 8/10/2010)

OK, that's enough for me...time to take Loquita for a long stroll. At least oil is trading below $80/bbl again. Stay on your horses buckaroos!

Enough talk, let's walk the walk:

The Eureka Miner's Index(EMI) remains above par at 127.77, a big drop from yesterday's 151.54 but a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

4-WD is ON - rough roads in the marketplace; The VIX or "fear index" is below 25; metals & miners return to shaky timber with benchmark FCX dropping to the low-70s after being near above its 200-day average of $75.3 (our new warning level, 8/05 update), 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is some deflationary caution now that we are sub-3%.

The GREEN light is turned back on for Commodity Reflation with copper trading above $3/lb

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The GREEN light is turned back on for Investor Confidence as investors return to equities.

The GREEN light is turned on our Fuel Gauge with oil dropping below $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?)

NYMEX/COMEX: Oil is down $0.99 in early trading to $81.02 (September contract, most active); Gold is up $10.0 to $1209.4 (December contract, most active); Silver is up $0.174 to $18.495 (September contract, most active); Copper is down $0.0120 to $3.3415(September contract, most active)

Western Molybdenum Oxide is $14.25; European Molybdenum Oxide is $15.05; LME moly 3-month seller's contract is $15.54, LME cash seller is $15.33

The DOW is down 121.29 points to 10,577.46; the S&P 500 is down 13.99 to 1113.80. The miners are not happy campers:

Barrick (ABX) $42.37 down 2.27%
Newmont (NEM) $56.35 down 1.55%
US Gold (UXG) $4.76 down 2.86%
General Moly (Eureka Moly, LLC) (GMO) $3.17 down 2.76%
Thompson Creek (TC) $9.43 up 4.91%
Freeport-McMoRan (FCX) $75.75 down 5.53% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are hurtin' too, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $32.72 down 2.39% - global steel producer
POSCO (PKX) $108.29 down 1.08% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 2.12% to $1,383,467.34 (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 ("Clockwork Purple")

Copper, Lithium, Moly, Treasurys & EMI

Morning Miners!

It is 6:00 AM sharp. Have of cup of Monday brew and let's get to work. You might guess by the title that the ole Colonel has a lot on his mind as we enter a new week. Copper, our dauntless canary in the global recovery mineshaft, is catching a thermal under her wings this morning with COMEX trading at $3.3775/lb. The report spends a lot of time on the red metal even though the nearest copper mine is in Ely. As copper goes, so go the metals & miners, so go the broader markets in my world. For starters a new twist in the copper wire...

This weekend, I read an interesting run-down on the annual Diggers & Dealers conference in Kalgoorlie, Australia. Robert Friedland spoke about the prospects for copper, he is a metals visionary and the boss at the Canadian company Ivanhoe. Ivanhoe with Rio Tinto owns the majority share of the giant Oyu Tolgoi copper-gold mining project in Mongolia's Gobi desert. This Report has covered Oyu Tolgoi several times before, the most recent blog is from last October, Oyu Tolgoi, Solar Panels & $1050 Gold. Here is a link to Mr. Friedland's latest thoughts:

Friedland sees blue skies for copper (Barry Fitzgerald,The Age-Business, 8/9/2010)

Checkout this copper connection to electric vehicles and lithium:

"Friedland reckons that the forecast need for 600 million tonnes of copper over the next 20 years [is] not including the demand to come from the 'phenomenon' of electric cars. He believes that hybrid cars are old news. The world will shift its car fleet over to lithium battery-powered electric over the next 20 to 30 years or so, waving goodbye to reliance on Middle East oil supplies at the same time.
Good news for those chasing lithium as the next big thing. But don't forget copper, Friedland added.

He pointed out that a lithium battery is made out of a copper foil which is sprayed with graphite and lithium/cobalt oxide. 'And when you roll that puppy up and put it in your car, 80 per cent of the weight of the battery is copper metal.'

