Molycorp (MCP) And Gold Moving Together

Posted by barkand on January 18, 2012 under Commodities, Correlation | Be the First to Comment

We last wrote about Molycorp (MCP) just before it reported earnings in November (see Dirty Harry And Molycorp). We visit again today after spotting both bullish and bearish fundamental analysis recently on the Seeking Alpha website. And, besides, MCP is an interesting stock to trade.

We noticed that for the last 5 months the direction of MCP shares has closely tracked the direction of gold. Maybe the market does not care about Molycorp’s individual fundamentals.

We noticed also that Molycorp is not a gold miner. We even reviewed the company’s most recent earnings conference call and the word “gold” never came up. They do extract many rare and sometimes unpronouncable things from the Earth. You might think that cerium, neodymium, and dysprosium would be somewhat uncorrelated with gold. Molycorp’s rare minerals have purely industrial uses, while gold’s value is influenced by industrial, monetary, and some would say religious aspects. Nevertheless, the market is moving both of them together.