"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.

Friday, April 29, 2011

The Colonel is on the Road Again; Gold $1,541


*** BREAKING NEWS *** COMEX gold came within 20-cents of the Colonel's December prediction for $1,570/oz at 14:35 ET scoring $1,569.8/oz

*** BREAKING NEWS *** COMEX gold got a little more giddy-up at 10:50 AM ET and moved the record gold post to $1,546.0/oz


Morning Miners!

It is 5:26 AM. Have a TGIF cup of Raine's Union Jack Java. The Colonel will be on the road again soon - the next market report will be bright and early May 10th.

Ruby T got everyone out of the bunkhouse and into the shop at 3:00 AM to watch the Royal Wedding. Old Miner Woden and Thor snoozed, Ruby teared up and I must admit the ole Colonel was impressed by the whole whoop-de-doop. Modern monarchy, massive crowds and horse poop on the way to Buckingham Palace. Quite a show - cheers to all!



Gold heads higher

It was probably more extended dollar weakness than royal sentiment that pushed COMEX gold a little further up Record Hill. Gold touched $1,541 before a mild retreat to its present value at $1,536.8/oz. The U.S. dollar began its eighth consecutive day of losses against a basket of global currencies.

I just checked dozens of currencies and the dollar is presently only up against the Czech koruna and Canadian dollar. The euro is continuing to challenge $1.50 trading at $1.4840; the yen is sitting at a low 81.45. The U.S. dollar index (.DXY) is 73.05 with some currency watchers predicting a greenback rout to 70 territory just around the corner. This 1-yr chart of COMEX gold (blue) and the .DXY (orange) tells the story; gold up 30%, dollar down 11% and falling.



The ole Colonel is still in the 1% dollar bull camp but it is getting mighty lonely in this corral. I have used the U.S. dollar index (via Powershares DB US dollar Index Bullish Fund, UUP) to hedge gold and silver positions. This makes sense in theory but I must admit I lightened up on UUP last Monday. The dollar will have its day (someday) but we may be seeing my December prediction of $1,570/oz gold before the Fourth of July a lot sooner than Independence Day.

Yesterday COMEX silver made $49.560/oz but fell short again of hitting the 1980 record of $50.35/oz. This morning silver is at $48.695/oz and the closely watched gold/silver ratio has moved up to 31.6 showing some recent gold strength (see Gold Value Index (GVI) discussion below).

COMEX copper is trading below $4.25/lb at $4.2315 which is a bit worrying.

Let's close with an update of our record book for the big three metals together with NYMEX and ICE Brent crude:

COMEX Gold $1,541.10/oz 03:50 ET 04/28/2011, June contract most active (new)
COMEX Silver $49.820/oz 01:00 ET 04/25/2011, May contract most active
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $113.48/bbl 09:00 ET, 04/25/2011, June contract most active
ICE Brent crude $126.47/bbl 016:45 ET 04/08/2011, June contract most active



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 552.88, down from yesterday's 555.53 but above the 1-month moving average of 500.56. The EMI continues to be down from the high set on January 4th; it set a new 2011 low on March 15th. A positive trend from the bottom continues to be intact as we stay above the 1-month average.

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.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 70.38, up from yesterday's 70.06 and above its 1-month average of 69.59. This is the 4th day gold has gained value. Today's Value Adjusted Gold Price (VAGP) is $1,824.5/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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 (MENA). It is now above $120/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 the region.

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

NYMEX light sweet crude $112.90
ICE North Sea Brent crude $125.22
Spread (ICE- NYMEX) = $12.32 (Yesterday's $12.46)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $113.68
ICE North Sea Brent crude $124.62
Spread (ICE- NYMEX) = $10.94 (Yesterday's $11.11)

* NYMEX futures contracts have rolled forward, we now show June & August for a 2-month look-ahead

Prices are off their crisis highs but we now have $120+ Brent and $110+ NYMEX in August favoring higher oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on improving rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is just below its 100-day moving average today but is comfortably above its 200-day average of $47.94 (our new warning level, 04/15 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 The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The VERY RED light is turned on our Fuel Gauge with oil above $110

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, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.04 in early trading at $112.90 (June contract, most active); Gold is up $5.6 to $1536.8 (June contract, most active); Silver is up $1.154 to $48.695 (July contract, most active); Copper is down 0.0300 at $4.2315 (July contract, most active)

Western Molybdenum Oxide is $16.87; European Molybdenum Oxide is $17.12; LME cash seller is $17.32, LME moly 3-month seller's contract is $17.46

Stock Market Morning Update

The DOW is up 30.65 points to 12,794.49; the S&P 500 is down 0.04 at 1,360.44

Miners are mixed:

Barrick (ABX) $50.59 down 0.26%
Newmont (NEM) $58.62 down 0.29%
US Gold (UXG) $9.17 up 0.66%
General Moly (Eureka Moly, LLC) (GMO) $4.98 unchanged
Thompson Creek (TC) $12.23 down 0.49%
Freeport-McMoRan (FCX) $54.57 down 0.64% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.52 down 0.22% - global steel producer
POSCO (PKX) $108.91 up 0.21% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.42% at $1,975,174.75 (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 (source: Wikipedia)

Headline & inset photograph from CNN live coverage of the Royal Wedding

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

Thursday, April 28, 2011

Bernanke, Economy Lift Gold to $1535; Barrick on Defensive



Þūnresdæg
Morning Miners!

