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Gold is firmer this morning…as of 6:00 am Pacific, the yellow metal is up $8 an ounce at $1,653…Silver is up 12 pennies to $31.71…Copper has gained 4 cents to $3.81…Crude Oil is 35 cents higher at $105.70 while the U.S. Dollar Index has fallen one-fifth of a point to 79.42…looks like a decent day is shaping up for commodities…

The trading action in Gold yesterday was certainly interesting…over the last week, including yesterday when it briefly dropped below $1,630 an ounce, Gold has stubbornly managed to hold support at the Fibonacci $1,643 level on a closing basis…the repeated testing of this technical level will ultimately prove significant – either Gold will hold this support and resume its advance, or at some point it will break below $1,643 in search of a new bottom…the weekly and monthly Gold charts continue to paint a bullish overall picture in terms of the primary long-term trend, but the short-term outlook is indecisive…below is John’s 6-month daily chart update…note the significant drop in buying pressure since late January/early February…the RSI(14), however, has formed a “W” below the 40% level and the recent overbought condition has been cleansed…

The U.S. Mint’s sales of American Eagle Gold coins, seen as a good indicator of investor sentiment, fell in February and March to their lowest level since mid-2008, down about 70% from last year…open interest in Gold futures on Comex in New York, meanwhile, are close to a 2.5-year low while physical interest in the metal from Asia and India recently has been less than expected (Indian jewelers continue to protest a doubling of taxes on Gold imports)…Gold stocks have taken a beating this month with the TSX Gold Index off 11% (it’s down 14.6% since an intra-day high of 389 February 29) and the Venture down 8%…both the Gold Index and the Venture are at oversold levels…contrarians will look at all of these statistics and come to a bullish conclusion…when the herd is stampeding in the same direction, it’s often wise to go the other way…Gold is still up for the year and there are still so many compelling reasons why this bull market still has a long way to travel…

Rainbow Resources (RBW, TSX-V)

Rainbow Resources (RBW, TSX-V) has just released news, providing more details on its Rhea Property near Nelson which looks promising, but what caught our attention was the last part of the news pertaining to “corporate developments” and a quote from President David W. Johnston…”We are continuing to evaluate opportunities to expand our flagship Big Strike Project in the West Kootenays in addition to adding a potential second project in North America that would give us year-round drilling capability“…given that interesting statement, plus the fact the company has signaled it will have more news next week (the International Property is a stellar Silver-lead prospect, so there could be developments on that front) and will also be holding an “information session” for “market participants” next Thursday at the International Hotel in Calgary, our gut instinct is that something big is brewing with this aggressive young exploration company…we will attempt to reach President David Johnston this morning for additional comments…companies that are efficiently and effectively carrying out their business plans are the ones investors will respond to in a favorable way, even in a market like we’ve seen this month, and Rainbow fits into that selective category…

Focus Metals Inc.  (FMS, TSX-V)

Focus Metals (FMS, TSX-V) is another one of our favorite plays and bucked the fall in the CDNX yesterday with an 8-point gain on total volume (all exchanges) of just over 2 million shares…as shown recently, FMS has excellent support just below $1 (the rising 100-day SMA is at 91 cents) and the overall technical trend remains very bullish…below is a 1-year weekly FMS chart from John…

Note: John, Jon and Terry do not hold positions in FMS.

Gold has fallen to a two-month low this morning due to a combination of factors including a stronger greenback…almost half of jewelry stores in India remain closed, which is not helping the yellow metal, as owners protest against higher taxes…as of 5:45 am Pacific, Gold is off its lows but down $12 an ounce to $1,638…barring an intra-day turnaround, which is certainly possible, a test of the $1,600 can’t be ruled out as this consolidation continues but draws closer to an end…Silver is off 34 cents to $31.83…Copper has lost 6 cents to $3.77…Crude Oil is $1.32 lower at $105.95 while the U.S. Dollar Index is up one-quarter of a point to 79.83…

Today’s Stock Markets

Asian markets were generally in positive territory overnight but European shares have retreated over 1% this morning after weak U.K. retail sales and the German “flash” manufacturing survey that showed factory activity in Europe’s biggest economy unexpectedly contracted in March…as of 5:45 am Pacific, Dow futures are off about 60 points…futures remained steady in negative territory after release of jobless claim data at 5:30 am Pacific that was better than expected…new claims for unemployment benefits dropped to a fresh four-week low last week as the U.S. jobs market recovery continues to gain traction…the TSX Venture Exchange closed up 7 points yesterday at 1578…on the daily chart, the Slow Stochastics(14) indicator is approaching levels not seen since mid-December which suggests the Index is close to an important low…

China Developments

China’ factory activity in March shrank for a fifth straight month, leaving investors fretting about the risks to global growth and anticipating fresh policy support from Beijing…the HSBC flash purchasing managers index, the earliest indicator of China’s industrial activity, fell back to 48.1 from February’s four-month high of 49.6…new orders sank to a four-month low, an expected rebound in export orders failed to emerge and new hiring slumped to a two-year low…

