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