Friday, August 27, 2010
When a Bad Number Seems Good - Metals & Miners Bounce
It is 5:57 AM. Scott Raine dropped off a fresh supply of his famous Triple-X TGIF coffee last night. He thought we'd need it in the break room this morning given all the news coming across the wire. There are at least two major market events before us and the Report will take a fun detour to more Homestake mining memories while we wait to gauge their effects on the the metals & miners. We started the Homestake series this Wednesday if you are just catching up (Ruby Hill & Homestake Mining Memories).
When a Bad Number Seems Good
Before we jump into the time machine, a quick recap of our first market event. Just minutes ago the Commerce Department issued a revision on their second quarter gross domestic product (GDP) estimate. The U.S. economy grew more sluggish than first reported - the GDP rose at a seasonally adjusted annual rate of 1.6%, less than the 2.4% growth initially estimated. Economists had expected growth to be revised lower to 1.3%. In the first quarter, the economy expanded 3.7%. A 1.6% GDP is a bad number for recovery growth but seems pretty good when you realize the "double-dip" crowd was praying for something a lot lower.
This news was worth a $6 pop for gold at the London spot exchange bouncing from $1235 to $1242/oz. Much more impressive than a 0.6% move in gold was the 3.7% jump in spot silver hopping from $18.94/oz to $19.12/oz. COMEX silver is presently trading at $19.10/oz. This Report began a silver watch Monday and so far so good (Good Time to Buy Silver or Sift Sand for Bean Gold?). Copper made a favorable move too, notching up 1.0% from $3.2910/lb to $3.325/lb. COMEX copper is trading at $3.3275. This is a decent response for all three metals and they are moving in the same direction improving their correlations (a bullish sign for metals). So much for a lousy number (so far).
Our next event is Federal Reserve Chairman Ben Bernanke's speech at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming. Folks will be watching every word to sense a change in monetary policy and better determine the central bank's assessment of the economy. While we're waiting for all this drama, let's talk about old time miners making good use of a new fangled contraption...
Homestake Mining and the Rand Air Pneumatic Machine Drill
Today's headline photo shows two miners at the Homestake Gold Mine in Lead, South Dakota, using a Rand air pneumatic machine drill in the early 1900s. 250 of these state-of-the-art drills were in use at the Homestake mine which first began using machine drills in 1883. The Rand was much more effective than early models with reduced weight, improved drilling efficiency and better dust control. Ingersoll-Sergeant merged with Rand Drill in 1905 to form what we recognize today as Ingersoll-Rand.
If you are interested in the history of machine drills and other early mining technologies you may want to check out Drills and Mills, Precious Metal Mining Methods of the Frontier West by Will Meyerriecks (2003). Eureka Opera House Director Wally Cuchine first introduced the ole Colonel to this wonderful book; you can purchase a copy at the gift shop of our Eureka Sentinel Museum. For folks new to our town, the museum is housed in the 1879 Eureka Sentinel Newspaper Building just behind the Chevron Station on South Bateman Street.
Uncle Ben Has Spoken
Chairman Bernanke has just concluded his Jackson Hole speech and all is well that ends well. As he began speaking the S&P dropped to a scary 1,041 but when he concluded the market bounced back over 1,050 and the metals & miners are mostly smiling. Uncle Ben said that he is prepared to do what it takes to support an economic recovery that has been losing steam. As reported by the Wall Street Journal:
"In particular, the [Federal Open Market] Committee is prepared to provide additional monetary accomodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly..." (WSJ, 8/27/2010)
So it goes. Have a terrific weekend buckaroos.
Daily Market Roundup
Enough talk, let's walk the walk:
The Eureka Miner's Index(EMI) remains above-par at 119.29 just a sliver under yesterday's 119.44 and a long way from the 6/7/10 low of 50.7. Today's number is promising but we now need to pass resistance levels of 139.53 and then 151.54 to break the recent trend reversal to the downside. Remember an EMI greater than 100 is good times (or at least better times) for this sector.
4-WD is ON - rough roads in the marketplace; The VIX or "fear index" is above 25; metals & miners are still on shaky timber but bellwether Freeport-McMoRan (FCX) has returned to the high-$60s but below its 200-day average of $75.3 (our new warning level, 8/05 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is some deflationary caution now that we are sub-3%.
The YELLOW light is turned back on for Commodity Reflation. Although copper is trading above $3/lb, the 10-yr T-Note is solidly below 3.00%
The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)
The YELLOW light is turned on for Inflation/Deflation Watch as the Federal Reserves resumes buying back Treasurys and the 10-yr T-Note remains below 3.00%
The YELLOW light is turned back on for Investor Confidence as the bond markets still signal trouble ahead
The GREEN light is turned on our Fuel Gauge with oil below $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
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
NYMEX/COMEX: Oil is up $0.02 in early trading to $73.38 (October contract, most active); Gold is up $3.5 to $1241.2 (December contract, most active); Silver is up $0.118 to $19.100 (September contract, most active); Copper is up $0.0230 to $3.3275 (September contract, most active)
Western Molybdenum Oxide is $14.75; European Molybdenum Oxide is $16.00; LME moly 3-month seller's contract is $16.67, LME cash seller is $16.42
The DOW is up 53.43 points to 10039.24; the S&P 500 is up 4.76 to 1051.98 Everyone except the big golds are enjoying Uncle Ben's cooked rice:
Barrick (ABX) $45.80 down 0.44%
Newmont (NEM) $58.74 down 1.18%
US Gold (UXG) $4.92 up 1.23%
General Moly (Eureka Moly, LLC) (GMO) $2.97 up 2.41%
Thompson Creek (TC) $8.47 unchanged
Freeport-McMoRan (FCX) $68.66 up 2.31% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are pouring gravy on their rice, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $28.61 up 1.42% - global steel producer
POSCO (PKX) $101.41 up 0.03% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.64% to $1,345,163.52 (what's this?).
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market
Headline photo: Homestake Mine in Lead, South Dakota. The headline and other old time photos can be seen at the Homestake Visitor Center on 160 West Main Street, Lead, South Dakota. Please pay them a visit on your next pass through.
Our thanks again to the faithful reader that made these wonderful photographs available to the Report.