Au $1474; Ag Breaks $40; Oil $111; AB428 Update

Morning Miners!

It is 5:49 AM. Have a well deserved cup of Raine's Red Label TGIF. From cotton to copper we've got commodities running wild, pardner...

Au $1474; Ag Breaks $40; Oil $111

And the hits just keep on coming. COMEX gold and NYMEX oil led the morning charge at 6:45 a.m. ET to set new highs of $1,474.50/oz and $111.90/bbl respectively. ICE Brent crude oil followed 10 minutes later to post its mark at a sobering $124.33/bbl. COMEX silver didn't set her alarm and came to the party an hour late. Miss Silver's tardiness was forgiven with a stunning entrance, besting her new 31-year high at $40.335/oz. I'd say its time for the weekend!

It's amazing what an imminent U.S. government shutdown and NATO failure in Libya can do to oil and precious metal prices. As politicians wrangled in Washington and Libyan rebels fled in full retreat after being bombed by NATO aircraft, traders prepared for another moonshot. Maybe trees do grow to the heavens in this new 24-hour news-cycle world of endless crises. Undeterred by $110+/bbl oil, new optimism about global growth and a devastated U.S. dollar have pushed the entire commodity space to a two-year high on the heels of a seven day rally.

Bloomberg News couldn't capture all the action in one article so they wrote two this morning:

Commodities Rise for Seventh Day to Two-Year High, Led by Cotton, Silver (Maria Kolesnikova, Bloomberg News, Apr 8, 2011 2:48 AM PT)

Tin Advances to Record; Copper, Zinc Climb to Highest in a Month (By Glenys Sim, Bloomberg News, Apr 8, 2011 12:14 AM PT)

Good reading while it lasts, buckaroos. This Report maintains that sustained oil prices in the $110-$120/bbl range could develop significant discord in the global growth and domestic recovery choir. The average regular gas price in Nevada is $3.834/gal. The lowest reported price was $3.59/gal in Elko at the Conoco on 12th & Silver; the highest price was $4.57/gal at the 76 in Incline Village (see Daily Oil Watch below).

On a more positive note, our miners appear to have turned the corner and established an uptrend from their March 15th low. The Eureka Miner's Index(EMI) has been back in the 500s for the last three days, the recent low was 262 (see discussion below).

This was the gold and silver price action at the London Metal Exchange this morning, a bit different from COMEX but still up-up-and-away:




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

COMEX Gold $1,474.50/oz 06:45 ET 04/08/2011, June contract most active (new)
COMEX Silver $40.335/oz 07:50 ET 04/08/2011, May contract most active (new)
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $111.90/bbl 06:45 ET, 04/08/2011, May contract most active (new)
ICE Brent crude $124.33/bbl 06:50 ET 04/08/2011, June contract most active (new)

Mining Tax Update - AB428


This report has been following the latest taxation assault on Nevada mining since last week. Yesterday was a meeting on Assembly Bill (AB) 428 covered by Dorothy Kosich in Reno:

'You get to deduct WHAT???' Nevada lawmakers ask gold miners (Dorothy Kosich, Mineweb, Friday, 08 Apr 2011)

AB428 would seek to limit Nevada mining company deductions used to compute their net proceeds for taxation. Senate Joint Resolution 15 is part of this same mosaic and attempts to change the entire constitutionally protected net proceeds tax structure.

In the above article, the ole Colonel thought Nevada Mining Association President Tim Crowley put it very simply, "An industry that is only the 12th largest economic sector cannot make up for losses from the number one industry [i.e. gaming] in the state."

After a four-hour long hearing, the Taxation Committee took no action on AB 428 yesterday. Stay tuned, more to come...


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 571.10, down from yesterday's 573.87 and above the 1-month moving average of 405.68. The EMI continues to be down from the high set on January 4th but is up from the March 15th low of 262.02. This is the fifth day the EMI is above its descending upper trend line which breaks the downtrend.

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 68.28, down from yesterday's 69.13 and setting a new 2011 low. The 1-month moving average is 70.60. Today's Value Adjusted Gold Price (VAGP) is $1,799.6/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 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. 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 $111.43
ICE North Sea Brent crude $124.58
Spread (ICE- NYMEX) = $13.15 (Yesterday $12.91)

Here are the July contracts with a narrower spread:

NYMEX light sweet crude $111.95
ICE North Sea Brent crude $123.64
Spread (ICE- NYMEX) = $11.69 (Yesterday $11.01)

Although prices are off their crisis highs, we have $120+ Brent and $110+ 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.

Eureka Outlook Dashboard

4-WD is ON - The miners are heading for firmer ground; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 50-day and 100-day moving averages today and is comfortably 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 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 $1.13 in early trading at $1111.43 (May contract, most active); Gold is up $11.2 to $1470.5 (June contract, most active); Silver is up $0.728 to $40.280 (May contract, most active); Copper is up $0.0735 to $4.4900 (May contract, most active)

Western Molybdenum Oxide is $16.62; European Molybdenum Oxide is $17.10; LME cash seller is $17.30, LME moly 3-month seller's contract is $17.46

Stock Market Morning Update

The DOW is up 9.01 points to 12,418.50; the S&P 500 is up 2.31 at 1,335.82

Miners are up:

Barrick (ABX) $54.59 up 1.53%
Newmont (NEM) $59.07 up 1.34%
US Gold (UXG) $9.67 up 2.76%
General Moly (Eureka Moly, LLC) (GMO) $5.66 up 1.62%
Thompson Creek (TC) $13.51 up 1.50%
Freeport-McMoRan (FCX) $58.52 up 1.88% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.18 up 0.76% - global steel producer
POSCO (PKX) $112.89 up 0.30% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.41% at $1,993,513.68 (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