Gartman Bullish on Gold

Þūnresdæg
Morning Miners!

It is 5:51 AM. Have a cup of Thursday thunder and please close the door. Our favorite Norseman Thor is making a racket in the machine shop hammering out some new battle axes. There's not much fight left in that ole boy but his tools are handy for chopping wood. Looks like there's still some fight left in North Africa...

Gold & silver rise to new records then fall, copper bounces

Gold and silver were at it again late last night setting more new records. One-half hour before midnight COMEX electronic trading witnessed COMEX gold hit 1441.0/oz and silver bested its 31-year high point at $34.975/oz. The closely watched gold/silver ratio is a lowly 41.2. My December predictions for gold and silver are $1570/oz and $36/oz before the Fourth of July, looks like we're still headed in that direction, pardner.

A drop in oil prices came after Hugo Chavez presented a goofy plan to mediate the Libyan crisis but Brent and NYMEX crude are still well into $100/bbl territory (see the Daily Oil Watch below). A more positive sign than the plans of two of the planet's craziest dictators came from an unexpected drop in the number of workers filing new unemployment claims. The Labor Department said claims fell by 20,000 to 368,000 in the week ended Feb. 26. This marks the lowest level since May 2008. Economists surveyed by Dow Jones Newswires had expected claims would rise by 9,000 to 400,000.

Hey, I'll take some good news! Yesterday's upbeat ADP payroll numbers and today's unemployment claims numbers are beating drums for tomorrow's big labor report. Last month's unemployment data was so mixed and dismal that the ole Colonel will bet we can expect a good'un from the U.S. Labor Department. I'll be up and at'em for the 5:30 AM PT release.

The Chavez plan and employment data apparently lifted investor optimism for the day putting downward pressure on gold and silver. Off their new records; gold is presently trading at $1423.7/oz and silver, $34.430/oz. COMEX copper got a nice bounce on the Chavez news but the specter of higher interest rates in Europe may soon spoil the party. This is all explained by our fearless Bloomberg metals reporter Maria Kolesnikova:

Copper Advances as Oil Prices Decline on Chavez Offer to Mediate in Libya (Maria Kolesnikova, Bloomberg News, 03/03/2011 5:30 AM PT)

COMEX copper is presently trading at a respectable $4.5385/lb. Here's an update of the record books for the big three metals together with NYMEX and Brent crude oil:

COMEX Gold $1441.0/oz 11:30:00 ET 03/02/2010, April contract most active
COMEX Silver $34.975/oz 11:30:00 ET 03/02/2010, May contract most active
COMEX Copper $4.6375/lb 06:15:00 ET 02/04/2011, March contract most active
NYMEX WTI Crude $103.41/bbl 02:45:00 ET, 02/24/2011, April contract most active
ICE Brent crude $119.79/bbl 02:45:00 ET 02/24/2011, April contract most active

Gartman bullish on gold


Followers of this report know there are few market voices the Colonel respects more than that of Dennis Gartman, "Commodity King" and author of the respected author of the Gartman Letter. He appeared on CNBC Business yesterday with his latest thoughts and advice on commodities and gold:

Dennis Gartman: Gold Remains Strong for Quite Some Time (CNBC Business News, Halftime Report, 3/2/2011)

You may remember that Dennis called a bottom for gold at $1309.1/oz as the crisis in Egypt erupted. He became a buyer then and its been up-up-and-away ever since. It is important to note that the Commodity King is not a "goldbug" and he often tells his audience that he is not a particular fan of gold compared to other opportunities in the commodity space. When he turns bullish on glitter, the ole Colonel listens.

His gold thesis is simple, "Gold has become the world’s second most reservable currency. It’s gaining relative to the euro and yen. It’s quite strong and will likely continue to be for some time to come."

Gartman has been skeptical of the euro currency for many months and sees the U.S. dollar as retaining its position as the number one reserve currency. This is not the popular argument of many experts as the U.S. dollar index (.DXY) continues to fall on recent euro strength. Phooey, I'll bet with Gartman.

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa. The most active front month contract remains above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in this volatile region.

Here are the most active front month contracts as of this morning:

NYMEX light sweet crude $101.28
ICE North Sea Brent crude $114.64
Spread (ICE- NYMEX) = $13.36 (yesterday $15.10)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $103.21
ICE North Sea Brent crude $114.51
Spread (ICE- NYMEX) = $11.30 (yesterday $12.51)

Although prices are off their crisis highs, we still have $100+ Brent and NYMEX in June favoring higher oil prices for the summer. The Colonel's Dcember prediction that we will see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.


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 485.54 slightly down from yesterday's 486.13 and below the 1-month moving average of 548.63. The EMI continues to be down from the high set on January 4th and a trend reversal in the short term may again be in the works.

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.

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 ON - The miners are still in a rough patch but conditions are improving; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains trapped between its 100-day and 150-day moving averages but still above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 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 RED light is turned on our Fuel Gauge with oil above $100

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, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.95 in early trading at $101.28 (April contract, most active); Gold is down $14.0 to $1423.7 (April contract, most active); Silver is down $0.405 to $34.430 (May contract, most active); Copper is up $0.0405 to $4.5385(March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.75; LME moly 3-month seller's contract is $17.24, LME cash seller is $17.01

Stock Market Morning Update

The DOW is up 154.09 points to 12,220.89; the S&P 500 is up 15.89 at 1324.33. Miners are mixed:

Barrick (ABX) $52.62 down 2.34%
Newmont (NEM) $53.44 down 2.36%
US Gold (UXG) $7.75 down 3.25%
General Moly (Eureka Moly, LLC) (GMO) $5.10 up 0.20%
Thompson Creek (TC) $13.11 up 0.92%
Freeport-McMoRan (FCX) $52.74 up 1.46% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.30 up 2.70% - global steel producer
POSCO (PKX) $103.58 up 0.37% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.38% at $1,801,640.12 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market