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Gold has traded between $1,163 and $1,175 so far today…as of 8:15 am Pacific, bullion is up $4 an ounce at $1,169…Silver is off its lows, down 11 cents at $16.04…Copper has fallen 3 pennies to $3.05…Crude Oil has plunged more than $2 a barrel to $76.56 thanks to the Saudis, while the U.S. Dollar Index has retreated one-quarter of a point to 87.01…

Gold prices below $1,200 an ounce appear to be leading to more demand from China and also could encourage price-sensitive retail coin buyers, according to HSBC.  “As Western investors still appear to be negative on Gold, based largely on the strength of the U.S. dollar, it is becoming clear that prices below $1,200 an ounce have stimulated greater demand from China,” the bank says. “Increases in the Shanghai premium and greater demand for kilo bars may provide the beginning of a near-term floor for Gold prices. Should heavy investor liquidation recommence, Chinese merchants may step back temporarily and prices could take another dip lower, but we expect that greater emerging-market demand would accompany further price declines.”

Oil Games

Saudi Arabia keeps inadvertently putting more money into the pockets of North American consumers, thanks to a deliberate attempt to “squeeze” shale Oil producers and maintain important U.S. market share…yesterday, the Saudis deepened cuts to U.S. buyers while raising prices for their Oil in other locations, including Asia, where the country had cut its prices for 4 consecutive months…Asia has been an especially competitive market for exporters in recent months, so the focus on maintaining market share in the U.S. caught some traders by surprise but it shouldn’t have…the Saudis are clearly deeply concerned about rapidly rising production in the United States…OPEC meets in Vienna on November 27 to decide on production targets for next year, and market participants are looking for any sign on whether the producer group (becoming very fractured) will move to shore up prices by trimming output…

A significant drop in Crude prices the last couple of months has translated into significant savings for U.S. and Canadian consumers at the gas pumps, and consumer spending is so critical to the North American economy…at the same time, however, the energy sector is taking a hit…some analysts believe, though, that the Saudis are underestimating the resiliency of most shale producers…time will tell with Oil prices now in the mid-to-upper $70’s…

Energy Policy To Play Role In Today’s U.S. Midterms

Polls are pointing to a disgruntled U.S. electorate, disappointed with the Obama administration, handing the Republicans control of the Senate for the first time in 8 years and lifting their majority in the House to the largest margin in half a century as Americans vote in today’s midterm elections…President Obama’s environmental policies (climate change, coal power, the Keystone XL pipeline and oil drilling) will likely hurt Democrats severely in energy-producing states…

Today’s Equity Markets

Asia

China’s Shanghai Composite was relatively unchanged overnight while Japanese traders returned from a holiday and pushed up the Nikkei average by 449 points or 2.7% to a new 7-year high…it closed at 16862…

Europe

European markets are under pressure in late trading overseas…the European Commission slashed its economic outlook for the euro zone today, predicting the currency bloc would grow only 1.1% next year, down from a 1.7% forecast just 6 months ago…the revisions were particularly significant in the 2 largest euro zone economies, Germany and France, for which the commission cuts its projections by nearly a full percentage point for 2015…the GDP forecast for Germany, the common currency’s economic engine, was cut from 2% in May to 1.1%per cent; France went from 1.5% to 0.7%…

North America

The Dow is down 67 points as of 8:15 am Pacific but this follows 5 triple digit gains in 8 sessions, taking the Dow to a new all-time high…

New orders for U.S. factory goods fell for second straight month in September, but the number was in line with expectations…a survey of national factories published yesterday showed a strong rebound in new order growth and backlogs in October…the increase was largely driven by domestic demand…

Of the 366 companies in the S&P 500 that have reported earnings for the third quarter through yesterday, just over 75% have beaten expectations, while 58% have posted revenue that topped estimates, according to data compiled by Thomson Reuters…

The TSX is down 209 points through the first 2 hours of trading while the Venture has slipped 12 points to 754…

There are obviously some fantastic opportunities in this current market environment – some very undervalued situations – when you see a company’s stock move from 7 cents (last Friday) to a 41-cent close yesterday on an all-cash friendly takeover bid…Duluth Metals (DM, TSX) holds 60% of the Twin Metals Minnesota Project, among the world’s largest Cu-Ni-PGM polymetallic sulphide deposits that will be fully owned by Chilean Copper miner Antofagasta Minerals PLC…the offer represents a 284% premium to the 20-day volume-weighted average price of DM’s shares…