It is 5:29 AM. Have a hot cup of Thor's Thunder to break your cares asunder. Our favorite Norseman is trying to convince me to enter my 1972 F-250 "Casper" in the Eureka Car Show coming up May 14th. He's been polishing Casper with 30-grit sandpaper...

Bernanke, Economy Lift Gold to $1535

Picking up from where we left off yesterday, Sheriff Bernanke comes to town, the Sheriff came and the markets scattered in all directions. I watched most of the first-ever Q&A after an FOMC meeting on CNBC Business News and it was mostly a yawner. The Federal Reserve Chairman looked less like a Sheriff and more like economics professor Ben Stein in Ferris Bueller's Day Off. That makes sense, Ben Bernake was an economics professor before putting on the Central Bank's big hat and star.

It also makes sense that the Fed plans to phase out their controversial bond-buying program commonly referred to as "QE2". Quantitative easing or QE is a fancy way to say the government is printing money out of thin air. Quitting that practice didn't wet any eyes in the audience. The likelihood of a follow-on QE3 is now unlikely unless the economy falls down a new mineshaft.

Professor Ben also believes the current commodity inflation is transitory and commodity prices will settle out in time. This view is central to maintaining their low-interest policy for an unspecified time. That may be a long time given today's latest economic indicators that point to a dismal U.S. employment picture and slowing economic growth. The Commerce Department said this morning that the gross domestic product (GDP), the value of all the goods and services produced, rose at a seasonally adjusted annual rate of 1.8% in the first quarter. Nuts.

OK, no more QEs and more low interest rates - what do the markets think? The S&P 500 decided to make highs not seen since June 2008 hitting 1,357.49 before closing at 1,355.66 for starters.

COMEX gold shot up to a new record of $1,535.10/oz after the Sheriff rode out of town. COMEX silver rose to $48.33/oz but fell short of its April 25th record. COMEX copper went up then back down to the key $4.25/lb level pulled in two directions by the prospects of more easy money (i.e. low interest rates) and slowing economic growth (i.e. lousy GDP).

The real victim of all this hullabaloo was the poor old greenback which continues to fall and fall...and fall. As gold bounced 1.5% on Bernanke talk; the dollar fell 0.75% (which is a lot for a 1-day currency move). This morning the U.S. dollar index is down another 0.25% as the euro presses on to the $1.50 level (presently $1.4820). COMEX gold is trading at a respectable $1,530.8/oz; COMEX silver is at $48.450/oz with July now being the most active contract. COMEX copper is $4.2465/lb.

Let's close with an update of our record book for the big three metals together with NYMEX and ICE Brent crude:

COMEX Gold $1,535.10/oz 03:50 ET 04/28/2011, June contract most active (new)
COMEX Silver $49.820/oz 01:00 ET 04/25/2011, May contract most active
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $113.48/bbl 09:00 ET, 04/25/2011, June contract most active
ICE Brent crude $126.47/bbl 016:45 ET 04/08/2011, June contract most active

Barrick on Defensive

Barrick Gold has taken a beating in the stock market since they announced their intention to pick up copper miner Equinox Minerals. Apparently, the purist investors find it offensive to imagine that the metal used to make pennies (pennies are now copper clad zinc) will become a much larger part of the gold giant's portfolio. Presently Barrick production is roughly 90% gold and 10% copper; after acquisition it is expected to be 82% gold and 18% copper. Here's a good Canadian Press article that reports Barrick defending their thought process on Equinox.

Barrick Gold tries to ease shareholder worry, says copper will strengthen company (Mary Gazze, The Canadian Press, 4/27/2011)

The ole Colonel thinks Barrick is on the right track - the red metal rocks and as Ruby says, "...looks good with gold."


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 555.53, up from yesterday's 488.35 and above the 1-month moving average of 493.17. The EMI continues to be down from the high set on January 4th; it set a new 2011 low on March 15th. A positive trend from the bottom continues to be intact as we stay above the 1-month average.

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.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 70.06, up from yesterday's 69.80 and above its 1-month average of 69.57. Today's Value Adjusted Gold Price (VAGP) is $1,825.60/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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 (MENA). It is now above $120/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 the region.

