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Gold has hit another record high of $1,337.70 as the U.S. Dollar has come under renewed pressure, dropping below 78 on the Index…central banks in Japan and Australia overnight adopted more stimulative monetary policies…the belief is the Fed will soon follow suit with more “quantitative easing”…this scenario is extremely bullish for Gold and negative for the greenback which is in danger of falling below key some key support levels…as of 7:45 am Pacific, Gold is up $21 an ounce to $1,336 while Silver has jumped 59 cents to $22.46…after some profit-taking yesterday the CDNX is again charging higher as expected…the Venture is currently up 24 points to 1764…Gold Bullion Development (GBB, TSX-V) is up 2 pennies to 58 cents…GBB is looking stronger technically…GoldQuest Mining, the newest company in the BMR Portfolio, continues to shine…we love the fundamentals with GoldQuest which tell us this stock should be a star performer for quite some time…GoldQuest is going to be very active in the Dominican Republic where it has several advanced stage exploration projects covering 3 separate districts in that mineralization-rich country (the DR hosts one of the world’s largest gold deposits, Pueblo Viejo, with over 20 million ounces)…GQC has been exploring there for nearly a decade – their chance of a major discovery is significant, and they already have 2 exceptional targets in Las Tres Palmas and Las Animas…in addition, GoldQuest has the Toral zinc-lead-silver deposit in northwestern Spain (Lundin Mining is a partner) which is big enough for production and remains open along strike and downdip…Toral has an historical non-compliant resource in excess of 5 million tonnes grading 9% zinc, 6% lead and 45 g/t Ag…Micon International is currently completing a 43-101 on Toral…GoldQuest has also secured another polymetallic deposit in northwest Spain, about a 20-minute drive from Toral…GoldQuest has a history of sharp, sudden moves and in one day in June, 2006, gapped up from under 40 cents to $1.20…it recently broke out of a 2-year consolidation on high volume which is extremely bullish…the stock has hit a new 52-week high this morning of 25.5 cents…we suggest investors perform immediate due diligence on GQC…we’re keeping a close eye on Bayfield Ventures (BYV, TSX-V) which John featured in “Technically Speaking” yesterday…Bayfield has been getting some very encouraging drill results from its propertly immediately adjacent the Rainy River (RR, TSX-V) deposit in northwestern Ontario…Bayfield has been consolidating recently after hitting an all-time high of $1.38…it’s up 2 pennies this morning to $1.18 and has a bullish looking chart as John detailed yesterday…overlooked in the rush toward the golds is Noront Resources (NOT, TSX-V) which is fundamentally undervalued in our view and has a 100-day moving average that could reverse to the upside very soon…Noront is currently ahead 4 cents to $1.31…

From time to time at BMR we like to examine the performance of the U.S. Dollar and how it’s acting in relation to Gold.  In February of this year we pointed out a very important trend change as Gold started to rise in tandem with the U.S. Dollar – this signaled new strength in the Gold market which allowed us to make some accurate calls.  Just recently, a more normal inverse relationship between the two has resurfaced as the U.S. Dollar weakened considerably while Gold has continued to strengthen, hitting new highs.  From a fundamental standpoint, our macro view is that we’re in a period of general currency debasement and Gold is becoming an alternative currency.  The yellow metal is underpinned by many factors, not the least of which is the fact the Fed is likely to engage in more QE (Quantitative Easing) measures this fall in order to jump-start the American economy.  That’s likely to put additional pressure on the U.S. Dollar, hence the outlook for Gold remains very bullish.

The U.S. Dollar bounced back slightly today and Gold correspondingly cooled off, again demonstrating the return of the inverse Dollar-Gold relationship.  BMR’s technical analyst sees little hope for the U.S. Dollar getting above 80 on the Index, and what would happen if the Dollar were to fall below the long-term support around 76 that John has outlined below?

John: We are using a U.S. Dollar Index-Gold comparative chart where the Dollar is the focus and thus presented in candle format while Gold is shown as a single black line. The Dollar Index is a method of determining a relative value for the U.S. Dollar in terms of a weighted basket of other currencies – the Euro, Canadian Dollar, Japanese Yen, Swedish Krona, British Pound and the Swiss Franc.

At the beginning of December, 2009, the U.S. Dollar started to climb from a low of 74 and during the next seven months climbed to a high of 88. At that point it ran into resistance from two previous peaks in November, 2008, and March, 2009, and began to decline to a support level at 80.  Then it rebounded up to the 83 level in August of this year where it met resistance and began its decline to a support level of 78.  Today we saw a bounce up from that support.

