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TSX Venture Exchange and Gold

There continues to be a general lack of interest in the CDNX at the moment, and historically that’s a very bullish sign that a reversal or a major rally is just around the corner.  The catalyst for a significant push higher may include a breakout in Gold and Silver, fresh discoveries, or a feeding frenzy by majors looking to take out undervalued juniors in order to add ounces to their balance sheets.  Fortunes are made at times like this when bearish sentiment is so rampant.  With the Index down another 24 points last week, closing at 1187 despite Friday’s gain of 18 points, we see much more upside potential than downside risk over the coming weeks and months.

The recent 4-session minor rally from the June 28 low of 1154 to 1242 July 4 was stopped by the EMA-20 which has provided stiff resistance since the spring.  As soon as the EMA-20 is successfully cleared, this market is likely ready to fly.  For now, the Venture continues to trade within a support zone that starts at 1150, and we like the action we’re seeing.  In fact, a double bottom reversal may have just occurred with the Index touching a low of 1166 Thursday – too early to tell, but possible.

Some individual stocks are beginning to show technical strength, a sign that the Venture could be in full turnaround mode within several weeks.  Patience is the key.

We’re keeping a close watch on Copper which correlates closely to the Venture.  Copper continues to hold up well despite the “sky is falling” negativity in the mainstream media.  After testing strong support on the 2.5-year weekly chart below, Copper is now attempting to break above $3.50.  Should that occur in the near future, the immediate outlook for the Venture would improve considerably.

Fed Chairman Ben Bernanke will be in the spotlight this coming week as he’ll be giving his semi-annual testimony on the economy before a Senate panel Tuesday and a House Financial Services Committee Wednesday (no doubt, he’ll be warning lawmakers about the urgent need to address the “fiscal cliff”).  Traders and investorswill also be evaluating a slew of U.S. economic data in the coming days including retail sales and several housing reports, while dozens of companies will be reporting earnings.

China’s slowdown may very well have bottomed out in the second quarter, and two recent interest rate cuts and other stimulus measures should produce evidence of a turnaround during Q3.

Gold

Gold continued to bounce around last week but finished strong Friday as it jumped $17 an ounce to close at $1,589, a gain of $5 for the week.   Stimulus measures including interest rate cuts are occurring worldwide, and that’s unquestionably bullish for Gold.   Support for the yellow metal around $1,550 has been relentless, and John’s anticipating an upside breakout during Q3.

Silver fell 15 cents last week to $27.49 but the COT structure is exceedingly bullish for Silver with commercial net short positions at record lows.  Copper gained 7 cents to $3.49.  Crude Oil (WTIC) climbed $2.14 a barrel to $87.10 while the U.S. Dollar Index was relatively unchanged at 83.29.

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.  Massive central bank intervention appears increasingly likely to prevent a breakup of the euro zone and to kick-start the global economy.  It’s hard to imagine Gold not performing well in this environment.

Gold is up $20 an ounce at $1,592 as of 6:45 am Pacific…Silver has gained 34 cents to $27.55…Copper is 4 cents higher at $3.47…Crude Oil is up 22 cents at $86.85 while the U.S. Dollar Index is off nearly one-third of a point at 83.41…

China Fears Overblown

China’s GDP grew at its slowest pace in three years in the second quarter, but other less-cited indicators are already signaling that the world’s second-largest economy may be starting to turn around…the economy grew 7.6% in the April-June quarter, in line with most analysts’ expectations and slower than the 8.1% in Q1 and 8.9% in the fourth quarter of last year…

The slowdown has raised concerns around the world that one of the largest drivers of global growth in recent years, and the world’s largest consumer of commodities such as oil and copper, may suffer a sharper downturn…however, several indicators for a reading on the economy – such as loan growth, power output, new investment projects and oil demand – are beginning to paint a picture of renewed strength for China which may indicate the second quarter will turn out to be the low point for growth in 2012 with a rebound picking up steam during Q3…the impact of recent interest rate cuts should really start to be felt by September, and the country has also initiated some fiscal stimulus that will help kick-start the economy…