So a large sedan with a 450-kilogram battery will have about 360 kilograms of copper metal in it. Multiple that by the 500 million people who will want electric cars, and the implication for the copper market is 'breathtaking'." (Barry Fitzgerald,The Age-Business, 8/9/2010)

As the ole Colonel has said before - if Northern Nevada were a ship, gold would be our keel; strategic metals, our sail. Gold provides our present economic stability; strategic metals will capture the winds of change and sail our kids and grand kids to a brighter future. We've got low cost lithium carbonate in Humboldt County and copper in White Pine County. We've got molybdenum, rhenium and vanadium in Eureka County. All of these metals have a promising role in the emerging alternative energy industry together with their traditional uses (for more on Northern Nevada's metallic future, click here). Just something to think about buckaroos. More on molybdenum in a moment, first a tweak on the Eureka Miner's Index (EMI).

Treasurys & the EMI

All eyes will be on the Fed Tuesday to see if they will discuss the possible threat of deflation in our weakened economy. A deflationary trend could be bad news for the metals & miners. A troubling sign has been the fall in the yield of 10-year Treasurys to sub-3% levels. These are levels not seen since the darker days of the credit crisis:

10-yr Treasury 2.657% - 12/5/2008: Freeport-McMoran bottom ($16.8, $15.7 intraday)
10-yr Treasury 2.819% - 3/9/2009: S&P 500 closing low (676.53)

10-yr Treasury 2.833% - 8/9/2010: This morning, S&P 500 1122.93

Yikes, talk about a disconnect between the bond and equity markets! The Report has maintained that an environment of low interest rates and low fear in the broader markets is good for the metals & miners. The fall in Treasurys lately hints that there is a limit to this thesis. Many believe the bond markets are signaling deflation while commodity markets have been showing some signs of inflation (e.g., wheat, oil, copper).

I think it is reasonable to say that low interest rates are a positive for the metals & miners until the 10-year drops below 3%. The ole Colonel has, therefore, put a low interest rate cap (LIRC) of 3% for 10-year T-notes lower than this level in the Eureka Miner's Index (EMI) formulation. This will mitigate very low interest rates from "inflating" our index thereby painting a rosier outlook than reflected in the bond markets. From this point forward, the EMI will include a LIRC.

Let's see how our Miss Moly fared last week:

Weekly Molybdenum Roundup



Molybdenum prices remain in a stable range with European moly and LME futures contracts still slightly higher than Western moly oxide which sits at $14.25/lb. The LME 3-month and 15-month seller contracts are now $15.42/lb ($34,000/metric ton). The Report's mid-range price target for 2010 moly prices is $15.71/lb.

Western Moly Oxide (FeMo65) $14.25/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $15.05/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $33,550/metric ton $15.22/lb

3-Month (Buyer) $32,000/metric ton $14.51/lb
3-Month (Seller) $34,000/metric ton $15.42/lb

15-Month (Buyer) $32,000/metric ton $14.51/lb
15-Month (Seller)$34,000/metric ton $15.42/lb/lb

Here is a chart of the LME 3-month contract (seller) from the February launch to the present:



Eureka Miner's Index (EMI)

Below is a chart of the Eureka Miner's Index (EMI) through Friday with the new low interest cap (LIRC). The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County.



The Eureka Miner's Index is above-par at 151.4, a bit up from Friday's 147.05 and a big improvement from the 6/7/10 low of 50.7. Importantly, the high and low trends (dotted lines) are still positive since the EMI high on 6/25. Remember an EMI greater than 100 is good times for metals & miners.

Enough talk, let's walk the walk:

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky but much firmer timber with benchmark FCX now trading slightly below its 200-day average of $75.3 (our new warning level, 8/05 update), 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is some deflationary caution now that we are sub-3%.

The GREEN light is turned back on for Commodity Reflation with copper trading above $3/lb

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The GREEN light is turned back on for Investor Confidence as some investors return to equities. The bond markets signal caution with sub-3% 10-year Treasury yields.

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?)