I have drawn the 78 level support as a horizontal green line with violet circles indicating consolidation/resistance/support instances which have created this support level.  In addition I have also drawn a long term support (green sloping line) as noted on the chart. These support levels must be kept in mind during future U.S. Dollar moves.

Looking at the U.S. Dollar indicators:

The Slow Stochastics has the %K (black line) low at 3% and below the %D (red line) which is at 9%, thus both are in the oversold zone and in addition have almost completed a bullish “W” formation.

The ADX trend indicator has the -DI (red line) at 33 and appears to have peaked with the +DI (green line) below at 16 and perhaps ready to reverse upward.  The ADX trend strength indicator (black line) at 24 shows that the underlying downtrend is only of medium strength at the moment.

Outlook for the U.S. Dollar: Today the Dollar bounced up off the support and the Slow Stochastics shows that a reversal can be expected in the very near future.  However, I expect the bounce up will go no further than the resistance as shown on the chart at the 80 level.  

Outlook for Gold: Gold should continue to vary inversely with the U.S. Dollar and in the days ahead we could also see some consolidation in the yellow metal.  This is not a bad thing for Gold at this time as it is overbought after a rather long run-up.  Any consolidation or softness in Gold, however, is expected to be minor and short-lived with the U.S. Dollar’s upside limited.  Note that consolidations are necessary from time to time to keep uptrends sustainable.  It will not be long before Gold is charging up to new highs.

Gold has softened today on profit-taking and a stronger U.S. Dollar…the yellow metal has traded within a range of $1,311 to $1,321 and is currently down $4 an ounce (as of 9:05 am Pacific) to $1,314…Silver slipped slightly below $22 an ounce but is now at $22.03…the CDNX is also taking a breather…the Venture got as high as 1748 in early trading but has since retreated to 1737, a 8-point loss for the day…the successful strategy with precious metals and the CDNX over the last 2+ months has been to buy into any dips or pullbacks and we don’t see that changing anytime soon…Gold Bullion Development (GBB, TSX-V) is unchanged at 57 cents…volume has lightened up in GBB the last few trading sessions, typical of a consolidation…Bayfield Ventures (BYV, TSX-V), the subject of John’s “Technically Speaking” feature this morning, is off 8 cents to $1.09…Bayfield has been getting some impressive drill results recently from its property in the Rainy River district of northwestern Ontario…it has a very interesting chart as John described and could be one of the stocks that helps lead the CDNX sharply higher this month and quarter…its current market cap is approximately $50 million…GoldQuest Mining (GQC, TSX-V) is up another penny this morning to 22 cents…we added GQC to the BMR Portfolio last week at 19.5 cents and we believe this has the potential to deliver massive gains…GoldQuest has been active in the Dominican Republic (home of one of the world’s largest gold deposits,  Pueblo Viejo) for nearly a decade and they have several advanced-staged exploration projects there including Las Tres Palmas (very good recent drill results) and Las Animas which has a 43-101 indicated and inferred resource of 129,000 ounces of Gold, 2.5 million ounces of silver, 106 million pounds of copper and 130 million pounds of zinc with potential for considerable expansion…the company also holds the Toral zinc-lead-silver deposit in northwest Spain which has an historical non-compliant resource estimate of 5.4 million tonnes grading 9% zinc, 6% lead and 45 g/t Ag…a 43-101 is currently being prepared on Toral which remains open along strike and downdip…GoldQuest has also secured a second polymetallic project a short distance from Toral and with similar characteristics…further details on this will be announced by GoldQuest after full title has been received from the Spanish authorities…GoldQuest recently broke out of a 2-year consolidation and the next major resistance on the stock is at 50 cents…we normally focus on the lesser known juniors with much smaller market caps, but we suggest investors keep an eye on Noront Resources (NOT, TSX-V) which appeared to bottom out recently at $1.10 when we last mentioned it at BMR…Noront has a history of sudden, sharp moves and its 100-day moving average is very close to a turnaround…from a fundamental standpoint, Noront is our view is significantly undervalued given the size and potential economics of its Ni-Cu-PGM deposit at Eagle’s Nest…looking out over the next 6 months, Noront has an excellent chance to be a very strong performer as the technicals continue to improve on the stock and a greater appreciation of its value sets in with investors…its risk-reward ratio is currently very attractive…Noront is currently off 4 cents at $1.28…

6:20 am Pacific

Once each week at BMR, our technical analyst highlights a junior resource stock (outside the BMR Portfolio) that shows very favorable chart patterns.  Investors/traders of course should perform their own due diligence, as always, and carefully review fundamental factors as well.  This weekly feature is merely meant to introduce some possible opportunities that readers may wish to investigate.  This morning, John takes a look at Bayfield Ventures Corp. (BYV, TSX-V) which has delivered some very interesting drill results recently from its property immediately adjacent to Rainy River’s (RR, TSX-V) gold deposit in northwestern Ontario:

This morning,  Technically Speaking examines Bayfield Ventures Corp. (BYV, TSX-V).  On Friday, BYV opened at $1.05, its low for the day, climbed as high as $1.19 and then closed at $1.17 for a gain of 13 cents (12.5%) on total CDNX volume of 1.2 million shares.

