Wednesday, April 7, 2010
Gold & Silver Pop, US Gold Breaks $3
*** BREAKING NEWS *** Today's 10-year Treasury auction went much better than expected earning an "A" grade on CNBC Business News. The fears that investors, especially foreigners, would shy from this auction proved unfounded. The yield settled at 3.9%, well below the 4% level seen last week. The participation was very good with a bid-to-cover ratio of 3.72 compared to an average of 2.87. Indirect bids (a measure of foreign participation) was a healthy 43%. This is a positive outcome with regard to the current Federal Reserve "low-interest rate" policy.
It is 5:56 AM. Let the ole Colonel pour you a cup. Pardner, any morning that starts with a pop in London spot gold and a rising dollar is a good day. Strong gold and dollar, strong America. Although gold and the greenback usually drive in opposing lanes, it looks like both are traveling in the north bound today. Hey, look at silver...be back in a minute.
OK, the domestic markets are open now and here's another pleasant surprise. US Gold (UXG), one of our favorite miners, just broke $3.00 at the open on news about positive core drilling results at their El Gallo Project in Sinaloa State, Mexico. Now that's fine and dandy but I'm still waiting for them to reopen the old Atlas mine...someday. With domestic gold production down 10% last year, the ole Colonel is betting someone is going to kick up some new dirt in an old find along the Eureka-Carlin trend...someday. US Gold is sitting on those claims even though I understand they don't have the old mill. Apparently there are others that think the little guys are well situated for a good year. Checkout this Mineweb article:
Exploration spending set to jump in 2010, led by juniors - MEG (Mineweb, 4/6/2010)
The gist of this article is that the juniors, beaten down by the recession, are now in good position for a rebound in 2010 with new inflows of equity financing. My money is on US Gold, Yee-ha!
Now what about those moves in gold and silver? On Monday, I set $1150/oz as a nominal price for the yeller stuff for this month ($19 Silver? The Colonel's Metal & Oil Roundup) which puts us back on the 1-year trend line. The Report has been saying for some time that silver is overdue for a pop to catch up with her lustrous cousin. COMEX silver is trading at $18.100/oz this morning still undervalued with respect to gold. This was my Monday call for a $1150/oz nominal:
The fair value of silver for April is $18.295 in a range of $17.146 to $19.444
Another way to look at the relation of gold and silver is the ratio of their prices. Here's an article on Mineweb to bring you up to speed on this important metric:
The Gold:Silver Ratio: Is gold too high, or perhaps silver too low? (Mineweb, 4/06/2010)
The so-called AU:AG ratio sits around 63 this morning after a high during the recession of 84.4. The author, Thomas Kavanagh, makes the point that historically this ratio tends to decline after recessions. According to Kavanagh, there is still some way to go in the downside before the rate hits the 50 level of 2007. This means either gold is headed south or silver is headed north. With the sovereign interest in gold as hedge against fiat currencies, my bet is that gold moves sideways or up and silver takes a nice bounce. Stay tuned. Here are some gold:silver ratio charts for 3-years and 6-months:
By the by, I enjoy sharing my thoughts with you on where I see the junior miners, gold and silver heading. Please don't take this as investment advice; the ole Colonel may be dead wrong. Do your own research and place your own bets buckaroos, precious metals & juniors miners make a mighty tricky casino. Good luck.
Enough gambling talk, let's walk the walk:
4-WD is ON - The benchmark 10-year T-Note is too close to 4% for my comfort and there remains an air of caution in the winds, rougher markets possible [revised 12:37 PM PDT, see above BREAKING NEWS - unsettled markets may persist, however, on mixed economic news]; the VIX or "fear index" is below 25 which is good; metals & miners remain solid with benchmark FCX comfortably above $74 (what's this?)
The YELLOW light is switched back on our fuel gauge with oil above $80
An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
NYMEX/COMEX: Oil is down $0.20 in early trading to $86.64 (May contract, most active); Gold is up $7.1 to $1143.4 (June contract, most active); Silver is up $0.169 to $18.100 (May contract); Copper is up $0.0035 to $3.6205 (May contract); Western Molybdenum Oxide sits at $17.12, LME moly 3-month & 15-month seller's contracts remain at $18.14
The DOW is down 48.82 points to 10921.17; the S&P 500 is down 4.51 to 1184.87. The miners are mixed:
Barrick (ABX) $40.11 up 1.75%
Newmont (NEM) $53.66 up 0.73%
US Gold UXG) $3.00 up 1.35%
General Moly (Eureka Moly, LLC) (GMO) $3.60 down 2.96%
Thompson Creek (TC) $14.24 down 1.25%
Freeport-McMoRan (FCX) $86.58 down 0.86% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are down, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $46.49 down 0.98% - global steel producer
POSCO (PKX) $123.50 down 0.72% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.01% to $1,427,776.56 (what's this?).
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market
Headline photograph by Mariana Titus