NYMEX/COMEX: Oil is up $o.44 in early trading to $81.44 (September contract, most active); Gold is up $0.3 to $1205.6 (December contract, most active); Silver is down $0.052 to $18.420 (September contract, most active); Copper is up $0.0345 to $3.375 (September contract, most active)

Western Molybdenum Oxide is $14.25; European Molybdenum Oxide is $15.05; LME moly 3-month seller's contract is $15.42, LME cash seller is $15.22

The DOW is up 19.83 points to 10,673.39; the S&P 500 is up 1.29 to 1122.93. The miners are mixed:

Barrick (ABX) $43.12 down 0.62%
Newmont (NEM) $56.80 down 0.42%
US Gold (UXG) $4.94 up 1.33%
General Moly (Eureka Moly, LLC) (GMO) $3.17 down 0.63%
Thompson Creek (TC) $9.90 up 1.33%
Freeport-McMoRan (FCX) $74.69 up 0.11% (a bellwether mining stock spanning copper, gold & molybdenum)
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The Steels are down, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $33.59 down 0.06% - global steel producer
POSCO (PKX) $110.00 down 0.12% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.11% to $1,408,052.80 (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 (Alpine Hotel Series)

Up the Down Staircase - Jobs Report & Thompson Creek Talks Moly

Morning Miners!

It is 6:00 AM sharp. Have a second cup of Raine's Triple-X Red Label TGIF coffee, I'm on my third. The ole Colonel just watched CNBC Business News report the much awaited U.S. Labor Department's monthly jobs statistics. As far as market news goes, this is probably the biggest dog on the porch although the Russian wheat crisis is no Chihuahua. The impacts of global wheat shortages may make bigger headline as time goes on but this morning it is all about jobs, jobs (and the lack of jobs).


The labor report and market reaction remind me of the title to a 1967 movie with Sandy Dennis, "Up the Down Staircase." In our case the "Down Staircase" is an overall loss of jobs in this country and the difficulty of moving "up" in an economy that isn't recovering as fast as most economists predicted last year. Overall, the jobless rate held steady at 9.5% in July. Economists were expecting it to edge higher to 9.6% so this is good news. Unfortunately, many believe the unemployment rate is artificially bolstered by a surge of discouraged workers leaving the work force.

Here are the report and market reaction's "downs" and a few "ups":

"Downs"

Nonfarm payrolls fell by 131,000 last month (economists predicted 60,000, DJ Newswire poll)

143,000 temporary workers on the 2010 census were let go

Downward revisions of June's data showed a payrolls drop of 221,000, more than the 125,000 drop previously reported

The 10-year Treasury dropped to 2.8% territory on the news

The U.S. dollar/yen dropped to near historically low sub-85s (most active currency)

The U.S. dollar index (.DXY) threatened to drop below 80

European markets fell across the board

The U.S. markets opened lower but then recovered some

"Ups"

71,000 private-sector jobs were added compared to 31,000 for June (this is good but not enough)

COMEX gold popped $10 breaking the $1200 ceiling at $1209.4

Surprisingly, most of the miner's were up on the open

Copper pretty much held its ground at $3.34 in early trading

The Eureka Miner's Index(EMI) moved up to a healthy 154.4 on the metals & miners reaction

So there you have it, pardner - a lot of traffic up and down on the down staircase this morning. It will probably take the weekend for investors to absorb all this or maybe we'll only be talking about the rise in wheat prices Monday.

Ending on a positive note, moly producer Thompson Creek (TC) reported a great second quarter yesterday and was rewarded with a near 5% pop in share price in a down market. Here's a link to their results:

Thompson Creek Reports Significantly Improved Financial Results For Second Quarter 2010 With Revenue Up 100% And Cash Flow From Operations Up 575% From The Same Period One Year Ago (Press release, 8/5/2010)

One of the Colonel's favorites Kevin Loughrey, Chairman and Chief Executive Officer, said:

"Thompson Creek improved its financial performance in the second quarter of 2010 as a result of strengthening molybdenum prices. The Company's average realized molybdenum sales price for the second quarter of 2010 increased by 16% from the first quarter of 2010 and nearly 80% from one year ago. The Company's operations also performed well in the second quarter and remain on track to achieve previously announced production and cost guidance for the year."