Meanwhile, Chinese consumer stocks saw relative strength today with the mainland’s Ministry of Commerce research institute saying that consumption would overtake investment as China’s biggest driver of economic growth in 2012 for the first time in more than a decade…China has also boosted rural credit by cutting reserve ratios for more branches of Agricultural Bank of China Ltd., the nation’s third-biggest lender by market value…this is a marginal and targeted easing aimed at encouraging more lending in rural areas and to smaller businesses…

Kirkland Lake Gold (KGI, TSX)

Below is an interesting chart of Kirkland Lake Gold (KGI, TSX) which serves as an excellent example of how so many Gold stocks are intensely oversold at the moment…take a look at the RSI(14) on this 5-month daily chart from John…KGI, which gained 41 cents yesterday to close at $13.80, fell below its 500-day moving average this week (it hit a low of $12.91 Tuesday) for the first time since this long-term SMA reversed to the upside in mid-2010…folks, when you see a chart like this you know an important bottom has been put in or is very close…

Note: John, Jon and Terry do not hold positions in KGI.

Another interesting chart (at the request of a reader), and a company which we’ve pointed out before, is Argex Mining (RGX, TSX-V) which recently transitioned from an exploration company to a near-term producer of titanium dioxide, iron and vanadium pentoxide…John’s chart below shows a very pronounced “cup” pattern though the right hand side of the cup is not yet complete…the stock is in overbought territory but potentially could climb some more before the handle starts to form…

Note: John, Jon and Terry do not hold positions in RGX.

Abcourt Mines (ABI, TSX-V)

Abcourt Mines (ABI, TSX-V) has just released drill results (5:50 am Pacific) from the western part of its Abcourt-Barvue Silver-Zinc Property near Val-d’Or, beyond any of the previous drilling…hole AB11-71 intersected 8.5 metres grading 388.45 g/t Ag and 3.02% Zn…given the location of this hole, not to mention the nice widths (true width is about 80% of core length) and grades, Abcourt is most certainly on track to discover additional resources at this property…

Gold has hovered between $1,6438 and $1,661 so far today…as of 6:10 am Pacific, the yellow metal is up $1 an ounce at $1,652…Silver is off a nickel at $32.11…Copper is a penny higher at $3.84…Crude Oil is 16 cents higher at $106.23 while the U.S. Dollar Index is ahead slightly at 79.62…

Gold is so far holding important Fibonacci support in the low 1,640’s which it has tested a few times since last week…this is a 50% retracement of the rally off the December low…a close below this level would likely mean a test of the next support area which is $1,615…the weekly and monthly charts for Gold continue to show a clear primary uptrend, so what we’re dealing with at the moment has to put into proper perspective – this is one of many brief periods of weakness and consolidation we’ve seen in Gold over the last number of years…Gold has also proven to be a great buy throughout its bull market run over the last decade anytime it has fallen below its 200-day moving average (SMA) which it has done again now…the 200-day currently sits at $1,686…

The strike by Gold dealers in India is into its fourth day…Gold dealers have shut their premises in protest at last week’s government decision to double Gold import duties…India imported 969 tonnes of Gold bullion in 2011, according to World Gold Council data…”The import of Gold of such magnitude strains balance of payments and affects the exchange rate of the Rupee through impacting the supply-demand balance of foreign exchange,” finance minister Pranab Mukherjee, who announced the duty hike, stated today…

Copper Outlook Positive

Copper futures are expected to make another leg up in the coming months on improving signs for the global economy, expectations that China will undertake additional monetary easing, continuing supply constraints and declining London Metal Exchange inventories, analysts say…“We think prices are going to continue to pick up in the second quarter and even into the third quarter,” said Catherine Virga, director of research for the consultancy CPM Group…“That is based on our outlook for copper demand in construction materials, as well as infrastructure development”…

Fed “Ready To Act” If Europe Falters Again

Fed Chairman Ben Bernanke said Europe’s financial troubles have eased but added the U.S. central bank would be ready to act if conditions worsened again, according to written testimony to Congress released last night…”In the past few months, financial stresses in Europe have lessened, which has contributed to an improved tone of financial markets around the world, including in the United States,” Bernanke said in testimony prepared for a House hearing today…Bernanke stresses, however, that a full resolution of the crisis “will require a further strengthening of the European banking system; a significant expansion of financial backstops, or ‘firewalls’, to guard against contagion in sovereign debt markets”…Bernanke also said that the exposure of U.S. banks and money market funds to Europe remains a worry…”Although U.S. banks have limited exposure to peripheral European countries, their exposures to European banks and to the larger, ‘core’ countries of Europe are more material,” Bernanke said…”Moreover, European holdings represented 35% of the assets of prime U.S. money market funds in February, and these funds remain structurally vulnerable despite some constructive steps, such as improved liquidity requirements, taken since the recent financial crisis”…Bernanke will also tell the House Committee on Oversight and Government Reform that European policymakers must follow through on fiscal reforms in order for the recent period of relative calm to persist…