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

NYMEX light sweet crude $112.83
ICE North Sea Brent crude $125.29
Spread (ICE- NYMEX) = $12.46 (Yesterday's $12.12)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $113.58
ICE North Sea Brent crude $124.69
Spread (ICE- NYMEX) = $11.11 (Yesterday's $10.60)

* NYMEX futures contracts have rolled forward, we now show June & August for a 2-month look-ahead

Prices are off their crisis highs but we now have $120+ Brent and $110+ NYMEX in August favoring higher oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners may on improving rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is above its 100-day moving average today and is comfortably above its 200-day average of $47.94 (our new warning level, 04/15 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 The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The VERY RED light is turned on our Fuel Gauge with oil above $110

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, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.07 in early trading at $112.83 (June contract, most active); Gold is up $13.7 to $1530.8 (June contract, most active); Silver is up $0.463 to $45.450 (July contract, most active); Copper is unchanged at $4.2465 (July contract, most active)

Western Molybdenum Oxide is $16.87; European Molybdenum Oxide is $17.12; LME cash seller is $17.32, LME moly 3-month seller's contract is $17.46

Stock Market Morning Update

The DOW is up 15.97 points to 12,706.93; the S&P 500 is up 1.00 at 1,356.66

Miners are mixed:

Barrick (ABX) $51.33 up 0.96%
Newmont (NEM) $59.03 up 0.14%
US Gold (UXG) $9.47 up 1.07%
General Moly (Eureka Moly, LLC) (GMO) $5.02 unchanged
Thompson Creek (TC) $12.44 up 0.32%
Freeport-McMoRan (FCX) $55.72 down 0.80% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.48 up 0.97% - global steel producer
POSCO (PKX) $108.81 down 0.99% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.43% at $1,987,231.53 (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 (source: Wikipedia)

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

Wednesday, April 27, 2011

Metals, Dollar Shudder As Sheriff Bernanke Comes to Town



Wōdnesdæg
Morning Miners!

It is 5:35 AM. Have a cup of Hump Day Hoo-rah. Old Miner Woden says I need a pair of pliers and a shot of whiskey. My left upper molar says I need a dentist. I think I'll try the latter first so this will be a short report, pardner...

Metals, Dollar Shudder As Sheriff Bernanke Comes to Town

It is a rare moment lately to see the U.S. dollar and metals hightail it south on the same horse. Word is that Sheriff Ben Bernanke is coming to town and the markets are plumb spooked. Federal Reserve Policy has been terrific for commodities and disastrous for the U.S. dollar. Today the Fed will have its FOMC meeting. For a new twist it will be followed up by a press conference with comments and Q&A by Chairman Bernanke.

There is a good chance that nothing will change for now but every word the Sheriff says about U.S. monetary policy will be parsed and analyzed to death. Many folks want to know when our central bank will begin raising interest rates and when it will begin off-loading assets, including Treasurys and its multi-trillion-dollar cache of mortgages.

The present accommodative policy of near-zero interest rates and quantitative easing (aka QE2) has been great for commodity prices if "up" looks good to you. Easy money and a weak dollar have benefited metals like copper as investors bid futures contracts higher. The chase for interest rate differentials has benefited commodity-sensitive currencies at the expense of our dear old greenback. Gold and especially silver have sky-rocketed on concerns for our national debt-load and weakened dollar. Any signs of tightening monetary policy could quickly alter these trends.

For a miner like copper giant-Freeport McMoRan "up" looks good as copper prices have soared since last fall when QE2 got rolling. This morning spot copper fell down 2% to the key $4.25/lb level. The U.S. dollar continued to fall against the euro and COMEX gold is trading at $1512/oz. COMEX silver regained some giddy-up after being clobbered yesterday and is now up 84 cents at $45.885/oz. At least the precious metals are putting on a brave face. We'll do a post-game tomorrow, buckaroos. Here comes the Sheriff!

Woden, where's them there pliers?!


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 488.35, down from yesterday's 512.69 and just a thin flat washer above the 1-month moving average of 488.32. The EMI continues to be down from the high set on January 4th; it set a new 2011 low on March 15th. A positive trend from the bottom will continue to be intact if we can stay above the 1-month average.

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.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 69.80, up from yesterday's 69.54 and slightly above its 1-month average of 69.56. Today's Value Adjusted Gold Price (VAGP) is $1,810.0/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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 (MENA). It is now above $120/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 the region.

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

NYMEX light sweet crude $112.60
ICE North Sea Brent crude $124.72
Spread (ICE- NYMEX) = $12.12 (Yesterday's $11.79)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $113.43
ICE North Sea Brent crude $124.03
Spread (ICE- NYMEX) = $10.6 (Yesterday's $10.25)

* NYMEX futures contracts have rolled forward, we now show June & August for a 2-month look-ahead

Prices are off their crisis highs but we now have $120+ Brent and $110+ NYMEX in August favoring higher oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners may on improving rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is just below its 100-day moving average today but is comfortably above its 200-day average of $47.94 (our new warning level, 04/15 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 VERY RED light is turned on our Fuel Gauge with oil above $110

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, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.39 in early trading at $112.60 (June contract, most active); Gold is up $8.6 to $1512.1 (June contract, most active); Silver is up $0.835 to $45.885 (May contract, most active); Copper is down $0.0670 to $4.2520 (May contract, most active)

Western Molybdenum Oxide is $17.25; European Molybdenum Oxide is $17.12; LME cash seller is $17.10, LME moly 3-month seller's contract is $17.24

Stock Market Morning Update

The DOW is up 24.30 points to 12,619.67; the S&P 500 is up 1.79 at 1,349.03

Miners are mixed:

Barrick (ABX) $50.94 up 1.49%
Newmont (NEM) $58.02 up 0.29%
US Gold (UXG) $8.87 down 0.671%
General Moly (Eureka Moly, LLC) (GMO) $5.04 down 0.40%
Thompson Creek (TC) $12.08 down 0.98%
Freeport-McMoRan (FCX) $55.17 down 1.29% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.02 down 0.22% - global steel producer
POSCO (PKX) $109.83 down 0.07% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.01% at $1,937,386.70 (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 (source: Wikipedia)

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

Tuesday, April 26, 2011

Barrick's Red Metal Glitter



Morning Miners!