And added these thoughts on the molybdenum market,

"Molybdenum prices have edged lower recently due to slightly softer demand from steel companies and also to a lessening of the confidence of molybdenum market participants in the strength and timing of the world economic recovery. Despite this correction to pricing, we believe the fundamental supply and demand projections for molybdenum remain quite favorable and should contribute to an improving financial performance for the Company over the medium term."

Keep your chin up buckaroos.

Enough talk, let's walk the walk:

The Eureka Miner's Index(EMI) remains above par at 154.36, a move up from yesterday's 147.35 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky but much firmer timber with benchmark FCX now trading above its 200-day average of $75.3 (our new warning level, 8/05 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 above $3/lb

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The GREEN light is turned back on for Investor Confidence as investors return to equities.

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?)

NYMEX/COMEX: Oil is down $0.99 in early trading to $81.02 (September contract, most active); Gold is up $10.0 to $1209.4 (December contract, most active); Silver is up $0.174 to $18.495 (September contract, most active); Copper is down $0.0120 to $3.3415(September contract, most active)

Western Molybdenum Oxide is $14.25; European Molybdenum Oxide is $15.05; LME moly 3-month seller's contract is $15.42, LME cash seller is $15.22

The DOW is down 43.82 points to 10,631.16; the S&P 500 is down 5.50 to 1120.31. The miners are hanging tough:

Barrick (ABX) $43.45 up 1.68%
Newmont (NEM) $57.56 up 1.50%
US Gold (UXG) $4.99 unchanged
General Moly (Eureka Moly, LLC) (GMO) $3.19 up 0.95%
Thompson Creek (TC) $9.83 up 4.91%
Freeport-McMoRan (FCX) $75.75 up 2.27% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.72 up 0.69% - global steel producer
POSCO (PKX) $110.60 up 1.24% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.77% to $1,416,735.31 (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 (inside the Alpine Hotel)

General Moly (GMO) versus The Benchmark Miners

Morning Miners!

It is 6:19 AM. Have a thunderous cup of Thor's special blend. The ole Norsemen just warmed the pot with one of his pocket-size lightening strikes. Markets may be a little wobbly today, not from electrical storms but nervousness about the Labor Department's monthly jobs report tomorrow. Today an unexpected rise in weekly jobless claims together with a weak retailers' July sales report set the stage for a little hand wringing. The latter is being blamed on hot weather and a cooler economy which has kept buying relatively sluggish for July. So it goes, no one said this would be short elevator ride out of the Great Recession mineshaft.

The Colonel remains a little skeptical of the recent metals rally (China to the Rescue?). Without gold's robust participation, this is beginning to feel like a currency shuffle and not a reflection of any major shift up in global demand. Today's London Metal Exchange (LME) headline says it all: "LME LATEST - Base metals shrug off poor US jobs data, kept afloat by strong euro." We'll see how much shrugging goes on tomorrow when the BIG labor report comes out. COMEX copper shaved off a few cents this morning to trade at $3.3690/lb and COMEX gold is struggling to climb above the $1200/oz mark again resting at $1199.4.

I hope tomorrow proves me wrong - the ole Colonel is an optimist but the latest numbers are not helping me ride too high in the saddle. Let's see how our benchmark miner's are digesting all this news and close with a comparison to General Moly (GMO) stock performance.

Bellwether miner Freeport-McMoRan (FCX) made a brilliant recovery from the high-$50 badlands of July 1st to nearly breaking its 200-day average (green line) which is presently $75.3. The broader markets are now open and FCX is trading down at $73.97, here is a one-year chart:



Gold miner benchmark Barrick (ABX) has fared better than Freeport dipping below its 200-day average briefly in late July but making a solid recovery since. The latest 200-day price is $40.76; ABX is trading at $42.48:



Moly producer benchmark Thompson Creek has had the worst go of it trading this morning at $9.71, far below its 200-day average of $11.63. TC fell below this key level May 3rd and has been spinning bald tires in the sand ever since:



The Eureka Miner's Index(EMI) uses these three miners every day to compute a new index value. Today I've included a monthly update on the 200-day averages given above and it looks like the EMI got a bump up to a solid 147.3. Last Friday's closing EMI was 127.1...Hey, maybe things aren't so bad after all!