Oil Market Intervention

Saudi Arabia’s powerful oil minister, Ali Naimi, made a rare intervention into overheating oil markets yesterday, declaring that high oil prices were “unjustified” and vowing that the kingdom would boost its output by as much as 25% if necessary…his comments, however, have so far had just a muted affect on prices…Brent Crude is edging toward $125 this morning, rebounding from losses yesterday, while light sweet crude is up slightly to $106.23…as the west’s nuclear standoff with Iran escalates, oil prices have rallied this month to a post-2008 with markets bracing for European Union sanctions on Iranian crude that could knock out a chunk of global supply…“I don’t think it’s much of change for the market,” said Mike Wittner, head of oil research at Société Générale in New York, in a Financial Times report…“The problem is the more they produce the less spare capacity they have…if they want to try to bring down prices not only do they have to keep on producing at very high levels, they need to show the world that they are bringing on extra spare capacity”…Christine Lagarde, managing director of the International Monetary Fund, said yesterday that rising energy prices had now overtaken Europe’s sovereign debt crisis as the biggest worry for the global economy…speaking in New Delhi, she said that while the world financial system had strengthened over the past three months, volatile oil prices would have “serious consequences”…many oil market watchers believe that if Saudi Arabia’s actions prove unsuccessful in cooling the market, the U.S. will attempt to bring down prices by releasing strategic oil reserves – a move that is almost a certainty for political reasons with President Obama so vulnerable on the issue of rising gas prices and oil in general during this election year…

Obama, most U.S. Democrats and Canadian lefties continue to drink their green kool-aid and promulgate the myth of “green energy” security and jobs, attacking fossil fuels which is really an effort on their part to engage in social engineering…the reality is that through deepwater drilling, natural gas exploration and development of the oil sands, North America has an incredible opportunity in the coming years to become the next Middle East for energy…Citigroup has just come out with an excellent report that details the potential economic benefits of this strategy which are enormous…

Scary Talk From The Quebec Government

Quebec is an economic basket-case with a massive debt that’s approaching $200 billion, more than 50% of the province’s GDP…it should come as no surprise then that these economic illiterates running the province, who over the last couple of years have increasingly been pandering to radical environmentalists by proposing changes to mining legislation, now want to get into the mining business…yesterday’s Quebec budget, presented by the ruling Liberals, was another excellent example of Big Government run amok…what particularly concerns us are issues related to the mining industry…not only do they have some pie-in-the-sky estimates with regard to future mining royalties, in order to make their budget projections look a little better just before an election, but the Quebec government now wants “a cut of the profits” in this sector…

Below are some facts as well as some quotes from Quebec Finance Minister Raymond Bachand (and they should scare the daylights out of investors…the Liberals aren’t likely to get re-elected but that begs the question, will the new government – possibly an entirely new political party – be better or even worse?)…

According to the budget documents, the Quebec government will negotiate equity positions in all mining projects that call on its help for infrastructure needs or electricity rates…it will also define a similar strategy for future oil and gas projects…

“This is new in what we are going to do in Quebec,” stated Bachand, saying he borrowed the idea from former Parti Quebecois premier Jacques Parizeau (OMG)…”It comes down to what Mr. Parizeau said…we have to make sure we get a share of the business“…

Resources Quebec is the new Crown Corporation that will be set up to manage a $1.2 billion equity portfolio…

Will these politicians ever learn?????  Quebec ‘s new model for the mining industry is borrowed from the separatist and socialist Parizeau?…government needs to get smaller, leaner and more efficient in Quebec, and it also needs to get out of the way of business and the mining sector…it’s responsibility should be to simply create the most favorable conditions and regulatory environment possible to encourage investment, risk-taking, exploration and development…Quebec was doing a much better job at this years ago but seems to be changing direction and it’s not a good sign…if they’re not careful, they will kill the goose that laid the golden egg…

TSX Gold Index Chart

A recovery appears to be underway in the TSX Gold Index which should also translate into support for the Venture Exchange which fell 28 more points yesterday to 1571…below is an updated Gold Index chart from John…the Gold Index may very well have hit bottom – good news for the markets through the remainder of the month…

We’ve had a few readers ask for a chart on Cadillac Mining (CQX, TSX-V) which climbed 6 pennies yesterday to close at 27.5 cents…last month, Cadillac reported very promising initial drill results from its Goldstrike Property in Utah but the company needs to raise money for its proposed next round of drilling (5,000 metres)…we’re concerned they have not yet been able to pull the trigger on this financing, but a conservative group runs Cadillac and they’re not known for their sense of urgency as demonstrated on a few occasions over the past year…

Note: John, Jon and Terry do not hold positions in CQX.

