China PMI Rockets Metals & Miners, Caterpillar & Steels

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Morning Miners!

It is 5:40 AM. The UPS man gave Old Miner Woden a ride in from his Lone Mountain diggings yesterday. Now, I know that's against their company policy but we're in rural Nevada and Old Miner Woden is as familiar to drivers in these parts as Old Man Winter. Besides, UPS had to deliver a package to the break room. A faithful reader up in Washington state sent us some of Seattle's best espresso mix. Pardner, this java will blow you past hump day and into the weekend faster than Woden can spin a yarn. Have a cup and let's checkout what's caught the Old Miner's eye...

Homestake Homestead

Woden was checking out our stack of Homestake Mining photos and got to laughing at today's headline shot of a miner's homestead in the Black Hills of South Dakota (from a continuing series, Ruby Hill & Homestake Mining Memories). "What is it?" I asked, "All those deer or that long rifle or the expression on that little girl's face?"

"Nah, Colonel," Woden replied, "Look how they built this here 2-level porch!"

The old miner jabbed the photo with his index finger, "Them's real miners. That's post and cap timbering with a crib joint on the header!"

That's my old boy. If you are interested in timbering and other early mining technology you may want to check out Drills and Mills, Precious Metal Mining Methods of the Frontier West by Will Meyerriecks (see Note 1).

China Manufacturing Data Rockets Metals & Miners, CAT & Steels

After all that story tellin' the markets are now open and we got us a humdinger rally, buckaroos! The DOW is up over 200 points, Freeport-McMoRan (FCX) has jumped 5% blowing past its 200-day moving average, Caterpillar (CAT) is up 5% too along with steel giant ArcelorMittal (MT). Hold your horses, I've got to compute the Eureka Miner's Index(EMI).

Whoa! The EMI just shot to a new high of 161.6 reversing its downtrend and catching a high gear. What's behind all this joy? Last night China released its latest manufacturing data or PMI (see Note 2) and it's looking good. Here's this morning's Bloomberg story:

China Manufacturing Bounces Back From Low in Stabilization Sign (Chris Anstey, Bloomberg News, 9/1/2010)

Encouragingly, manufacturing in China grew at a faster pace in August after the weakest performance since early 2009 in July. The official PMI rose to 51.7 from 51.2, anything over 50 shows expansion. If you don't believe the Chinese government numbers, HSBC calculates an independent China PMI and it looks promising also increasing 2.5 points to 51.9. The HSBC index hit a 16-month low in July while the official index declined in May, June and July.

The China number was followed by an unexpectedly upbeat PMI for the U.S. As reported by the Wall Street Journal, "The U.S. manufacturing activity expanded in August for the 13th straight month, with the ISM manufacturing PMI defying expectations to rise to 56.3, from 55.5 in July. The encouraging numbers were fueled by strong employment and production data." (WSJ, 9/1/2010)

Correlation Watch

This morning's rally pushed the 1-month copper/gold correlation into positive territory, a bullish sign. Oil/gold correlation improved some too but remains seriously inverted, a bearish sign. Copper/Oil correlation remains positive but low. The best case for the metals & miners is all-positive correlations for these near and midterm correlations.

Here are the latest numbers:

Copper/gold correlation +0.1031 (1-month) -0.2206 (3-month)
Oil/gold correlation -0.8321 (1-month) -0.3793 (3-month)
Copper/oil correlation +0.3618 (1-month) +0.3280 (3-month)

Enjoy this rally while it lasts, pardner - the hombres over in double-dip canyon will not be happy campers with this turn in news. Stay tuned.

Daily Market Roundup

Enough talk, let's walk the walk:

The Eureka Miner's Index(EMI) hits an above-par 161.58, launching from yesterday's 132.23 and a long way up from the 6/7/10 low of 50.7. Today's number breaks resistance levels of 139.53 and then 151.54 to reverse the recent down trend. Remember an EMI greater than 100 is good times (or at least better times) for the metals & miners relevant to Eureka County.

Eureka Outlook Dashboard

4-WD is OFF (for a change!) - improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners are on firmer timber, bellwether Freeport-McMoRan (FCX) has broken 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 GREEN light is turned back on for Investor Confidence with favorable China and domestic manufacturing data although 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?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $1.17 in early trading to $73.09 (October contract, most active); Gold is up $1.4 to $1251.7 (December contract, most active); Silver is down $0.002 to $19.430 (December contract, most active); Copper is up $0.0675 to $3.43.75 (December contract, most active)

Western Molybdenum Oxide is $15.50; European Molybdenum Oxide is $16.00; LME moly 3-month seller's contract is $16.67, LME cash seller is $16.44

Stock Market Morning Update

The DOW is up 226.75 points to 10241.47; the S&P 500 is up 26.85 to 1076.18. Miners are rocking except for big gold:

Barrick (ABX) $46.17 down 1.26%
Newmont (NEM) $60.92 down 0.65%
US Gold (UXG) $5.29 up 2.32%
General Moly (Eureka Moly, LLC) (GMO) $3.09 up 2.66%
Thompson Creek (TC) $9.01 up 5.01%
Freeport-McMoRan (FCX) $75.64 up 5.07% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $30.40 up 4.86% - global steel producer
POSCO (PKX) $103.86 up 2.87% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 2.16% to $1,404,143.60(what's this?).

Cheers,

Colonel Possum

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

Note 1: 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.

Note 2: An important indicator of economic activity is the Purchasing Managers Index (PMI). It gives the percentage of manufacturing purchasing managers that report better business conditions than in the previous month for a certain economic sector. A PMI index over 50 indicates that the economy is expanding while anything below 50 means that the economy is contracting. This is important to the metals & miners because it is another "tell" on the health of our global recovery. As a model of global cooperation, the PMIs are updated at roughly the same time at the beginning of every month.

Headline photo: Homestead near 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.