Let's close with a look at General Moly (GMO). It's chart is a lot better than Thompson Creek having stayed well above its 200-day average except for a little dip in late June and again mid-July. One of the advantages of not yet being a moly producer like TC is that you have a lot of investor hope on your side (and in this case, Mt. Hope). Today the 200-day GMO average price sits at $2.99 and GMO is trading comfortably at $3.20:



Let's see what tomorrow brings...

Enough talk and hope, let's walk the walk:

The Eureka Miner's Index(EMI) remains above par at 147.35, a nice move up from yesterday's 139.86 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky but much firmer timber with benchmark FCX trading close to its 200-day average of $75.3 (our new warning level, 8/05 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 above $3/lb

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The GREEN light is turned back on for Investor Confidence as investors return to equities.

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?)

NYMEX/COMEX: Oil is down $0.62 in early trading to $81.85 (September contract, most active); Gold is up $3.5 to $1199.4 (December contract, most active); Silver is up $0.112 to $18.390 (September contract, most active); Copper is down $0.0355 to $3.3690(September contract, most active)

Western Molybdenum Oxide is $14.25; European Molybdenum Oxide is $15.05; LME moly 3-month seller's contract is $15.31, LME cash seller is $15.10

The DOW is down 31.63 points to 10,648.80; the S&P 500 is down 4.21 to 1123.03. The miners are grumpy:

Barrick (ABX) $42.48 down 0.31%
Newmont (NEM) $56.00 down 0.44%
US Gold (UXG) $5.o6 down 0.59%
General Moly (Eureka Moly, LLC) (GMO) $3.20 down 1.23%
Thompson Creek (TC) $9.71 down 0.51%
Freeport-McMoRan (FCX) $73.97 down 1.37% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.51 up 1.03% - global steel producer
POSCO (PKX) $108.48 up 0.61% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.29% to $1,408,961.22 (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

China to the Rescue? Gold Breaks $1200, Moly (EU) Up

Morning Miners!

It is 6:07 AM. Let me pour you a cup of hump day java freshly brewed. Returning to yesterday's metallic puzzle we find it has only become more interesting in the wee hours. The Report has worried whether the recent rally in the base metals has legs given the lackluster performance of gold. This morning gold broke $1200/oz in the London spot market and COMEX is presently trading at $1203.2/oz (December contract, most active). Maybe I hear the hoofs of the cavalry approaching.

Last Friday the ole Colonel stated:

"Copper and gold have been in a wicked inversion for some time and I'm going to have my doubts about the sustainability of this copper rally if gold doesn't return to $1200/oz country soon." (GDP "Less Better", 7/30/2010)

Today COMEX copper is up ($3.3765/lb, September) and aluminum just hit a 3-month high ($2,230/metric ton) on the London Metal Exchange (LME). Pardner, we need more days like this with gold and the metals moving in the same direction (Will Gold & Copper Ever Make Up?). The funny thing is that the cavalry may be arriving on Chinese horses. Here is an interesting piece on the liberalization of China's gold policy together with a change in investor sentiment. Both may explain today's bounce:

Gold Caps Longest Rally in Since April as China Demand May Gain (Millie Munshi and Nicholas Larkin, Bloomberg, 8/3/2010)

I thought I'd show you a few charts this morning to illustrate the recent copper/gold inversion. Most of the time the metals and gold are "positively" correlated or in other words, their price movements tend to be in the same direction. Correlation is a calculation derived from the price histories of two commodities and has a value from -1 to +1. A correlation of "zero" implies no directional relation and the two prices are said to be uncorrelated. Silver and gold almost always have a high "positive" correlation. Presently the 3-month correlation of gold and silver is 0.7485 with a high of 0.9783 last Fall (10/5/09).

