$104 Oil (not here, not yet), Gold Pops on Inflation Worry

Morning Miners!

It is 5:55AM. Have a cup of Tuesday courage and let's see what Ruby brought in on the lo-boy last night. Hey, there are two new records on the trailer - one for copper and one for oil...

$104 Oil (not here, not yet)

ICE Brent oil and COMEX copper logged late-day Valentine records at $104.30/bbl and $4.6495/lb. You'll remember that Brent crude oil is the benchmark for Europe and much of the rest of the world, we track NYMEX Texas light sweet crude over here in the states. Since the beginning of the month, the Report has been using Brent as a barometer for the developing crisis in the Middle East (see below) and yesterday it hit a new high as demonstrators took to the streets in Iran.

Due to a healthy U.S. surplus we have been spared $100/bbl with NYMEX oil trading in the mid-$80/bbl range lately. Since Brent is hitting levels higher than during the worst of the Egyptian crisis, the ole Colonel expects the price gap to narrow in favor of higher domestic prices. A 20% premium for Brent is not sustainable for two benchmarks that usually vary by only a few dollars.

Let's update the record books for the big three metals with copper's new high and add Brent crude as a reminder of what may come our way soon:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $31.275/oz 08:15:00 ET 01/03/2011, March contract most active
COMEX Copper $4.6495/lb 18:15:00 ET 02/14/2011, March contract most active

ICE Brent crude $104.30/bbl 16:30:00 ET 02/14/2011, April contract most active

Gold Pops on Inflation Worry

Gold may be trying to get back in the game after a long spell on the bench since stumbling from its December high last year. This morning COMEX gold is trading at $1373.7/oz, a level not seen for the last four weeks. New inflation data from China and the U.K. may be calling our lustrous friend back to his traditional role of inflation fighter:

"Much of gold’s strength, early in the U.S. trading day, is the result of U.K. inflation data, say analysts with GoldCore. The year-on-year Consumer Price Index hit a 26-month high of 4% in January. 'Currency debasement and higher food and energy prices are leading to an inflation surge in both developed and emerging markets,' GoldCore says. Additionally, consumer inflation in China rose 4.9% last month, less than the 5.3% forecast by economists but still up from 4.6% in December. Also, China’s producer prices rose 6.6%, the most in six months." (Kitco News Nugget, 2/15/2011)

The Wall Street Journal relayed a similar comment by FastMarkets.com analyst James Moore:

"The [inflation] news comes amid a series of warnings by various financial ministers over the threat of inflation on the economic recovery, and is sending investors to gold as a traditional inflation hedge." (WSJ, 02/15/2010)

Let's see if we can hold these levels. The Colonel's nominal gold price for February is $1,360/oz with a "low ball" estimate unchanged from January of $1,320/oz. I'd love to be wrong.

Here is how gold and silver traded on the London spot market with the incoming inflation news:




Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in Egypt and the Middle East. The most active front month contract remains above $100/bbl with a very 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 this volatile region.

Here are the most active front month contracts as of this morning:

NYMEX light sweet crude $85.46
ICE North Sea Brent crude $102.71
Spread (ICE- NYMEX) = $17.25 (yesterday $16.55)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $94.20
ICE North Sea Brent crude $103.18
Spread (ICE- NYMEX) = $8.98 (yesterday $7.92)

Although prices are off their crisis highs, we have $100+ Brent and mid-$90 NYMEX in June favoring higher oil prices for the summer. I'll still stick with my December prediction that we will see NYMEX $100/bbl oil before the Fourth of July.


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 645.76, up from from yesterday's 618.75 above the 1-month moving average of 564.07. The EMI continues to be down from the high set on January 4th but a trend reversal to the upside may be in the works.

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 greater than 100 signals better times for the metals & miners relevant to Eureka County.

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.

Eureka Outlook Dashboard

4-WD is ON - The miners are still in a rough patch but conditions are improving; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is stuck between its 50-day and 100-day moving average. FCX is still well above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 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 YELLOW light is turned on our Fuel Gauge with oil above $80

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

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.65 in early trading at $85.46 (March contract, most active); Gold is up $8.6 to $1373.7 (April contract, most active); Silver is up $0.186 to $30.720 (March contract, most active); Copper is down $0.0205 to $4.6080 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.92; LME moly 3-month seller's contract is $18.14, LME cash seller is $17.96

Stock Market Morning Update

The DOW is down 37.2 points to 12,230.39; the S&P 500 is down 2.97 at 1329.35. Miners are mixed:

Barrick (ABX) $49.42 up 1.83%
Newmont (NEM) $57.97 up 1.36%
US Gold (UXG) $7.42 up 1.78%
General Moly (Eureka Moly, LLC) (GMO) $5.47 up 0.74%
Thompson Creek (TC) $14.21 up 1.50%
Freeport-McMoRan (FCX) $55.66 down 0.86% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.42 down 0.32% - global steel producer
POSCO (PKX) $108.00 down 1.16% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.57% at $1,794,077.34(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 (Wiki).

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Headline photograph by Mariana Titus