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Gold has traded in a range between $1,640 and $1,659 so far today  as it continues to consolidate….as of 5:55 am Pacific, the yellow metal is down $17 an ounce at $1,646…Silver is off 71 cents to $32.21…Copper has lost 9 cents to $3.81…Crude Oil is $1 lower at $107.09 while the U.S. Dollar Index is up one-quarter of a point to 79.77…

Contributing to commodity weakness this morning was BHP Billiton’s warning of slowing demand growth from China for its iron ore…we shouldn’t read too much into that, however…China has taken steps in recent years to cut its dependence on foreign owned iron ore with domestic iron ore mining capacity growing by an average of 25% annually according to China Daily…domestic iron ore production increased by 283 million tons, or 27.2%, last year alone…meanwhile, Rio Tinto PLC’s iron ore chief executive, Sam Walsh, says he does expect China to remain a key driver of iron ore demand growth…Walsh said China is “resilient,” as it is equipped to underline its growth with fiscal and monetary changes and has increasing rates of household and corporate savings…

Deutsche Bank will be opening a new precious metals vault in London next year, according to a report this morning in the Financial Times, as it joins a number of banks and logistics companies seeking to cash in on booming investor demand for physical Gold and Silver…ETF’s now hold a record 80.3 million ounces of Gold worth $133 billion, according to UBS….that’s more than any central bank apart from the U.S. or Germany…Deutsche Bank said the decision to open the new vault came “in response to increased demand from the market for bullion storage facilities”…

The Hot Oil Market

Saudi Arabia is taking steps to cool the overheating global energy market, boosting its exports to the U.S. and re-opening old oilfields to expand production, as the world’s largest oil producer tries to prevent damage to the global economic recovery…the Saudi cabinet yesterday said the kingdom would work “individually” and with others for the “return of oil prices to fair levels”…Saudi Arabia`s oil minister plans to expand on the measures the kingdom is taking at a meeting of oil ministers of the Gulf Co-operation Council today in the capital of Qatar…

The world`s appetite for oil is not going to recede which is why President Obama is on the wrong side of energy history…as the chief executive of Shell predicted in a CNBC interview this morning, `Longer term you will see demand rising and we will need all investments to cope with that demand…in the very long-term we will see prices going up because of high demand and as it gets more expensive to get the resources out of the ground`…

Obama continues to argue that America uses more than 20% of the world`s oil although “even if we drill in every square inch of the country, we still only have 2% of the world’s known oil reserves”…that is such an incredibly misleading statement, especially considering that it comes from the mouth of a President who should know better…but of course Obama has an agenda to “transform” America, a “transformation” we should all be very alarmed about…

According to the Institute for Energy Research, when you include oil shale, the U.S. has 1.4 trillion barrels of technically recoverable oil…that’s enough to meet all U.S. oil needs for about the next 200 years, without any imports…Investors Business Daily recently reported that the U.S. now has 60 times more recoverable oil reserves than Obama claims, and that doesn’t even include the natural gas shale revolution which has already slashed electricity prices for homes and businesses and will eventually be used more and more in transportation…Obama’s hostility to fossil fuels, also witnessed by his stance on Keystone, is ideologically-driven and threatens American national security…any U.S. President who doesn’t jump instantly on an opportunity to secure strategic long-term supplies of friendly (and ethical) Canadian oil is clearly on the wrong side of history in many ways…

Politics aside, let’s take a look at the latest oil chart from John and what it shows is the likelihood of continued firm and even higher prices…light crude broke above resistance yesterday and a move to $120 a barrel by sometime in April or May is a very real possibility…

Silver Chart Update

Silver has enjoyed a solid 2012 so far and is currently consolidating in advance of what we believe will be a major run to the upside as the year progresses…right now the first area of significant resistance, as you can see in John’s chart below, is $33 which is also the 50-day moving average (SMA)…a test of the $28 – $30 area can’t be ruled out but that would be the bottom in our view before a powerful new advance sets in…Silver could very well be the “investment of the decade” which is why it’s so important to identify high quality Silver stocks, exploration companies and producers, before they explode to the upside…

One quality Silver producer that has just touched its rising 300-day SMA for the first time since 2010 is Scorpio Mining (SPM, TSX) which closed up 8 cents yesterday to $1.71 after falling as low as $1.61…Scorpio produced nearly 3 million Silver equivalent ounces last year and has strong growth potential with its large land position and numerous exploration targets in Mexico…SPM has fallen 17% this month but yesterday’s low is certainly strong support as John’s chart shows…

Note: John, Jon and Terry do not hold positions in SPM.

Gold has traded between $1,652 and $1,655 so far today…as of 5:40 am Pacific, the yellow metal is down $4 an ounce at $1,656…Silver is a nickel lower at $32.51…Copper is up a penny at $3.87…Crude Oil is 25 cents higher at $107.31 while the U.S. Dollar Index is flat at 79.79…

Precious metals with an industrial use have so far fared the best this year…platinum is up just under 20% and Silver is ahead almost 17% while Gold is up only 6%…slightly improving economic conditions have been the driver for the stronger performance of platinum and Silver versus Gold during this first quarter of 2012…

China’s Ministry of Industry and Information Technology noted in its most recent figures that China has held the title of the world’s number one Gold miner since 2007…the country has continued its dominance in world Gold production with output rising last year by 5.9% to 361  tons…overall, world production of Gold is not that different from where it was 10 years ago, despite the price gains made over the past decade that should have stimulated more production…