A "negative" correlation occurs when two prices move in opposition which has been the case for copper and gold for the last several months. Today the 3-month correlation (or "rho") of copper and gold is -0.4689; a peak inversion of -0.8571 happened in June (6/24/10). One way to visualize this relation over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations as shown below:



In this case we start out on 4/27/10 when both copper and gold were positively correlated (i.e. in the "+,+" quadrant). Incidentally, this is the day after this year's S&P 500 high and shortly after COMEX copper hit its high of $3.5840/lb (4/12/10). Unfortunately we soon descended into negative territory as the financial crisis in Europe worsened (blue line). Presently we remain in the "-/-" quadrant for both the short and near-term correlations - the magenta line and arrow show the most recent data and direction. Although today's gold bounce helps move the short-term relation, we still have a long way to go to return to the "+,+" pasture.

It may be helpful to see what a complete journey to copper/gold inversion and back looks like. Here is a record from April to July of 2009, the last time a major copper/gold inversion occurred. We start out in the "+,+" quadrant (4/3/09) and follow a roughly counter-clockwise trajectory down to "-,-" land and back up to the "+,+" corral. There is a slight jog at the end to "-,+" before reaching the end point on 7/09/09:


Interestingly, this return to positive territory ran alongside a rally in copper prices that did not significantly stall until April of this year.

That's a lot of wiggly lines and voodoo to explain my point but hopefully you can see why the ole Colonel has been a bit concerned about this metal rally. A few more days like this could drive the metallic herd back to the "+/+" golden corral. If gold falters, all bets are off. Stay tuned buckaroos.

Leaving on a positive note, European moly oxide and the LME molybdenum futures have both been trending higher lately leaving even more light between them and a lagging western number. Look for a pickup in Western moly prices if the metals rally continues (see below).

Enough talk, let's walk the walk:

The Eureka Miner's Index(EMI) remains above par at 139.86, slightly down from yesterday's 141.72 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners (NOTE: at market close Friday, 7/23, the EMI was 112.61)

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky but much firmer timber with benchmark FCX trading close to its 200-day average of $75.4 (our new warning level, 7/27 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 above $3/lb

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The GREEN light is turned back on for Investor Confidence as investors return to equities.

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?)

NYMEX/COMEX: Oil is down $0.09 in early trading to $82.46 (September contract, most active); Gold is up $15.7 to $1203.2 (December contract, most active); Silver is up $0.228 to $18.650 (September contract, most active); Copper is up $0.0180 to $3.3765 (September contract, most active)

Western Molybdenum Oxide is $14.25; European Molybdenum Oxide is $15.05; LME moly 3-month seller's contract is $15.42, LME cash seller is $15.22

The DOW is up 15.14 points to 10,651.52; the S&P 500 is down 8.59 to 1120.7. The miners are happy:

Barrick (ABX) $42.36 up 2.39%
Newmont (NEM) $56.20 up 1.32%
US Gold (UXG) $5.11 up 1.39%
General Moly (Eureka Moly, LLC) (GMO) $3.28 up 1,24%
Thompson Creek (TC) $9.41 up 0.97%
Freeport-McMoRan (FCX) $74.42 up 0.53% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $33.43 up 2.08% - global steel producer
POSCO (PKX) $108.48 up 0.81% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.31% to $1,415,172.19 (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

Goodbye Ruby Tuesday - Where do Copper & Gold Go Next?

Morning Miners!

It is 6:11 AM. Have a hot cup of Ruby Tuesday java. Some of you folks may be thinking of the restaurant by that name or the gold mine northwest of town or a song by the Rolling Stones of yore. I woke up thinking about that ruby red metal, copper.


The ole Colonel just wishes he could feel better about this copper rally. So far it has been a dandy. Nearly breaking $3.40/lb copper is flirting with her April highs after rising all the way from $2.80/lb lows in early June (a nearly 20% increase). COMEX copper has pulled back some today but is still trading at a very respectable $3.3595/lb. Why has gold missed all the fun?

The Report pointed out the lackluster performance of gold the other day (Will Gold & Copper Ever Make Up?). Last year copper and gold were constant companions after the S&P 500 bottom in March and raced each other to new highs until the spring of this year. Copper has regained her spirits in the last several weeks while gold seems trapped below $1200/oz. Disturbingly, the copper/gold 1-month and 3-month correlations remain negative, usually a bearish sign for a metals rally.

