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
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?).
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 email@example.com for answers to your questions or to request e-mail updates on the market