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

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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