It is 5:49 AM. Have a hot cup of Tuesday. Anyone who knows Sweet Ruby T knows her trademark Black Hills gold earrings and copper bracelet around her wrist. From her windshield, copper and gold look good together and she says the red metal is good for your health. She must have passed a some of her style and wisdom on to Barrick Gold...

Barrick's Red Metal Glitter

It isn't surprising to hear a big miner has acquired another mining company. Buying out another miner is an easier way to increase your mineral reserves than digging core samples for stuff that's getting increasingly harder to find. It is headline news when a big guy changes business strategy in the process.

Yesterday Barrick Gold Corp. announced plans to buy Equinox Minerals Ltd. to give the gold producer a copper mine in Zambia and a copper project in Saudi Arabia. Here are Barrick's press releases on the transaction yesterday and an update today:

Barrick Announces Agreement to Acquire Equinox (Press release, 4/25/2011)

Barrick Announces Commencement of Offer to Acquire Equinox (Press release, 4/26/2011)

Mining Editor Adella Harding wrote about the deal in the Elko Daily Free Press:


Barrick to acquire Equinox copper company
(Adella Harding, Elko Daily Free Press, 1:11 PM PT, 4/45/2011)

With a major presence in Zambia, Barrick changes its path forward to include significant copper holdings as it is becomes more and more difficult to grow on major gold projects alone. This move is also a practical diversification form a single product focus; gold and copper prices sometimes move together, sometimes in opposition. A 1-year share price comparison of copper giant Freeport McMoRan (FCX, green line) with Barrick Gold (ABX, blue line) illustrates this advantage:


Both have done very well to date with Barrick up 25% and Freeport up 35% in twelve months. It is interesting to note that last June, when Freeport and other miners were taken to the woodshed, Barrick held up pretty well. As copper prices surged toward the end of 2010, Freeport share price soared when Barrick was in the doldrums. Taken together, the combination of the two affords good returns and reduced volatility over a variety of market conditions. This is no doubt behind some of the logic on the Barrick board.

There are advantages to diversification from a cost viewpoint too. This report has pointed out that if a mining company buys fuel in terms of its primary product, copper miners are presently in a much better position than gold diggers. A pound of copper buys about as many barrels of oil today as it did during the dark days of last June (.384 bbl/lb versus 0.386 bbl/lb). An ounce of gold bought 17 barrels of oil in early June 2010, now it fetches only a little over 13 barrels.

And don't forget the accountants. Freeport is able to produce copper for roughly a buck-a-pound because it applies profits from its gold and molybdenum by-products to the cost of copper production. Barrick, by acquiring Equinox, can apply copper profits to the cost of producing its primary product to maintain their standing as a low-cost gold producer.

As Ruby says, copper and gold look good together. We'll close with an article from our favorite gold bug in London, Larry Williams. The pending Barrick deal must be a little like seeing your girlfriend with another guy on Saturday night...

Is copper the new gold for Barrick? (Lawrence Williams, London, Mineweb, Monday , 25 Apr 2011)


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 512.69, down from yesterday's 566.88 but above the 1-month moving average of 486.78. The EMI continues to be down from the high set on January 4th; it set a new 2011 low on March 15th. A positive trend from the bottom continues to be intact if we can stay above the 1-month average.

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.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 69.17, up from yesterday's 68.39 but below its 1-month average of 69.54. Today's Value Adjusted Gold Price (VAGP) is $1,816.4/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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 (MENA). It is now above $120/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 the region.

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

NYMEX light sweet crude $112.10
ICE North Sea Brent crude $123.89
Spread (ICE- NYMEX) = $11.79 (Yesterday's $11.32)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $112.87
ICE North Sea Brent crude $123.12
Spread (ICE- NYMEX) = $10.25 (Yesterday's $9.84)

* NYMEX futures contracts have rolled forward, we now show June & August for a 2-month look-ahead

Prices are off their crisis highs but we now have $120+ Brent and $110+ NYMEX in August favoring higher oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners may on improving rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is above its 50-day and 100-day moving average today and is comfortably above its 200-day average of $47.94 (our new warning level, 04/15 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 VERY RED light is turned on our Fuel Gauge with oil above $110

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, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.18 in early trading at $112.10 (June contract, most active); Gold is down $5.4 to $1503.7 (June contract, most active); Silver is down $1.354 to $45.795 (May contract, most active); Copper is up $0.0060 to $4.3090 (May contract, most active)

Western Molybdenum Oxide is $16.99; European Molybdenum Oxide is $17.12; LME cash seller is $17.32, LME moly 3-month seller's contract is $17.46

Stock Market Morning Update

The DOW is up 40.91 points to 12,520.79; the S&P 500 is up 5.29 at 1,340.54

Miners are mixed:

Barrick (ABX) $50.90 down 1.85%
Newmont (NEM) $57.36 down 0.74%
US Gold (UXG) $9.00 down 1.21%
General Moly (Eureka Moly, LLC) (GMO) $5.04 down 0.79%
Thompson Creek (TC) $12.28 unchanged
Freeport-McMoRan (FCX) $54.58 down 0.38% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.05 down 0.55% - global steel producer
POSCO (PKX) $109.00 up 0.17% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.69% at $1,936,625.34 (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 (source: Wikipedia)

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

Monday, April 25, 2011

Gold $1519; Silver $49.8 - Metals & Miners Weekly Roundup


Morning Miners!