Looking at the 6-month daily chart, even at first glance we see an exciting situation. From May1 to August 1, BYV traded in a basing consolidation triangle or wedge with minimal daily volume of less than 100,000 shares. Then at the beginning of August we see a breakout above the blue resistance line at the 40 cent level. This was a clear indication the scenario with BYV had changed.

Between August 3 and September 1, BYV climbed as high as 60 cents and formed a small symmetrical triangle.  When that occurs in the middle of a run it’s known as a continuation triangle. This is because the probability is that the price will break out in the direction of the trend which in this case is up.  Then on September 1 it broke out of the triangle, up through the blue top resistance line on volume of 2.7 million shares – more than 2.5x that of the previous day.  Always monitor the volume closely.

Then in just 5 trading sessions the price climbed from 54 cents to a high of $1.38, creating a flagpole, before going into decline. On the 5th trading session the volume was in excess of 6 million shares. This was the exhaustion day.   From there the stock price formed a downsloping flag (downsloping blue and green lines) – if you have a flagpole, why not a flag? After a flagpole this is a very bullish pattern and is also a continuation pattern.

On the 17th trading session of the flag there was a breakout through the top blue resistance line with a 50% increase in volume from the previous day.   There is a resistance band shown (horizontal blue dotted lines).   This chart pattern set-up, sometimes known as a first leg up, is extremely bullish.

Looking at the indicators:

The RSI is pointing up and in neutral territory at 63% and has formed a very bullish and rather flat “W” formation.

The Slow Stochastics has the %K (black line) crossed up above the %D (red line) in a low position at 33% – very bullish.

The Chaikin Money Flow (CMF) indicator is at zero but this is bound to change to buying pressure as the uptrend continues.  

Outlook:  This stock is looking very bullish and it would not surprise me to see it make new highs this month.  Everything is set.  Chart patterns and indicators are very bullish.

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John: Gold Bullion Development (GBB, TSX-V) opened at 55 cents Friday, drifted down to 54 cents and then strengthened toward the end of the day to close the week at 57 cents (a gain of two pennies on the day) on CDNX volume of 836,000 shares.

Looking at the 6-month daily chart we see that GBB continues to consolidate within a 4-month channel while investors wait for the closing of the company’s financing and fresh drill results from the LONG Bars Zone.  This channel has a top line of resistance (blue) and a bottom line of support (green). From mid-September to the present, the trading has formed a small consolidating symmetrical triangle. Also, I have drawn in a pre-breakout consolidating channel with the top resistance line (blue dotted) and the green support line at the bottom.  The purpose for drawing in these patterns within the main channel is to allow the investor to get an early awareness of a breakout. Two similar breakouts from this pre-breakout channel are shown. Remember, for a valid breakout the stock must close above the blue dotted line. Since September 12 the average volume has been declining (mauve line) which is normal during consolidations.

Looking at the indicators:

The RSI is at the 48% level and appears poised to get through the 50% level when news arrives, if not sooner.

The Slow Stochastics has the %K (black line) pointing up at 23% and above the %D (red line).  This may be forming a “W” formation similar to the one in July so watch this carefully.

The Bollinger band width is still falling but has not reached the low level of the previous breakout so it has room to drop further.

Outlook: GBB is trading almost at the bottom of the main channel so I do not expect it to fall further. The trading pattern obviously indicates investors are waiting for and expecting news in the near future.  If the news is good, the stock could move dramatically upward as the top of the trading channel is above 80 cents.