Canadian Dollar Strength Is Positive For Commodities

The recent fear-mongering in the mainstream media regarding commodities doesn’t hold up when one examines what’s happening with the commodity-sensitive Canadian Dollar…as you’ll see on the chart below, the loonie “telegraphed” a pending collapse in commodities beginning in late 2007 when it started moving lower while the CRB was topping out…

Below is a 10-year comparative chart showing the Canadian Dollar (red) and the CRB Index (black)…the RSI at the top is for the CRB Index which has recently bounced off support at 40…the CRB also seems to have found support at the Fibonacci 61.8% retracement level…not shown in the chart is the 200-day moving average (SMA) for the loonie (currently at 99 cents) which, interestingly, is now reversing to the upside…we’ll continue to keep a close watch on the action in the loonie but so far it’s not raising any “red flags”…

Now, take a look at this chart specifically for the CRB (6-month daily) which shows – among other things – a bullish double bottom…this doesn’t tell us that commodities are about to tank…

Today’s Markets

JPMorgan Chase is up this morning after the financial giant beat Wall Street expectations despite the $4.4 billion loss from the “London Whale” trading debacle…Wells Fargo also posted higher-than-expected earnings, two factors – along with the China numbers – that are helping to make Friday the 13th not nearly as scary as many investors were fearing…

As of 6:45 am Pacific, the Dow is 83 points higher, the TSX has gained 51 points while the Venture Exchange is 7 points higher at 1176…

GoldQuest Mining (GQC, TSX-V)

GoldQuest puts news out into a weak overall market yesterday, and savvy investors picked up on the encouraging report and drove GQC 16 cents higher on volume of 3 million shares…the preliminary interpretation, based on the first few step-out holes, is that the Romero discovery is a flat-lying system and that’s what GoldQuest has been hoping for as this would have very positive implications for potential tonnage…assays on the step-out holes are pending…a second rig has been added and a third is on the way…below is an updated chart for John that reveals some interesting possibilities…as of 6:45 am Pacific, GQC is up another dime at 93 cents…

Rainbow Resources (RBW, TSX-V) Update

Part 2 of our interview with Rainbow President David Johnston will be posted early next week…the drilling rumors are intensifying and we wouldn’t be surprised if the company is able to start mobilizing a rig as early as sometime next week upon final approval from the Ministry of Mines…

Sandstorm Gold (SSL, TSX-V)

Graphite One Resources (GPH, TSX-V)

Note: John and Terry do not hold positions in GQC, SLL or GPH while Jon holds a position in GQC.

On a morning when markets are down across the board, smart money is moving into GoldQuest Mining (GQC, TSX-V) which put out news this morning suggesting its Romero discovery – so far at least – is showing signs of being a flat-lying deposit (which would greatly increase the tonnage possibilities) after completion of the first few step-out holes.

“Initial interpretation of the mineralization intercepted to date of holes LTP 90, LTP 92, LTP 93 and the incomplete LTP 94 at Romero indicates that the contact between the upper, weakly silicified, low copper zone and the lower, strongly silicified, higher copper zone is subhorizontal, with possibly a gentle dip to the north of less than 10 degrees.”

In layman’s terms, this is what GoldQuest was hoping for on these step-out holes following the discovery hole that was reported in May.  The combination of thickness and grade could make for a large deposit at Romero, and in these early stages – in the holes that have been drilled up to this point – this has the look of a flat-lying system.  Much more drilling obviously is required, and assay results from the above-mentioned holes are pending.

GoldQuest has responded well to the news…as of 7:50 am Pacific, the stock is up a dime at 77 cents on total volume (all exchanges) of nearly a million shares.  The company also announced a second rig has been added at Romero, and a third one is on the way.  Still very speculative, but based on this morning’s news this could easily get a lot more interesting.  Below is an updated GQC chart from John.