Many governments around the world are making it more difficult for companies to put deposits into production with one current excellent example being the socialists in Ecuador who cannot be trusted…any company attempting to do business down there should simply tell that government to pound salt given its confiscatory approach (i.e., a 70% windfall profits tax on Kinross for the proposed FDN operation)…taxation in the mining industry is rising across the globe and poses a serious threat to companies of all sizes…the list of countries that have proposed higher mining taxes in recent months is long…it includes South Africa, Ghana, Zambia, Kyrgyzstan, China, Philippines, Indonesia, Guatemala, Peru and numerous others…tax hikes are coming in the form of royalties, corporate taxes, value-added taxes, profit sharing, windfall taxes and anything else a creative and greedy government can dream up…yes, as we mentioned Friday, “greed” applies to governments (in fact, that’s where it’s most dangerous) just as much as it can be applied to corporations or individuals…

Here’s something refreshing…Singapore has announced that it’s planning to boost its share of the global Gold trade sevenfold after scrapping taxes on bullion, according to International Enterprise Singapore, the city state’s external trade agency…currently, about 2% of world Gold demand flows through Singapore, and the goal is to increase that to 10 to 15% over the next five to 10 years…no doubt they will be successful with that kind of investor-friendly approach…

TSX Gold Index

The first half of March has been rough for Gold producers with the TSX Gold Index plunging 13% over the last 13 sessions…during the same period, Gold itself has fallen by more than 8% while the TSX Venture Exchange has fared better, declining just 6.5% which is a very positive sign…

So what are we to make of this?…

The answer is simple:  Take advantage of this “sale” just like you would jump on any major discount at your favorite retailer…unfortunately, when it comes to the market, most investors do the opposite – rather than buying on weakness, they sell into it…

John has two great charts that illustrate perfectly the opportunity that has been presented in the market with the weakness in Gold and Gold stocks so far this month…we do expect a reversal to begin this week…since the CDNX has been out-performing both Gold and Gold stocks, we expect it will post the best gains over the final 10 trading days of the month…

First, let’s look at the TSX Gold Index in “reverse” by examining the currently overbought HGD – the reverse Gold Index ETF…

If you’re buying the HGD right now, betting against Gold and the TSX Gold Index specifically, you’re on the wrong side of the trade, at least for the short-term…the HGD is clearly overbought and up against resistance…it has also formed a double top…what this tells us is that the Gold Index is about to reverse to the upside, and of course that’s good news for the CDNX...

As we mentioned Friday, on very few occasions over the last decade has the TSX Gold Index ever fallen below its 1,000-day moving average…that has just occurred…without exception, this has always proven to be a great buying opportunity and now should be no different…

Let’s take a technical look at the Gold Index with John’s 9-month daily chart…notice how oversold the SS(14) indicator is…

Expect the Gold Index to begin to reverse this week…

Rainbow Resources (RBW, TSX-V)

Rainbow came out with excellent news late Thursday regarding its Gold Viking and Ottawa properties, though some readers are concerned the stock did not respond Friday…Rainbow continues to work through a trading channel and investors must be patient…for technical and fundamental reasons, we believe there’s a high probability that Rainbow will power through resistance at 29 cents in the near future (by month-end, very early April) so now is an ideal time for additional accumulation…RBW is up more than 50% this quarter and has one of the best-looking charts on the entire CDNX with rising 50, 100, 200 and 300-day moving averages and a surge in volume this year…this is young junior exploration company with unlimited potential given the experienced and successful business people it has at the helm, including the part-owner of an NHL franchise…President David Johnston has assembled a first-rate land package in the West Kootenays and we probably haven’t seen the end of some deal-making, in the West Kootenays or elsewhere for that matter, if one reads between the lines of recent news releases…

Below is John’s updated RBW chart (15 monthly weekly) going back to when it first started trading on the Venture Exchange in January of 2011…notice how the 10-week (50-day) moving average has provided support since late last year…expect that trend to continue…this is the type of chart you look for in the market…Rainbow’s rise has been consistent and orderly and reflects the steady progress this company is making on the ground with its properties…the move in RBW is still in its very early stages in our view…

Note: John and Jon hold positions in RBW (Terry does not) with Jon increasing his position again last week.

RJK Explorations (RJX.A)

Another company we’re watching closely is RJK Explorations (RJX.A) which got as high as 26.5 cents early this month…RJK is currently drilling its Blackwater East Property contiguous to New Gold’s (NGD, TSX) Blackwater-Davidson multi-million ounce Gold deposit…as most BMR readers know, we have followed the Blackwater story closely for the past two years and watched Richfield Ventures climb 10-fold in the process…our last chart on RJK was posted March 5 and it showed the strong possibility of a pullback to the 17 or 18 cent area, which is exactly what occurred…RJK closed at 21.5 cents Friday…

Note: John, Jon and Terry do not hold positions in RJK.

