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