Gold is under pressure this morning on another “risk-off” day and as the U.S. Dollar continues to strengthen…as of 6:15 am Pacific, the yellow metal is down $18 an ounce at $1,559…Silver has retreated 52 cents to $26.62…Copper is 3 cents lower at $3.41…Crude Oil is off 89 cents a barrel to $84.92 while the U.S. Dollar Index has surged nearly one-third of a point to 83.73…

Merrill Lynch Bullish On Gold

Francisco Blanch, Head of Global Commodity & Multi-Asset Strategy Research at Merrill Lynch, told CNBC yesterday that he expects the Federal Reserve to initiate an asset-purchasing program of as much as $500 billion in the second half of the year which will drive Gold much higher…

“We think that $2,000 an ounce is sort of the right number,” Blanch said yesterday…“We believe that ultimately the Fed will be forced to do quantitative easing…if it happens in September, as our economists expect, we will get a rally sooner in Gold…if it happens after the election (in November), we will get the rally a little bit later…probably we will touch $2,000 an ounce sometime next year”…

Today’s Markets

Global stocks are on course to record a seventh consecutive day of declines as the latest batch of central bank monetary policy maneuvres fail to counteract worries about fading economic activity…the “herd” is running scared right now but that has to to viewed as a bullish contrarian sign…

The latest piece of disappointing economic news that has the herd on edge comes out of Australia, where employment unexpectedly fell by 27,000 in June…central banks have been busy trying to combat waning growth, but apparently not trying hard enough for some investors’ liking…

After last week’s stimulatory actions by the People’s Bank of China, the European Central Bank and the Bank of England, the past 24 hours or so have seen Brazil trim interest rates to a record low and South Korea deliver a surprise cut in borrowing costs… the Bank of Japan has also added more firepower to its asset purchase program – though a 1.5% fall for the Nikkei 225 suggests investors are unimpressed…but perhaps the issue most weighing on sentiment is the perceived reluctance of the U.S. Federal Reserve to adopt a more aggressive interventionist stance…the market seems to have inferred from the minutes of the Fed’s June policy meeting that the U.S. central bank would need to see more evidence that the world’s biggest economy is deteriorating further before it delivers QE3…previous QE programs have sparked rallies for “risk assets” so traders are throwing a bit of a tantrum as they now think they’re less likely to receive this “sugar rush” anytime soon – of course that sentiment could change tomorrow, next week, or next month…

Stock index futures as of 6:15 am Pacific are off their lows but are pointing toward a modestly weak open on Wall Street…weekly U.S. jobless claims came out 40 minutes ago and dropped more than expected which has helped to stabilize markets a bit…China is due to release the bulk of its second quarter economic data tomorrow…the Shanghai Composite Index bucked the trend today by climbing 10 points to 2185…

Stay Focused On The Big Picture

As investors in the speculative junior resource market, fretting over minute-by-minute and day-by-day trading moves is never good for one’s health and can also be destructive to one’s portfolio…there is so much bearishness at the moment, and so much money sitting on the sidelines, that what investors should be preparing for right now is a monster rally at some point during this second half of 2012 – it could begin next week or next month, who knows, but times like these are when fortunes are born…a very well known and successful 40-year trader (Venture Exchange, VSE) in Vancouver who we spoke with yesterday said he’s convinced the market is at or near a bottom, and now’s the time to be “holding on” and snapping up bargains for the big move to the upside that’s inevitably going to come…

One of many companies he’s looking at on the Venture is Dynasty Gold (DYG, TSX-V) which is trading at just 2.5 cents for a market cap of $3 million…the company has about $1.7 million cash in the bank and is looking for a project…one of its directors is Robert Galagher, President and CEO of New Gold Inc. (NGD, TSX)…for patient investors, DYG is definitely worthy of consideration and due diligence…below is a chart from John that shows DYG is simply sitting at support – it was as high as 16 cents last year…

John has a couple of charts showing interesting movements at the moment…Urastar Gold Corp. (URS, TSX-V) is working on a Gold project in Mexico and has climbed over 60% since touching a low of 18.5 cents near the end of last month…it’s definitely one for the “watch” list…URS closed at 30 cents yesterday (resistance) and a pullback to the EMA-20 area (24 cents) seems plausible and that could be a good entry point…as always, perform your own due diligence…

Another company with an interesting chart is Giyani Gold Corp. (WDG, TSX-V) which recovered by a dime yesterday to $1.25 after losing 25 cents the previous three trading sessions…WDG appears to be in the process of forming an inverted head and shoulders pattern…again, another company to put on the “watch” list – use the chart as a tool in your due diligence…

Note: John, Jon and Terry do not hold positions in DYG, URS or WDG.