It is 5:47 AM. Happy ANZAC Day, here's a cup to salute the folks down under. This a national day of remembrance in Australia and New Zealand (note 2). More about Australia in a moment but first here are some new records...

Oil & Metals Outlook

Another good Monday for the precious metal folks. COMEX silver gaped up to nearly $50/oz hitting $49.820/oz at 01:10 ET this morning; gold scored a new high at $1519.20/oz at 07:00 ET. The closely watched gold/silver ratio favored silver again as it made another multi-decade low in low-31 territory. Presently the ratio is 31.35 with COMEX gold trading at $1513.0/oz and silver at $48.260/oz.

NYMEX oil future contracts have rolled forward so the Report now tracks June and a two-month look-ahead for August (see Daily Oil Watch below). This puts us smack-dab in the middle of summer with 110+/bbl oil. Presently the June contract is sitting at a disturbing $113.21/bbl; August is $113.98/bbl. This morning NYMEX oil beat its April 10th record by 2-cents to score $113.48/bbl for the most active contract.

Be sure to checkout our new "Latest Nevada Fuel Prices" link. These are reported numbers so you may find higher and lower prices as you drive around the hinterland. On average Nevada regular gas is $3.894/gal compared to the national average of $3.842/gal (these update quite often). Here are the latest low and high reported price:

Vegas Express
4421 E Bonanza Rd & N Lamb Blvd, Las Vegas East $3.71/gal

Chevron
898 Tahoe Blvd & Village Blvd, Incline Village $4.37/gal

Let's wrap up with an update of our record book for the big three metals together with NYMEX and ICE Brent crude:

COMEX Gold $1,519.20/oz 07:00 ET 04/25/2011, June contract most active (new)
COMEX Silver $49.820/oz 01:00 ET 04/25/2011, May contract most active (new)
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $113.48/bbl 09:00 ET, 04/25/2011, June contract most active (new)
ICE Brent crude $126.47/bbl 016:45 ET 04/08/2011, June contract most active

A Note to Eric - Australian Dollar et al


Eric, a good friend of this Report, asked the ole Colonel this weekend about the Australian dollar compared to our own greenback. My reply covers many of the themes we've discussed in 2011 and my outlook for the U.S. dollar, gold and silver. Here is the note to Eric in its entirety:


Eric,

"Should we buy Australian dollars?"

This is a really good question.

The aussie dollar like the Canadian loonie are called commodity currencies because both Australia and Canada have economies that are heavily reliant on natural resources (like Eureka County!). As long as commodities are on a tear, which has been the case for some time, they generally will fare better than the U.S. dollar.

There is another way to look at this same picture.

June 7th, 2010 was one of the worst days for the mining sector last year. It occurred when the DOW fell through the so-called "flash crash" low that happened a month earlier when computers hijacked the exchanges. Since that time the U.S. dollar has lost a disturbing 17% of value when compared to a basket of other world currencies (as measured by the US dollar index - see note 3).

I find it even more amazing that although gold price [in U.S. dollars] has soared, gold value compared to several key commodities has gone down the mineshaft. Since early last June an ounce of gold buys 23% fewer barrels of oil, 24% fewer pounds of copper and a shocking 48% fewer ounces of silver.

This won't go on forever and that is why I would caution anyone from jumping into the aussie or the loonie at this late date. I believe that gold is the sun of the commodity solar system, not just another planet. Commodity prices will be pulled back into closer orbit with gold eventually; it has worked that way for more than 5,000 years. As commodities lose value with respect to gold, the aussie and loonie will suffer.

Expecting the US dollar index to continue to fall is a bet that Europe and Japan are going to do better than the poor ole U.S.A. because the euro and yen dominate the index (more than 70%). A startling 99% of investors are U.S. greenback "bearish." When a trade gets this lopsided I like to join the "1% club" just to be an ornery old cuss.

Bottom line: if you buy gold, buy some US dollar index too (Powershares DB US Dollar index bullish fund, UUP). This is a good way to hedge your bet (especially with gold above $1,500/oz). I'd stay clear of commodity sensitive currencies. If you are brave, buy silver which has fared so much better than gold - but be careful, it too will return to the golden sun someday.

Sunday thoughts for a good question.

Cheers - CP


Please do your own head scratching before diving into currencies and precious metals in these crazy markets, pardner.

Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line shows the EMI; a composite of three benchmark miners, key oil and metal prices, the 10-year Treasury rate and market volatility (.VIX). A 1-month moving average is given by the blue line (a larger, more readable chart can be found near the bottom of the blog page):


This morning the Eureka Miner's Index(EMI) is above-par at 566.88, down from from Thursday's close at 597.38 and above the 1-month moving average of 483.78. The EMI continues to be down from the high set on January 4th, it set a new 2011 low on March 15th. A positive trend from the bottom has been re-established.

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 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.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 68.39 down from Thursday's close of 68.46 and below the 1-month moving average which is now 69.56. Gold is presently losing value. The GVI high for 2011 is 78.35. Today's Value Adjusted Gold Price (VAGP) is $1,848.6/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value 0f 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Below is a chart of the GVI at Thursday's close. The magenta line shows the GVI, a 1-month moving average is given by the blue line and the dotted line represents a "fair value" for a commodity-based valuation based on historical data (a larger, more readable chart can be found near the bottom of the blog page):



Daily Oil Watch

Latest Nevada Fuel Prices

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 (MENA). It is now above $120/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 the region.

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

NYMEX light sweet crude $113.21
ICE North Sea Brent crude $124.53
Spread (ICE- NYMEX) = $11.32 (Last Thursday $12.14)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $113.98
ICE North Sea Brent crude $123.82
Spread (ICE- NYMEX) = $9.84 (Last Thursday $11.11)

* NYMEX futures contracts have rolled forward, we now show June & August for a 2-month look-ahead

Prices are off their crisis highs but we still have $120+ Brent and $110+ NYMEX in August favoring higher oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners. With supply and demand fundamentals returning to the commodity space, diminishing correlations between key commodities are less alarming but trends should still be carefully monitored especially with spiking oil prices.

Here are the latest correlations given this morning's NYMEX/COMEX trading:

Oil/Au correlation +0.7622 (1-month) +0.9138 (3-month)
Cu/Au correlation -0.0334 (1-month) -0.4084 (3-month)
Cu/Oil correlation +0.2680 (1-month) -0.4978 (3-month)

Here are the numbers from the last roundup (4/15/2011):

Oil/Au correlation +0.7556 (1-month) +0.9211 (3-month)
Cu/Au correlation +0.0736 (1-month) -0.2916 (3-month)
Cu/Oil correlation +0.1532 (1-month) -0.4061 (3-month)

We now have equal positive and negative correlations with continued weakening in copper versus gold. Oil and gold remain in the corner pocket of high positive correlation. Copper versus gold has re-entered the inversion quadrant (i.e. both one-month & three-month correlations are negative). Copper versus oil is has an increasing negative 3-month but improving 1-month positive correlation. The metals & miners tend to do best when all correlations are positive.

According to my April models (see bottom of blog page): oil is presently undervalued with respect to gold by -0.85-standard deviations and copper is overvalued by +0.58-standard deviations. Copper is presently overvalued with respect to oil by +0.80-standard deviations.

One way to visualize these correlations over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations (aka "rho") as shown below in a graph of oil versus gold and copper versus gold. The blue line indicates the correlation trajectory since October 1st; the magenta line is more recent data (ref: China to the Rescue?):



In the case of oil versus gold, we start out on 10/1/10 in the "+,-" or "yellow" quadrant and move upward until both are positively correlated (i.e. in the "+,+" or "green" quadrant). Copper correlated positively faster than oil last fall and has was initially in the green quadrant longer. Correlation data in this region is typically considered bullish. After a brief venture into the "-,+" quadrant, the return of oil vs gold to the "+,+" side is bullish; the movement of copper vs gold for a return trip back to the "-,-" inversion region is a decidedly bearish development although there is a trend back to "+,-."

Gold:Oil, Oil:Copper & Gold:Copper Ratios

The Report has been tracking the stability of the gold:oil, oil:copper & gold:copper ratios. Although they ended last year rock solid (<3% variation, 1-standard deviation/mean) the ratios have diverged. The period of divergence is what prompted my January 14th comment to Adella Harding, Elko Daily Free Press, "The recent divergence of our lustrous friend [gold] from copper and oil...may signal a near-term correction for the overall metals and mining sector.". The mining sector is now trending back up from the March 15th low.

Once the ratios exceed 3% error, they become less useful in predicting the price moves of one commodity with respect to the another in the ratio pair.

For the past 3-months we have these statistics given this mornings' numbers:

Gold:Oil ratio

mean 14.25 bbl/oz
variation > 3.0% limit at 6.00% (1-standard deviation/mean)

Oil:Copper ratio

mean 22.78 lbs/bbl
variation > 3.0% limit at 10.2% (1-standard deviation/mean)

Gold:Copper ratio

mean 322.9 lbs/oz
variation > 3.0% limit at 5.19% (1-standard deviation/mean)

Weekly Molybdenum Roundup

Spot prices for molybdenum oxide are still straddling $17/lb territory with 16.96/lb out West and $17.12/lb in Europe. I've bet that euro moly oxide breaks $17.20/lb by May Day. Western and Euro moly spot prices remain in a moderate contango with both 3-month and 15-month London Metal Exchange (LME) seller contracts. (contango occurs when the price of a commodity for future delivery is higher than the spot price, or a far future delivery price is higher than a nearer future delivery; backwardation is the opposite of contango).