The BMR Portfolio

Gold Bullion Development (GBB, TSX-V)

Gold Bullion is on the rebound and starting to look stronger technically after falling as low as 53 cents in the last half of September…the stock has successfully bounced off its rising 100-day moving average and will likely test its declining 20-day moving average at 60 cents this coming week…GBB continues to consolidate within a 4-month channel, currently trading at the lower end of that channel…a reversal in the 20-day SMA appears to be on the horizon sometime during the first half of this month and that would signal another potential significant move to the upside…this could coincide with the closing of the company’s $6 million financing at 54 cents…rumor has it the financing is fully spoken for and could be oversubscribed…we anticipate more drill results sometime this month and an announcement regarding the launching of a Phase 3 drill program that should be even larger than the Phase 2 program which was expanded to 25,000 metres and is nearing completion…the addition of 1 or 2 more drill rigs, preferably RC, would be a welcome development…the LONG Bars Zone is all about volume so the quicker and more that Gold Bullion drills, the better…

GoldQuest Mining Corporation (GQC, TSX-V)

GoldQuest became the 7th stock in the BMR Portfolio this past week as it was added at 19.5 cents Thursday…the stock closed the week at 21 cents for a gain of 3.5 cents on CDNX volume of 7 million shares…this is a company we’ve watched closely for quite some time and we first mentioned it at BMR September 24 when it was trading as low as 15 cents…at the beginning of last week it broke out of a 2-year consolidation phase on high volume – as the saying goes, the longer the base, the stronger the case…GoldQuest has been exploring in the Dominican Republic for nearly a decade and has several outstanding targets in 3 separate districts in that country…one of those properties is Las Tres Palmas which recently delivered some impressive drill results including 53 metres grading 3.02 g/t Au (LTP-41) and 26 metres grading 11.39 g/t Au (LTP-39)…assay results also included silver, copper and zinc credits in all holes…more drilling is planned for this quarter at GoldQuest’s Dominican Republic properties…in Spain, GoldQuest has a valuable asset in the Toral Project which has an historical non-compliant resource of 5.4 million tonnes grading 9% zinc, 6% lead, and 45 g/t Ag…this was based on over 40,000 metres of diamond drilling and it’s still open along strike and downdip…GoldQuest has commissioned Micon International to prepare a 43-101 resource calculation for Toral…GoldQuest has also secured a 2nd polymetallic project, also in northwest Spain with similar characteristics to Toral, and further details on this will be announced by the company after full title has been received from the Spanish authorities…GoldQuest had $2.4 cash as of June 30…it has 92 million shares outstanding and the next major area of resistance on its chart is around 50 cents…the stock has a history of quick and big moves…in early June, 2006, on drill results from Las Animas, GQC gapped up from just under 40 cents to $1.20…

Seafield Resources (SFF, TSX-V)

Seafield traded within a range of 21.5 cents and 27 cents last week and closed unchanged at 25 cents…Friday’s trading was interesting as the stock declined to a weekly low of 21.5 cents (testing its rising 200-day moving average ) and then quickly reversed to close at 25 cents…an exploration update is expected soon from the company’s Quinchia Project in Colombia where drilling started late last June at Miraflores…Seafield has 3 major properties at Quinchia – Miraflores, Dos Quebradas, and Chuscal…the company’s goal, which we believe is very achievable, is to develop at least 3 significant deposits at Quinchia (in in very close proximity) totaling 3 to 5 million ounces…the company controls an area of nearly 70 square kilometres in a region known for hosting major gold-copper deposits…

Richfield Ventures (RVC, TSX-V)

Drilling at Richfield’s Blackwater Project in central British Columbia continues to impress with long intersections of mineable grade…the company released results on 4 more holes this past week…highlights included 199 metres of 1.47 g/t Au and 8.6 g/t Ag in hole #75, and 152 metres grading 1.23 g/t Au and 8.2 g/t Ag in hole #78…Richfield has nearly $20 million cash in the bank after completing a $14.6 million financing last month at $1.95 (CDNX approval was received last week)…the company now has 36 million shares outstanding for a total market cap of $100 million based on Friday’s close of $2.80 (a 4-cent gain for the week)…we view Richfield as a potential takeover candidate with a possible multi-million ounce deposit at Blackwater…

Sidon International (SD, TSX-V)

Sidon has had a rough few weeks with the stock enjoying only 2 “up” days over the last 13 trading sessions…SD declined 2.5 cents this past week to close at 10.5 cents, just above its rising 100-day moving average…the stock has extremely strong technical support at 10 cents and is more oversold now than it has been at anytime since March when it traded as low as 3 cents…the company and the stock have come a long way since then but often in this kind of a situation there can be a sharp pullback which we have just recently witnessed…Sidon’s Morogoro East Property in Tanzania has major exploration upside and with its improved financial position (Sidon raised approximately $1.7 million last month) the company can now get to work on that property and make some things happen…

Colombian Mines Corporation (CMJ, TSX-V)