Gold is trying to bounce back today after yesterday’s $20 an ounce drop…as of 5:55 am Pacific, the yellow metal is up $9 an ounce at $1,576…Silver has climbed 23 cents to $27.04…Copper is flat at $3.41…Crude Oil is $1.17 a barrel higher at $85.08 while the U.S. Dollar Index is down over one-tenth of a point to 83.23…

Making sense of the action in Gold right now is actually quite easy as John outlines in the chart below…at some point over the short-term (this quarter), Gold will likely break out of its current trading range and make a decisive move in one direction or the other – we suspect that will be to the upside given seasonal and other factors including the favorable COT structure as we mentioned here yesterday…John’s 2.5-year weekly chart shows Gold is at RSI support at 42%…

Today’s Markets

Stock index futures in New York as of 5:55 am Pacific are pointing toward a slightly higher open on Wall Street…investors are looking ahead to the minutes of the June 20 Federal Reserve meeting (11:00 am Pacific) to find out how close the Fed was to delivering a third round of quantitative easing in addition to extending Operation Twist through to the end of 2012…second quarter earnings reports from bellwether’s Alcoa and Cummins over the last two days reconfirm the slowdown in the global economy, but how that works itself out is too early to tell…China is a key player and it has definitely put the pedal to the metal in terms of kick-starting economic growth with various monetary and fiscal moves…the U.S. is in a state of fiscal paralysis until November’s elections when hopefully Americans will re-discover their appetite for limited government and a regulatory and tax structure that inspires confidence in the private sector…

We thought it would be a good time to update the technical picture for China’s Shanghai Composite Index…it closed up 11 points today at a session-high 2176 after falling to an intra-day low of 2157, just 24 points above its 52-week low where there is strong support…the Index is in oversold territory as John shows below, and a rebound appears more likely now than a drop through 2133…

China To Court Foreign Hedge Funds

The Financial Times reports this morning that China has given foreign hedge funds permission to tap its wealthy citizens inside the country for funds to invest overseas…the move represents another important step by China to open its capital account – a process that involves dismantling regulations separating China from international markets…the pace of these reforms has picked up over the past year with a flurry of small initiatives, but the hedge fund move would be among the boldest…as well as creating a new channel for domestic capital to flow abroad, it would give Chinese institutions access to alternative investment strategies – from short positions to arbitrage – which they have lacked…

Venture Exchange

The CDNX went the way of the broader markets and Gold yesterday, reversing during the day…the risk of a test of support at 1154 has increased based on the last few days of trading activity which wouldn’t be such a bad thing if that were to help reinforce support…RSI(2) is in oversold territory but could drop a little more…

Gold is solid again today…as of 6:00 am Pacific, the yellow metal is up $13 an ounce at $1,600…Silver is 19 cents higher at $27.53…Copper is flat at $3.43…Crude Oil is off 43 cents at $85.56 while the U.S. Dollar Index is up slightly at 83.23…

Gold Forecast

Global macroeconomic conditions are likely to trigger another rise in investment demand for Gold in the months ahead, enabling it to reclaim $1,800 an ounce by year-end, according to Thomson Reuters GFMS…the consultancy is looking for a modest increase in mine production and scrap supply to result in a new all-time high for overall supply in 2012…meanwhile, fabrication demand – dominated by jewelry – is forecast to fall by a small amount this year, due to still-high and volatile Gold prices coupled with weak consumer spending in a slower global economy…as a result, a market surplus between supply and fabrication demand minus coins will grow, leaving it to central banks and investors to make up for the difference…the consultancy does in fact foresee another rise in investment inflows into the Gold market, particularly with an increasing likelihood of further monetary easing worldwide…

More Chinese Economic Data

Chinese import growth slowed to 6.7% over the previous year in June, half the 12.7% pace expected by analysts…export growth, however, was solid, rising 11.3% vs. the forecast of a rise of 9.9%…the drop in imports is not due to a weakening of spending by Chinese consumers as some reports have suggested (retail sales numbers, employment and wage increases don’t support that view)…China, however, has been sitting on some large inventories of certain commodities and will need to draw down on those stocks in the months ahead…copper and crude imports, for example, fell 17% and 15% respectively in June…infrastructure investments by the government and social housing projects should lead to a rise in demand for raw materials during this second half of the year…as we mentioned yesterday, China has a lot of fiscal and monetary maneuverability to kick-start growth given that inflationary pressures have receded significantly…they still have plenty of bullets to fire after two interest rate cuts in less than a month…