Today’s Markets

Stock index futures as of 5:45 am Pacific are pointing to a slightly negative open on Wall Street…Asian markets were quiet overnight while Europe is off slightly this morning…

TSX Venture Exchange and Gold

The Venture Exchange appears to have found its footing after a 6.5% drop from its 2012 high February 29.  The Index was off 43 points for the week, closing at 1606, but important support held mid-week when the Index slipped as low as 1585.  We’re viewing the weakness during the first half of March as a normal retracement in an ongoing 2012 bull run that is still in its early stages. John’s 6-month daily chart below shows February’s overbought condition has completely unwound and there’s now a bullish “W” formation in the RSI(14).  Rising 50 and 100-day moving averages, in addition to the 1,000-day SMA, continue to support this market right around the 1600 level.

Volume picked up Friday but still needs to increase more (we believe that will “kick in” over the coming weeks).  Notice how the buying pressure has firmed up recently – “smart money” has been accumulating during this pullback. A breakout through the 1700 level is required for this market to really start to pick up steam and we’re confident that will occur – exact timing is the only question.

During 2012 the CDNX has been performing very well relative to both Gold and the TSX Gold Index, and this pattern is encouraging to see.

The CDNX started to under-perform against Gold and the producers in the spring of last year (as well as the broader markets), and that was a warning sign of trouble on the way.  The CDNX has been on the rebound since December and should soon “overtake” the Gold Index on this chart which we would argue bodes very well for the juniors.  We’ve stated this repeatedly for the last couple of months – now is the ideal time to be positioned in high quality junior mining stocks.  Be patient and you will be rewarded.  The last half of this year, in particular, could be very explosive.

Gold

Gold got hit again last week, selling off on the theory that the Federal Reserve is less inclined to initiate “QE3” given fresh signs of an improving U.S. economy.  The truth is, the Fed and central banks around the world have embraced a very accommodating monetary position and global money supply has increased remarkably in recent months.  The global economic recovery remains fragile, sovereign debt is unsustainable, and many countries are engaged in diversifying out of dollars into Gold as a means to achieve more stable reserve holdings.  There are so many reasons to own Gold.  Physical buying, particularly in China and other emerging markets, remains strong. 

John’s new Gold chart is similar in some respects to the CDNX in that RSI(14) shows a bullish “W” formation.  This is usually a very reliable pattern.  Gold has solid support just above $1,600.  We’re confident it will hold that support.

China’s Ministry of Industry and Information Technology noted in its most recent figures that China holds the title of the world’s number one Gold miner since 2007. The country has continued its dominance in world Gold production with output rising last year by 5.9% to 361 tons. Overall, world production of Gold is not that different from where it was 10 years ago, despite the price gains made over the past decade that should have stimulated more production.

The TSX Gold Index has fallen 13% in just 13 sessions from 389 February 29 to Friday’s close of 338.  This sell-off is way overdone and represents a major buying opportunity with the Index below its 1,000-day SMA for the first time since early 2010 and for one of the few times over the past decade.  We’ll go into some more detail on this in tomorrow’s Morning Musings with charts to support our bullish argument. The bottom line is that Gold stocks are extremely cheap historically relative to the price of Gold.

Silver was off $1.76 for the week to $32.56.  Copper was unchanged at $3.86.  Crude Oil fell slightly to $107.06 while the U.S. Dollar Index met resistance around 80.50 and closed down one-fifth of a point for the week at 79.78.

The “Big Picture” View Of Gold

As Frank Holmes so effectively illustrates at www.usfunds.com, Gold is being driven by both the Fear Trade and the Love Trade.  The transfer of wealth from west to east, and the accumulation of wealth particularly in China and India, is having a huge impact on Gold.

The fundamental case for Gold remains incredibly strong – currency instability and an overall lack of confidence in fiat currencies, governments and world leaders in general, an environment of historically low interest rates and negative real interest rates that won’t end anytime soon (inflation is greater than the nominal interest rate even in parts of the world where rates are increasing), money supply growth, massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand, investment demand, emerging market growth, geopolitical unrest and conflicts, and inflation concerns…the list goes on.  It’s hard to imagine Gold not performing well in this environment.  The Middle East is being turned on its head and that could ultimately have major positive consequences for Gold.

Gold has given up some modest overnight gains and is headed for its third straight weekly loss…as of 5:45 am Pacific, the yellow metal is down $12 an ounce at $1,645…it climbed as high as $1,666 overnight and has been as low as $1,639…Silver is off 20 cents to $32.34…Copper is up a penny at $3.88…Crude Oil is 26 cents higher at $105.37 while the U.S. Dollar Index has fallen one-fifth of a point to 80.05…

The greenback has been hot lately but the Dollar Index has reached a resistance level as John shows in the chart below…a “cooling off” period for the Dollar Index appears to be in the cards which would be supportive of Gold…