The other base metals have been faring well too with lead hitting a 3-month high and tin reaching a 23-month peak this morning. The London Metal Exchange (LME) inventories of lead, nickel, zinc and copper are finally showing some signs of bottoming and aluminum inventories are on the rise again. Here is the latest LME copper inventory which has been steadily falling until only recently:


I'll be trying to unravel the copper/gold mystery in the next several days. One clue (and possibly positive sign) is a declining correlation of gold and the U.S. dollar. As reported in the Wall Street Journal, VTB Capital analyst Andrey Kryuchenkov states:

"Gold has once again started decoupling from the U.S. dollar...Gold's rolling monthly correlation to the U.S. currency fell to around 68% from highs above 85% last month. So, given a further improvement in risk sentiment from here, the correlation is set to weaken even more with gold prices tracking firmer PGMs [platinum group metals]." (WSJ, 8/3/2010)


If this trend continues gold and copper may be back in the saddle again. The next question is whether they'll be riding together up or down recovery canyon. In the meantime do I hear gold's sad lament for his red metal sweetheart?

Goodbye, Ruby Tuesday
Who could hang a name on you?
When you change with every new day
Still I'm gonna miss you...

Enough singing old timer songs, let's walk the walk:

The Eureka Miner's Index(EMI) remains above par at 141.72, slightly up from yesterday's 138.26 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners (NOTE: at market close Friday, 7/23, the EMI was 112.61)

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky but much firmer timber with benchmark FCX trading closer to its 200-day average of $75.4 (our new warning level, 7/27 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 above $3/lb

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The GREEN light is turned back on for Investor Confidence as investors return to equities.

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?)

NYMEX/COMEX: Oil is down $0.66 in early trading to $82.00 (September contract, most active); Gold is up $2.6 to $1188.0 (December contract, most active); Silver is up $0.032 to $18.420 (September contract, most active); Copper is up $0.0300 to $3.3595 (September contract, most active)

Western Molybdenum Oxide is $14.00; European Molybdenum Oxide is $14.55; LME moly 3-month seller's contract is $15.20, LME cash seller is $14.97

The DOW is down 61.76 points to 10,612.62; the S&P 500 is down 8.59 to 1117.27. The miners are mixed:

Barrick (ABX) $41.58 up 1.54%
Newmont (NEM) $55.92 up 0.58%
US Gold (UXG) $4.97 up 1.84%
General Moly (Eureka Moly, LLC) (GMO) $3.35 down 0.30%
Thompson Creek (TC) $9.58 down 0.73%
Freeport-McMoRan (FCX) $74.28 down 0.70% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $32.75 up 0.49% - global steel producer
POSCO (PKX) $107.79 up 0.16% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.32% to $1,405,024.91 (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

PMI Lifts Metals & Miners - Oil Breaks $80

Morning Miners!

It is 5:55 AM. Have a cup of Caesar Augustus Monday java and let's not wish this summer away. Yes, it is August but we're still one canyon away from Labor Day, pardner.

Caesar Augustus started the census to figure out how many folks there were in the Roman World. He wasn't counting noses just for the shucks of it, Caesar wanted to know whom to tax. It was probably the first "global measurement" ever taken for economic reasons. Now we have all sorts of ways to tell how many people are on the planet, what they're doing and whether they are contributing economically.

One modern indicator of economic activity is the Purchasing Managers Index (PMI). It gives the percentage of manufacturing purchasing managers that report better business conditions than in the previous month for a certain economic sector . A PMI index over 50 indicates that the economy is expanding while anything below 50 means that the economy is contracting. This is important to the metals & miners because it is another "tell" on the health of our global recovery.

As a model of global cooperation, the PMIs are updated at roughly the same time every month. China's rolled in last night, Europe followed and the United States just reported this morning. The results appear to be giving the markets around the world an overall lift. Some PMIs are down from the previous month including China and the United States but the decrease is being judged reasonable given lower expectations for global growth this year. Europe surprised to the upside with an overall rising PMI for the 11-country euro-zone even though some countries were down. Here are the results so far:

China: July 51.2 down from June 52.1
Euro-zone: July 56.7 up from June 55.6
United States: July 55.5 down from June 56.2

In the euro-zone Germany scored a three-year high of 61.2 over June's 58.4; the U.K was a little wobbly dropping to 57.3 from 57.6 but still quite decent. The bad boys of Europe did reasonably well too - Italy and Spain picked up, while the decline in Greek manufacturing activity slowed.