Euro Zone Ratifies Terms Bank Bailout Agreement For Spain

Euro zone finance ministers reached agreement this morning on the blueprint for Spain’s 100 billion euro bank bailout, a deal expected to see the first 30 billion in aid from the euro zone’s €440bn rescue fund sent to Madrid by the end of the month…although the final memorandum sealing the deal will not be officially agreed until July 20, senior euro zone officials said it will include further in-depth stress tests for 14 of Spain’s largest financial institutions followed by a requirement that Madrid segregate the banks’ distressed assets into a “bad bank”…

How The Market Can Humble The Best

More than $200 million in customer funds appears to be missing from the accounts of U.S. futures broker PFGBest, regulators said yesterday, just hours after the firm’s founder attempted suicide outside the company’s Iowa headquarters…the suicide attempt and missing money renewed anxiety over the stability of the brokerage industry less than a year after the collapse of much larger MF Global…PFGBest told customers their funds had been frozen and clients would be allowed to liquidate open trading positions, but would not be able to withdraw funds or make new trades until further notice…

Russell Wasendorf Sr., a 40-year veteran of futures markets, was found in his car near the company’s new headquarters, having apparently attempted suicide…he is in critical condition in hospital, according to local news reports…Wasendorf made a fortune and expanded his business in the late 1980’s after he and his clients shorted the financial futures markets 10 days before “Black Monday”…

Today’s Markets

Stock index futures in New York as of 6:00 am Pacific are pointing toward a positive open on Wall Street…Asian markets were down slightly overnight while European shares are enjoying a solid day…

The Venture Exchange continues to be supported by a rising 10-day moving average (SMA) currently sitting at 1205, but as we pointed out yesterday the Index needs to make a decisive break above its EMA-20 in order for the bulls to gain some control…overall, it’s hard to imagine the Venture not ending its downtrend and taking off to the upside at some point during this third quarter… there are several possible catalysts including new discoveries, takeovers, higher Gold and Silver prices, and the Venture’s favorite drug – quantitative easing…

Kaminak Gold (KAM, TSX-V)

Kaminak came out with more solid results yesterday from its Coffee Project in the Yukon, and we expect KAM to be a strong performer this quarter…its 50-day moving average (SMA), in decline since April, appears ready to reverse to the upside…below is an updated KAM chart from John…like a lot of stocks, it needs to break above its down trendline which it could be on the verge of doing…this is an important stock to watch as a “bellwether” for the Venture…

Northern Graphite (NGC, TSX-V)

Northern Graphite (NGC, TSX-V) came out with important news yesterday and is looking strong after making it through resistance around $1.80…

Osisko Mining (OSK, TSX-V)

Osisko Mining (OSK, TSX-V) which appeared to bottom out in mid-May at just below $6.50, has enjoyed a strong start to the month of July and that’s a good sign as far as overall Gold stock sentiment is concerned in this early part of the third quarter…OSK’s second quarter production was higher than some analysts had expected, and the company’s Q2 financials will be released after the close August 9…technically, the stock still faces some challenges (volume and buying pressure both need to increase) but a bottom appears to have been put in…

Note: John, Jon and Terry do not hold positions in KAM, NGC or OSK.

Gold is steady this morning…as of 6:55 am Pacific, the yellow metal is up $4 an ounce at $1,586…it traded in a narrow range overnight…Silver is 30 cents higher at $27.40…Copper is up 2 pennies at $3.43…Crude Oil is flat at $84.44 while the U.S. Dollar Index is off slightly at 83.28…

Commercial traders’ net short position in Silver is at an all-time record low…the COT structure is also very favorable at the moment for Gold, copper and even oil, and experience shows it’s never wise to bet against the commercials – they are seldom wrong…what this tells us is that the next big move this quarter is going to be to the upside…