The 3-month seller at $17.46/lb is comfortably above the Colonel's mid-range moly price target for 2010 of $15.71/lb but below my target of $20.21/lb for 2011. The Report will give moly prices a "yellow-green" light on the Eureka Outlook Dashboard for now. I did believe we could see much higher prices this year although the turmoil in the Arab World turmoil and the crisis in Japan have put a damper on that expectation. There is an excellent analysis of the supply/demand argument for $20+/lb moly provided by General Moly's Seth Foreman in the General Moly Update.

Here is a detailed pricing summary for last week:

Western Moly Oxide $16.96/lb (FeMo65, the price tracked by Infomine - see the side bar graph in the lower right column)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.12/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $38,200/metric ton $17.32/lb

3-Month (Buyer) $37,000/metric ton $16.78/lb
3-Month (Seller) $38,500/metric ton $17.46/lb

15-Month (Buyer) $38,450/metric ton $17.42/lb
15-Month (Seller) $39,450/metric ton $17.89/lb

Here is a 1-year chart of the LME 3-month contract (seller):



Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is ON - The miners are in a rough patch with some improving road ahead; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 100-day average but comfortably above its 200-day average of $47.94 (our new warning level, 04/15 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 VERY RED light is turned on our Fuel Gauge with oil above $110/bbl

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 up $0.92 in early trading at $113.21 (June contract, most active); Gold is up $9.2 to $1513.0 (June contract, most active); Silver is up $2.201 to $48.260 (May contract, most active); Copper is down $0.0370 to $4.3630 (May contract, most active)

Western Molybdenum Oxide is $16.96; European Molybdenum Oxide is $17.12; LME moly 3-month seller's contract is $17.46, LME cash seller is $17.32

Stock Market Morning Update

The DOW is down 20.21 points to 12,485.78; the S&P 500 is down 0.99 at 1,336.39

Miners are mixed:

Barrick (ABX) $53.64 down 3.58%
Newmont (NEM) $59.35 up 0.20%
US Gold (UXG) $9.53 up 0.21%
General Moly (Eureka Moly, LLC) (GMO) $5.23 down 0.19%
Thompson Creek (TC) $12.32 up 0.33%
Freeport-McMoRan (FCX) $55.63 up 1.44% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.52 up 0.05% - global steel producer
POSCO (PKX) $109.17 down 1.76% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.14% at $1,990,374.00 (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).

Note 2 - Anzac Day is a national day of remembrance in Australia and New Zealand, and is commemorated by both countries on 25 April every year to honour the members of the Australian and New Zealand Army Corps (ANZAC) who fought at Gallipoli in Turkey during World War One. It now more broadly commemorates all those who died and served in military operations for their countries. Anzac Day is also observed in the Cook Islands, Niue, and Tonga. It is no longer observed as a national holiday in Samoa (Wiki).

Note 3 - The Powershares DB US Dollar index bullish fund (UUP) which tracks the U.S. Dollar Index (.DXY) is down 17.8% from June 7th 2010. The UUP is down 10.9% over a one year period (closing price, 4/21/2011).


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

Thursday, April 21, 2011

Gold $1510; Silver $46.3; Gartman Bullish & The 1% Club



Þūnresdæg
Morning Miners!

It is 5:39 AM. Have a welcome cup of Thor's Day Thunder. Our favorite Norseman and Old Miner Woden are painting Easter eggs. Thor forgot to boil the first batch so we may be having scrambled eggs with shells for breakfast.

Gold $1510; Silver $46.3

You know the drill by now, pardner: start the day with new records for gold and silver. For a change, COMEX silver got to the party first - 7:00 AM bright and early with the paparazzi snapping photos at $46.27/oz. COMEX gold dropped by 20 minutes later doing high fives at $1509.6/oz but the crowds barely noticed. Silver stole the show again.

Yesterday, we looked at $50/oz silver and it seems to be more "when?" than "if." Mining Editor Adella Harding was kind enough to include some of my thoughts on breaking the 31-year old record in last night's online Elko Daily Free Press:

Gold price tops $1,500; silver at record (ADELLA HARDING, Mining Editor Elko Daily Free Press, Wednesday, April 20, 2011 8:09 pm PT)

My view is that the silver surge is now more about destiny than fundamentals or investor's hedging currencies or media enthusiasm for gold's pretty cousin. We'll see $50/oz and maybe higher prices soon. Yesterday, I bracketed my expectation between May and Independence Day. With the latest price action and a crashing U.S. dollar, we may get there a lot sooner - days or weeks, not months. Presently COMEX gold is trading at $1,501.8/oz and silver at $45.730/oz; the closely watched gold/silver ratio has put a toe in 32 water currently at 32.8. If we get to 30, any gold price over $1,500 gives you $50+/oz silver.