"Why should I care, Colonel?" This news has further strengthened the euro ($1.31) against the dollar which lifts dollar-denominated commodities. All our favorite metals got a boost including gold. Remember for a sustained copper rally, we need gold to jump back in the saddle with copper (Will Gold & Copper Ever Make Up?). Of course oil is up today too breaking the key $80/bbl level but I'm not going to let this ruin my day. Global PMIs above 50 are a very positive sign.

There is one small ding in the China news. HSBC separately computes a China PMI to compare with the official government numbers given above. The HSBC Index fell to 49.4 in July from 50.4 in June, dropping for the first time in 16 months below the all-important 50-point level. As reported by the Wall Street Journal this morning, Credit Suisse economist Dong Tao is not too worried and doesn't expect Beijing to either tighten or relax its policies:

"Although the latest policy PMI data has added downside risk to the growth outlook, we don't believe it is bad enough to force a significant policy change in the near future," (WSJ, 8/2/2010)

Let's cross our fingers. Stay tuned buckaroos.

Here's how our Miss Moly fared last week:


Weekly Molybdenum Roundup

Molybdenum prices remain in a stable range with European moly and LME futures contracts moving higher from Western moly oxide which remains stubbornly at $14.00/lb. The LME 3-month and 15-month seller contracts are now $15.20/lb ($33,500/metric ton). The Report's mid-range price target for 2010 moly prices is $15.71/lb.

Western Moly Oxide (FeMo65) sits at $14.00/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) moves higher to 14.85/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $33,050/metric ton $14.99/lb

3-Month (Buyer) $32,500/metric ton $14.74/lb
3-Month (Seller) $33,500/metric ton $15.20/lb

15-Month (Buyer) $32,500/metric ton $14.74/lb
15-Month (Seller)$33,500/metric ton $15.200/lb/lb

Here is a chart of the LME 3-month contract (seller) from the February launch to the present:



Eureka Miner's Index (EMI)

Below is a chart of the Eureka Miner's Index (EMI) through Friday's close. The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County.



The Eureka Miner's Index is above-par at 138.6, a nice pop from Friday's 127.12 and a big improvement from the 6/7/10 low of 50.7. Importantly, the high and low trends (dotted lines) are still positive since the EMI high on 6/25. Remember an EMI greater than 100 is good times for metals & miners.

Enough talk, let's walk the walk:

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky but much firmer timber with benchmark FCX trading in the low-$70s and closing on its 200-day average of $75.4 (our new warning level, 7/27 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 above $3/lb

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The GREEN light is turned back on for Investor Confidence as investors return to equities.

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?)

NYMEX/COMEX: Oil is up $1.82 in early trading to $80.77 (September contract, most active); Gold is up $2.3 to $1186.2 (December contract, most active); Silver is up $0.467 to $18.470 (September contract, most active); Copper is up $0.0515 to $3.3630 (September contract, most active)

Western Molybdenum Oxide is $14.00; European Molybdenum Oxide is $14.85; LME moly 3-month seller's contract is $15.20, LME cash seller is $14.99

The DOW is up 129.80 points to 10,595.74; the S&P 500 is up 13.95 to 1115.55. The miners are happy:

Barrick (ABX) $41.36 up 0.63%
Newmont (NEM) $56.32 up 0.75%
US Gold (UXG) $5.00 up 0.94%
General Moly (Eureka Moly, LLC) (GMO) $3.44 up 3.60%
Thompson Creek (TC) $9.48 up 1.94%
Freeport-McMoRan (FCX) $73.74 up 3.08% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $31.86 up 3.78% - global steel producer
POSCO (PKX) $106.17 up 2.08% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.95% to $1,401,838.31 (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