Gold and platinum in India will be costlier as the government has proposed doubling the import duty on these precious metals…“I propose to increase the basic customs duty on standard Gold bars; Gold coins of purity exceeding 99.5% and platinum from 2% to 4% and on non-standard gold from 5% to 10%,” Finance Minister Pranab Mukherjee said in his Budget speech today…“Gold will get costlier by 3-4% as jewelers will pass on the customs duty and excise duty on to the consumers,” the Gems and Jewellery Export Promotion Council Chairman, Sanjay Kothari, stated…the basic duty on Gold ore, concentrate and dore bars for refining has also been doubled to 2%…excise duty on refined Gold has been increased from 1.5% to 3%…the political “left” in this world always want to point out what they view as “corporate greed”, but do you notice they never bring up “government greed”?…governments are greedy monsters that need to be restrained and limited…they thrive and survive on tax revenues and borrowed money and can never get enough of either…

Gold Stocks Hugely Undervalued

Take a look at the TSX Gold Index which has closed below its 1000-day moving average (SMA) for the first time since early 2010 and for one of the few times in the last decade…this has always been a Golden buying opportunity…with the exception of the Market Crash in 2008, Gold stocks have not been this cheap compared to the underlying metal for a decade…P/E ratios for the producers are in many cases below 10, well under historical averages, and so many of these companies are sitting on piles of cash…

Today’s Markets

Stock index futures as of 5:45 am Pacific are pointing toward another positive open on Wall Street…European markets are healthy today while China’s Shanghai Index climbed 31 points to 2405…U.S. consumer prices rose by the most in 10 months in February as the cost of gasoline spiked, but there is little sign that underlying inflation pressures are building..

Rainbow Resources (RBW, TSX-V)

Average Mined Grade – 61.6 ounces of Silver per ton!

Rainbow Resources (RBW, TSX-V) came out with news a couple of hours after the close yesterday regarding its Big Strike Project in the West Kootenays…if this was just the “warm-up” act for what’s coming over the next couple of weeks, we can’t wait to see the main event!…below are what we consider to be the highlights of RBW’s news…

• A NI-43-101 compliant technical report shows that Rainbow’s Ottawa Property claims, and an area up to 350 metres east of these claims, produced 1.8 million ounces of Silver in the 1900’s (some production occurred as late as 1984) at a phenomenal average mined grade of 2,113 g/t or 61.6 oz/t!!!!!

• The Ottawa Property and the adjacent Gold Viking Property share similar geological signatures.  These properties are potential felsic intrusion-associated silver-lead-zinc deposits that could be one large intrusive body, as interpreted in the technical report;

• Rainbow appears to have significantly increased the previously known mineralized area at Gold Viking through rock and soil sampling and airborne surveys…a “distinctive” 1.4-kilometre north-south trend has been identified, and field exploration and drilling plans for Gold Viking (as well as Ottawa) have been expanded…the fact the recent electromagnetic survey revealed a low resistivity feature that matches up exactly to a multi-element geochemical anomaly is highly encouraging…

• Grab samples at Gold Viking returned silver values as high as 14.3 oz/ton;

• These very prospective properties (despite the past production at Ottawa and some artisanal mining at Gold Viking) have never been previously drilled or systematically explored.

We trust Rainbow has the smarts to try and secure some additional ground in the Gold Viking/Ottawa area through other existing claim owners given the possible connection between the two properties and additional conductors discovered through the airborne surveys over northern and southern sections of Gold Viking…

This is a great start for Rainbow which will be reporting on its International, Tin City, President, and Rhea properties in the very near future – we’re expecting more news next week…RBW stated yesterday that it expects to have the Moose Mountain technical report filed on Sedar within the next 10 to 14 days…President David Johnston told us in a recent interview that the company is planning a major function in Calgary at month-end, in conjunction with the Cambridge Resource Show there, so it makes sense to assume that Johnston’s “Big Rainbow In The Sky” plan will be fully laid out by then…this is a fascinating company to watch as it’s moving forward aggressively and making things happen…the more we examine the Rainbow story, the more we like it…Johnston has done a fabulous job assembling the company’s West Kootenay land package and positioning this young and aggressive company for a very successful 2012…Rainbow is showing excellent technical strength and John will be updating the RBW chart at BMR by Monday morning…

Probe Mines (PRB, TSX-V)

We’ve mentioned Probe Mines (PRB, TSX-V) on numerous occasions over the past year or so…the company continues to report solid drill results from its Borden Lake Gold Project near Chapleau, Ontario, though the stock has tumbled this month from a high of $2.00 to a low of $1.22 this week when the markets fell sharply Wednesday…quite possibly contributing to the drop was the fact that 6.5 million shares from a November flow-through financing ($2.45 per share) became free-trading as of March 12…the company released an exploration update with very satisfactory drill results Tuesday…an updated resource estimate for Borden Lake is expected in the near future…the deposit has been expanded along strike by 30% and at depth by as much as 131 metres in some sections since the previously reported NI-43-101 resource estimate in July of last year (11,607,000 tonnes averaging 0.8 g/t Au at a cut-off grade of 0.3 g/t for 305,000 ounces of Gold in the indicated category, and an additional inferred resource of 169,322,000 tonnes averaging 0.69 g/t Au  for 3,755,000 ounces of Gold)…at yesterday’s closing price of $1.32, Probe’s current market cap is $85.4 million…the company is in a strong cash position thanks to last November’s $15.2 million financing…

We are adding Probe to the BMR “Strong Play” list (Group “B”) given this week’s 25% off “sale”…technically, the stock has become very oversold as John shows below…there is very strong support at $1.20…

Note: John, Jon and Terry do not hold a position in PRB.