Something to watch closely this week will be the Dollar Index and whether it can push through stiff resistance at 83.50…below is a 6-month chart from John after the Index closed Friday at 83.35, a gain of nearly 2 points for the week…

The euro, meanwhile, continues to look weak…the question now is whether it can hold a support band between 119 and 122.5…it’s up slightly this morning at 122.92…

China Inflation Continues To Ease

China’s consumer and producer prices eased more than expected in June…that may signal falling demand for goods from the world’s second-biggest economy but it also confirms that China has plenty of room for growth-supporting policy measures over the second half of the year…they can cut rates further, they can ease credit, they can expand fiscal stimulus, so there will be plenty of support for the Chinese economy to ensure a “soft landing” – particularly since there will also be a leadership transition in the fall…China will do everything it can to guarantee economic and social stability given the political dynamics at play…more economic data will be coming out of China at the end of the week – specifically, GDP, retail sales and industrial output on Friday…last week, China cut its benchmark interest rate for the second time in less than a month…

Increased Likelihood Of QE3?

The U.S. Federal Reserve should unleash a new round of bond purchases to bring down unemployment, even at the risk of driving inflation temporarily higher, one of the Fed’s most dovish policymakers said this morning…”Additional monetary accommodation is needed to more quickly boost output to its full potential level,” Chicago Federal Reserve Bank President Charles Evans said in remarks prepared for delivery to the Sasin Bangkok Forum…”The economic circumstances warrant extremely strong accommodation”…

Meanwhile, economists at Wall Street’s top bond-trading firms now put the likelihood of a third round of quantitative easing at 70%, a Reuters poll showed Friday, up from 50% on June 20…the Fed next meets to discuss policy on July 31 and August 1, and on September 12 and 13…

Today’s Markets

The Venture Exchange is up 2 points at 1213 as of 6:55 am Pacific while the Dow is off 54 points and the TSX is 38 points lower…

Asian markets were down significantly overnight with China’s Shanghai Index falling 53 points or 2.71% to 2171, putting it just above its January low…

Corporate earnings season kicks off after the close today with aluminum giant Alcoa reporting for the second quarter…traders and investors will be watching corporate earnings numbers closely, especially considering the recent slowdown in the global economy…

Kaminak Gold (KAM, TSX-V)

Kaminak Gold (KAM, TSX-V) has released positive drill results this morning from its Coffee Project in the Yukon, significantly expanding the strike length of the Supremo T3 and T4 Gold zones to greater than 1,600 metres and 1,400 metres, respectively, therefore connecting the Supremo and Latte Gold zones…new results from these zones include 12.5 g/t Au over 13 m; 15.5 g/t Au over 11 m; 10.5 g/t Au over 13 m; 29.2 g/t Au over 3 m; 2.9 g/t Au over 32 m and 35 g/t Au over 4.5 m…Kaminak has completed over 30,000 metres of drilling since March with at least 20,000 more to go…as of 7:00 am Pacific, KAM is up 14 cents at $1.87…

Avion Gold (AVR, TSX)

Avion Gold Corp. (AVR, TSX-V), which has fallen sharply in recent months in part over concerns about Mali, released record second quarter 2012 production results this morning of approximately 28,637 ounces of Gold from its Tabakoto operation in Mali, West Africa…the company has now set two consecutive quarterly records for the amount of Gold produced in a single quarter with year-to-date Gold production of 54,894 ounces after refinery adjustments…Avion says it’s well on its way to achieving its upgraded production guidance of 95,000 to 102,000 ounces of Gold for 2012…

Technically, it appears that Avion may have bottomed out in the low 40’s as John shows in the chart below…as of 6:55 am Pacific, AVR is 4 pennies higher at 60 cents…

Robex Resources (RBX, TSX-V)

Another company with interests in Mali that has been knocked down recently is Robex Resources (RBX, TSX-V) which closed Friday at 15 cents, half a penny above its rising 1,000-day moving average (SMA)…it has a strong support band between 12 and 12.5 cents…selling pressure has been intense lately which indicates a possible bottom…this is another in a long list of stocks that needs to break out of its down trendline to confirm a bullish new phase…as of 6:55 am Pacific, RBX is off half a penny at 14.5 cents…