"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Tuesday, March 22, 2011

"A Silver Dollar is Gold"



Morning Miners!

It is 6:03 AM. Have a cup of Tuesday and let's checkout Ruby T. She's been sitting at the break table all morning stacking and counting her formidable collection of silver dollars. She just winked at the ole Colonel and said, "A silver dollar is gold!"

A Silver Dollar is Gold


I guess it is natural to have someone in the Silver State take a liking to silver dollars, Ruby sure has. It has also been one of the wisest investments I can imagine as we watch the debasement of paper currencies around the developed world including our poor ole greenback. In just the last six months silver has risen 70% to gold's 10% while the U.S. Dollar Index has dropped nearly 7%. U.S. Federal reserve quantitative easing and inflation fears in emerging economies have taken their toll on our fiat money...that's the stuff in your wallet that has value only because the government says it does. Lately that's been a lot of "here's hoping."

Those that read this Report know the ole Colonel occasionally invests in the U.S. Dollar Index through the DB US Dollar Index Bullish Fund (UUP). I'm just a contrary old cuss that likes to pick up things that most folks hate. I also buy gold and silver through the popular SPDR gold trust exchange traded fund (GLD) and the iShares Silver Trust (SLV). There's a lot of love in those two lately so the combination of UUP, GLD & SLV is a decent way to hedge your bets on precious metals.

Phooey! I'm guessing that's what my friend Johnny may think of my approach - he just buys silver dollars. I'd have a hard time trying to convince either Johnny or Ruby they are on the wrong path. Silver dollars have collector value and rise with the price of silver too! Some of the rarer coins have fetched several million dollars in the collector's market.

So why is silver doing so well lately? One attraction is that silver has a much broader industrial application than gold and that demand is expected to grow with even broader applications for silver in the future. Its use in high energy density batteries is one example that comes to mind. The other factor is that silver is regaining its role as a monetary metal. There is a good Mineweb article on this topic:

Silver's monetary role contributing to the metal's explosive growth (Mineweb, VANCOUVER, BC - www.BNWnews.ca, 3/21/2011)

The author states, "Silver is increasingly becoming a global monetary metal, mostly due to inflationary concerns and the debasement of the world's major currencies," and adds, "...enormously growing demand, particularly in China and India, will keep the silver price rising and outperforming gold in the process."

The article goes on to quote Eric Sprott, founder of the Toronto-based investment firm Sprott Asset Management, as saying:

"Asian demand for physical gold and silver is like a tsunami. The inflation resurgence in Asia is quietly driving new, unforeseen levels of physical demand for these metals."

And...

"While the world continues to float on a sea of paper, this massive wave of physical demand silently threatens to crash into the physical gold and silver market, wiping out tangible supply."

Hmm, that pretty much covers the silver outlook, buckaroos. Have a good read. Ruby has just finished counting her wise investment, I think she's heading up town this afternoon to buy Johnny a beer. The Colonel wasn't invited, numismatists only.

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. It is still above $100/bbl with a large but narrowing 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 the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $102.31
ICE North Sea Brent crude $114.37
Spread (ICE- NYMEX) = $12.06 (Yesterday $12.09)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $103.48
ICE North Sea Brent crude $114.19
Spread (ICE- NYMEX) = $10.71 (Yesterday $10.67)

*(the most active front-month contracts are now May so we moved from June to July contracts for a 2-month look-ahead).

Although prices are off their crisis highs, we have $100+ Brent and NYMEX in July favoring higher oil prices through the summer. My December prediction that we would 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 366.99, up from yesterday's 358.77 and below the 1-month moving average of 397.90. The EMI continues to be down from the high set on January 4th and up from the March 15th low of 262.02

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. 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 of 100 is the boundary between good lands and bad lands for the metals & miners.

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 in a real rough patch; The VIX or "fear index" is just below 25; bellwether Freeport-McMoRan (FCX) is between its 100-day and 150-day moving average and above its 200-day average of $44.85 (our new warning level, 03/04 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 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 $0.78 in early trading at $102.31 (May contract, most active); Gold is down $3.4 to $1423.0 (April contract, most active); Silver is up $0.151 to $35.850 (May contract, most active); Copper is up $0.0055 to $4.2915 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.90; LME moly 3-month seller's contract is $17.01, LME cash seller is $16.81

Stock Market Morning Update

The DOW is down 14.01 points to 12,022.52; the S&P 500 is down 2.66 at 1295.72

Miners are mostly down:

Barrick (ABX) $50.07 down 0.50%
Newmont (NEM) $51.80 up 0.19%
US Gold (UXG) $7.60 down 0.39%
General Moly (Eureka Moly, LLC) (GMO) $5.26 down 0.75%
Thompson Creek (TC) $12.51 down 1.18%
Freeport-McMoRan (FCX) $51.82 down 1.14% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $35.07 down 1.71% - global steel producer
POSCO (PKX) $114.46 down 0.03% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.48% at $1,813,327.72 (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 (Eureka December 2005)

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

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