Gold is steady so far today after yesterday’s big drop when stop-loss orders kicked in and helped drive the yellow metal to an eight-week low…as of 6:15 am Pacific, Gold is unchanged at $1,644…Silver up a dime to $32.25…Copper is up a penny at $3.84…Crude Oil is flat at $105.60 while the U.S. Dollar Index is down one-quarter of a point to at 80.36…

Our best advice is to take the drop in Gold in stride, and take advantage of the opportunities this has presented in the markets, as Gold’s primary uptrend remains firmly intact…in fact, as John’s chart showed yesterday, what seems to be forming in Gold is an inverted head and shoulders pattern…we just have to be patient and let that play itself out…it’s the same story with Silver as John shows in the chart below…the weakness we’ve seen in precious metals over the last couple of weeks is quite likely a set-up for a powerful move to the upside which could easily culminate in new highs later in the year…the action in the Venture Exchange, a leading indicator, confirms this view as the CDNX continues its recent trend of out-performance vs. Gold as well as the TSX Gold Index…

Some valuations on Gold stocks are getting to the point of being ridiculous…the TSX Gold Index has fallen below its rising 1000 day moving average (SMA) for the first time since early 2010…we remember that period well…markets work on fear and greed…those consumed by fear in early 2010 missed out on one of the best entry points for Gold stocks in a decade…over the next year we saw an incredible move in both the Gold Index and the Venture Exchange…this time is no different, folks…yes, Gold and Silver could both drop a little bit more but this sell-off has nearly run its course and six months from now people will be looking back at this period and wondering why they didn’t back up the truck and load up…

Richmont Mines (RIC, TSX), one of our favorite small producers and a very profitable company, is an excellent example of how silly the market can be at times…Richmont, which earned 81 cents per share last year and should improve on that in 2012, fell for the 11th session out of 14 yesterday when it closed down 49 cents at $8.51…when you see Richmont trading at these levels, you know the market as a whole has either hit bottom or is very close to it…Richmont is very oversold on the daily chart…John has a weekly chart below that shows the absolute bottom on RIC is somewhere between $7.40 and $8.30…yesterday it got as low as $8.44…the stock has fallen below its 300-day SMA for the first time since very early last year, right before it more than doubled in value…folks, we are not flinching one bit with this sell-off in precious metals – in fact, this is the time to be more bullish than ever…

Note: John, Jon and Terry do not hold positions in RIC.

Today’s Markets

Stock index futures suggest a mildly positive open on Wall Street this morning…European markets are generally flat…Reuters is reporting that President Obama and British Prime Minister David Cameron discussed the possibility of releasing emergency oil reserves during a meeting today, the first sign that Obama is starting to test global support for an effort to knock back near-record prices…Obama certainly has a political problem…his misguided moves with regard to the Keystone Pipeline Project – he was pandering to his radical environmental base – don’t square very well with most Americans who are feeling pinched by rising gas prices…Obama will say and do anything to claim the White House for another four years to continue his agenda of “re-shaping” America and jambing Big Government down everyone’s throats…so there should be no doubt in anyone’s mind that he is planning to intervene in the oil market in a “shock and awe” sort of way before the summer through the strategic reserves…

On the topic of oil, Iran’s production has fallen to a 10-year low and could drop to levels last seen during the Iran-Iraq war in the 1980s as sanctions over its nuclear program disrupt an industry already suffering from years of underinvestment…the country’s crude production fell by 50,000 barrels a day to 3.38m b/d in February according to the IEA (International Energy Agency)…the last time it was that low was in late 2002…Tehran’s oil output had already been in long-term decline as previous U.S. sanctions deterred foreign oil companies from investing, starving Iran of the technology needed to boost its flagging production…Obama talked tough today regarding Iran…“The window for solving this issue diplomatically is shrinking,” he said after talks with Cameron…“I’m determined to prevent Iran from getting a nuclear weapon”…

Venture Exchange

The CDNX closed below 1600 yesterday, falling 33 points to 1594…this is still just a 6% drop from the February 29 high of 1696, a very normal mini-correction and less than the pullbacks in Gold and the TSX Gold Index…the Venture has support around current levels and we do expect a turnaround in the last half of the month…

A few quick notes…Cap-Ex Ventures (CEV, TSX-V) closed right at its rising 100-day SMA yesterday – it’s looking very good…Focus Metals (FMS, TSX-V) has closed a $10 million bought deal and its late February overbought condition has unwound…it closed at 95 cents yesterday…Rainbow Resources (RBW, TSX-V) continues to look exceptionally good as it bases in the mid-to-upper 20’s, the kind of technical action one normally sees immediately prior to a breakout…