Dennis Gartman, Commodity King and respected author of the Gartman Letter, remains bullish on gold. This morning, the Kitco Market Nuggets captured his view on Asian buying:

Investor and newsletter writer Dennis Gartman says Asian central banks are no doubt quietly buying gold at the margin. “They know it as a reservable currency, and they wish to diversify away from their too-focused positions in U.S. dollars and EURs and prefer owning gold instead,” he says in the daily The Gartman Letter. Whereas China’s official gold holdings are the sixth most in the world, they amount to only 1.7% of its total reserves, Gartman says. By contrast, he says, central banks such as France, the Netherlands and Italy hold an average of 64.3% of total reserves in gold. “This dichotomy will never been brought into parity, but it will narrow, and not because France, the Netherlands and Italy reduce their position, but because China increases its,” Gartman says. “Taking this ratio just to 3% will require a near doubling of China’s ownership of gold.” (Kitco Market Nugget, 4/21/2010)

I heard Bill O'Neil, Logic Advisors LLC, say good things about gold on CNBC Business News yesterday too. He and Gartman are very respected commodity traders and are often skeptical of gold seeking greater rewards elsewhere. When both of these guys go bullish, the ole Colonel listens.

Here's the near daily update of our record book for the big three metals together with NYMEX and ICE Brent crude:

COMEX Gold $1,509.6/oz 07:20 ET 04/21/2011, June contract most active (new)
COMEX Silver $46.270/oz 07:00 ET 04/21/2011, May contract most active (new)
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $113.46/bbl 18:00 ET, 04/10/2011, May contract most active
ICE Brent crude $126.47/bbl 016:45 ET 04/08/2011, June contract most active

The 1% Club - Dollar Bulls

There are two sides to any trade. Gartman, who also made an appearance on CNBC Business news yesterday, said that U.S. dollar bulls are at the 1% level compared to dollar bears. He added that whenever a trade gets this lopsided it is ill-advised to short (i.e., bet against) the U.S. dollar.

Attention to America's fiscal problems and low interest rates sent the pound sterling and the euro to 16-month highs this morning. Both the Australian dollar and Canadian dollar gained on the greenback, the latter posting a new three-year high. The U.S dollar index is now at multi-year lows presently sitting at 73.97. I just looked at dozens of global currencies and only the Indian Rupee and South Korean Won are showing any weakness against the U.S. dollar this morning. Phew.

What to do? Here's my idea. I bought equal U.S. dollar amounts of gold (SPDR Gold Trust - GLD) today and the U.S dollar Index (DB US Dollar Index Bullish Fund - UUP) yesterday. This takes some of the sting off buying $1,500/oz gold in today's marketplace. This trade favors gold but gives some protection if things reverse (i.e., Gartman caution on shorting the dollar). We'll watch this combo as the weeks progress. Buy silver? I liked John Brown's idea some time ago about buying Silver Eagles, at least you can touch'em!

Please do your own head scratching before jumping headlong into any currency/precious metal ventures.


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 568.42, up from yesterday's 547.99 but and now above the 1-month moving average of 473.19. The EMI continues to be down from the high set on January 4th; it set a new 2011 low on March 15th. A positive trend from the bottom continues to be intact if we can stay above the 1-month average.

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.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 68.93, down from yesterday's 70.16 falling below its 1-month average but still north of the 2011 low of 67.68. The 1-month moving average is 69.69. Today's Value Adjusted Gold Price (VAGP) is $1,820.5/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

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 (MENA). It is now above $120/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 the region.

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

NYMEX light sweet crude $111.29
ICE North Sea Brent crude $123.43
Spread (ICE- NYMEX) = $12.14 (Yesterday's $12.89)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $111.98
ICE North Sea Brent crude $123.09
Spread (ICE- NYMEX) = $11.11 (Yesterday's $11.51)

* NYMEX futures contracts have rolled forward, we now show June & August for a 2-month look-ahead

Prices are off their crisis highs but we now have $120+ Brent and $110+ NYMEX in August favoring higher oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners may on improving rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) jumped above its 50-day and 150-day moving averages today and is comfortably above its 200-day average of $47.94 (our new warning level, 04/15 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 VERY RED light is turned on our Fuel Gauge with oil above $110

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, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.16 in early trading at $111.29 (June contract, most active); Gold is up $2.9 to $1501.8 (June contract, most active); Silver is up $1.269 to $45.730 (May contract, most active); Copper is up $0.0270 to $4.3665 (May contract, most active)

Western Molybdenum Oxide is $16.90; European Molybdenum Oxide is $17.12; LME cash seller is $17.30, LME moly 3-month seller's contract is $17.46

Stock Market Morning Update

The DOW is up 2.35 points to 12,455.89; the S&P 500 is up 3.29 at 1,333.65

Miners are mixed:

Barrick (ABX) $55.54 up 1.33%
Newmont (NEM) $59.69 up 1.43%
US Gold (UXG) $9.56 down 0.21%
General Moly (Eureka Moly, LLC) (GMO) $5.23 down 0.76%
Thompson Creek (TC) $12.16 unchanged
Freeport-McMoRan (FCX) $53.97 up 1.26% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.54 up 1.19% - global steel producer
POSCO (PKX) $111.12 down 1.86% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.36% at $1,982,009.35 (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 (source: Wikipedia)

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