Colombian Mines closed Friday at 86 cents, a 6-cent loss for the week but a 42% increase since BMR added CMJ to its portfolio late last year (the stock got as high as $1.62 in March)…more drill results are expected soon from Colombian’s flagship Yarumalito Gold/Copper Property in the Marmato Mining District…broad zones of gold/copper mineralization have been intersected at Yarumalito this year including 141.4 metres grading 0.77 g/t Au in YAR-11…the company had just over $3 million in working capital at the end of July, so it’s well positioned to continue drilling Yarumalito through the end of the year as well as advance some other projects in its very large Colombian land package (over 150,000 hectares)…interest in Colombian plays is heating up again and we expect CMJ will be a very strong performer in the months ahead…

North Arrow Minerals (NAR, TSX-V)

North Arrow showed some signs of life this past week as volume improved and the stock got as high as 19 cents…we’ve been very patient with this company which has essentially drifted aimlessly since we introduced it to BMR readers last April…the biggest disappointment for us has been North Arrow’s inability to carry out a drill program this summer/early fall at its Lac de Gras diamond property in the Northwest Territories…the company recently received a drill permit but says it’s now too late in the year to drill at Lac de Gras and has rescheduled drilling there until next spring…the company has some other properties in its portfolio and President and CEO Gren Thomas has also been searching for new opportunities…there is great potential with North Arrow and at this point we’re hoping Thomas can pull a rabbit out of the hat in the very near future and take advantage of a strong market… we’re not giving up on NAR just yet…

Near the end of August we stated:  “The CDNX continues to charge higher with September shaping up to be a potentially spectacular month.”  Indeed, September was a terrific month with the Index surging nearly 14% from 1500 to 1708.  Just recently the CDNX was showing signs of temporary exhaustion around 1700, raising the possibility of a minor pullback of maybe 5%.  With a decisive move through 1700, however, on very strong volume, it now seems clear to us that the CDNX is ready to challenge resistance between 1900 and 2000, quite possibly this month, as outlined in John’s very interesting analysis below.

While a minor pullback in the CDNX will undoubtedly occur sometime this quarter, our macro view is that the CDNX and gold mining stocks in general are in the midst of an historic move with the “Mania Phase” not even upon us yet.  This could ultimately lead the CDNX to new all-time highs, more than double where it is now.  In our view this is truly an amazing time – the right time – to be invested in quality junior mining stocks. Below is an updated CDNX chart followed by John’s analysis:

Last week the CDNX opened at 1704, drifted lower to its 10-day moving average of 1678, then rose steadily to close Friday at its weekly high of 1745 for a gain of 45 points (2.66%) on huge volume of 1.8 billion shares.  That’s the highest weekly volume in over 3 years.

Looking at the 3-year weekly chart we see that until July 1, 2008, the strong support for the CDNX was the long term 200-week moving average (SMA-200).  In very early July, 2008, the Index started its plunge by breaking down through that moving average around the 2500 level (thin blue line on left hand side).  It eventually bottomed at 679 exactly 5 months later in a record crash.

From there the Index started to develop a 5 wave Motive Phase followed by a 3 wave Correction Phase.  These patterns have been described in detail on previous charts. The Index then began wave #1 of a new Motive Phase which it is continuing to develop at the moment.   A resistance band (blue horizontal lines) is shown at the 1900 – 2000 level. This was caused by a 3 to 4 week pause in the downward plunge in August, 2008.   We also see the 200-week SMA (orange line) presently in this band at 1969, adding credibility to this resistance area. Remember, it was support before it was broken and now the Index sees it as resistance. The 20-week SMA (blue line) provided strong support during the Motive Phase and is now below the Index again and about to turn up and return to its supporting role.

Volume has increased by 80%, from 1 billion to 1.8 billion shares traded in a week in just 7 weeks (mauve line).  This is all up volume and has caused the CDNX to be super-charged. As previously stated, last week saw the highest weekly volume in more than 3 years.

Looking at the indicators:

The RSI is at 72% and just entered the overbought zone, thus there is plenty of room to move higher.

The Slow Stochastics is high in the overbought region but as we have seen before it can stay overbought for long periods during a strong uptrend.

The ADX trend indicator turned bullish during the 3rd week this past August (thin blue line on right hand side) when the +DI(green line) crossed above the -DI (red line). The ADX (black line) trend strength indicator is still relatively low at 27 and has turned up, indicating the strength of the uptrend is increasing.  All ADX indicators are in bullish orientation.

Outlook: The chart patterns and indicators point to the CDNX continuing to progress upward, full steam ahead until it reaches the 1900 level where I expect it to start to meet resistance.  Any consolidation around the 1700 level has just been just a pause and not the onset of a minor correction due to the very strong buying pressure. We should see a very bullish October.