Canada Set To Strengthen Economic Ties With China

Interesting – the National Post reported this morning that Prime Minister Stephen Harper is set to announce that Canada has landed a Chinese currency trading hub that should boost exports to Asia, when he visits Beijing this Saturday…the Prime Minister will meet President Xi Jinping this weekend and sources suggest he will announce that Canada has been successful in striking a deal on the renminbi trading hub, to be based in Toronto, that will allow Canadian firms to trade directly in the local Chinese currency, rather than converting loonies into American dollars to do business in China…the deal, which requires the approval of both governments and central banks, should be a significant savings for Canadian companies in transaction costs, as well as offering transparency and confidence for firms that want to do business in China…

Gold 4-Year Weekly Chart

Below is a 4-year weekly chart from John that shows how Gold has touched an important flag support line at $1,160…in the simplest terms, according to Elliott Wave theory, one strong possibility is that Gold will rally from around current levels back toward the top of the flag…however, this would be followed by a “Wave 5” that would take bullion decisively below the flag support line…timing of course is uncertain, but what this means is the likelihood of volatility, and that ultimately a test of support around the $1,000 level certainly can’t be ruled out (easier to see on a longer-term chart below this one)…

Gold 20-Year Weekly Chart

The good news regarding this chart is the current bullish divergence between RSI(14) and price…this suggests the possibility of a rally that, as explained above, could take Gold back up toward the top of the current flag formation…

Longer-term, what’s bearish of course is the break below an upsloping channel since the bull market began in 2001…Gold has also been below its 1000-day moving average (SMA), currently at $1,492, since early last year…this SMA has flattened out and is expected to trend downward in 2015, raising the potential for additional price pressure…

CRB Index Chart Update 

The CRB Index is at a level not seen since the summer of 2012, and RSI(14) and SS are both clearly very oversold on this 2.5-year weekly chart…the -DI indicator also appears to have peaked, at least for now…

The CRB can start gaining some traction if it can break above the downtrend line as shown, which means pushing back up above the 275 level…

Canada Carbon Inc. (CCB, TSX-V) Update

Further to John’s update last week, Canada Carbon (CCB, TSX-V) continues to show a lot of technical strength and closed up 3 cents yesterday on volume of more than 2 million shares…fundamentally, the company continues to make headway with its 100%-owned Miller Graphite Project in Quebec…a couple of interesting advisory board appointments were also announced late last week…

This 3-year weekly chart shows strong support at the uptrend line and a bullish “W” formation in the RSI(14) which found support around 50% and is gaining momentum…

CCB is off a penny at 23 cents as of 8:15 am Pacific…

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

 

Gold has traded between $1,165 and $1,175 so far today…as of 8:30 am Pacific, bullion is off $4 an ounce at $1,169…Silver is down 7 cents at $16.11…Copper is up 2 pennies to $3.08…Crude Oil is 46 cents lower at $80.08 while the U.S. Dollar Index is up one-fifth of a point at 87.28…this has the potential to be another bullish week for the greenback given the growing likelihood of a Republican sweep in tomorrow’s U.S. midterm elections, expected dovish comments from an ECB meeting and Friday’s U.S. non-farm payrolls report…monetary policy divergence between the U.S. and other central banks continues to be a key theme, as evidenced by Friday’s stimulus news out of Japan that drove the yen to a 7-year low and gave a sharp boost to global equity markets (pushing Gold lower)…

A couple of interesting new Gold charts this morning (see below)…U.S. Mint sales of Gold coins were strong in October…the Mint’s web site shows that sales of American Eagle Gold coins, which account for the bulk of the activity, were 67,500 ounces – the highest since January, according to Commerzbank, with buying interest picking up noticeably in recent days and with Gold investors “using the low price level as a good entry opportunity.”  Meanwhile, the Mint reports selling 5.79 million ounces of American Eagle Silver coins last month, the most so far in 2014 and the highest since January 2013…

Barclays says physical buying continues to firm amid lower prices…Gold premiums in India have risen to $15 an ounce, with buying expected to pick up this week – exactly what the Gold market needs…the latest Hong Kong trade data show the highest Gold exports to China since March…further, Barclays reports that official-sector buying was “healthy” in October, with Russia upping its holdings by 37 metric tons…

If Gold prices settle modestly below $1,200, Allied Nevada Gold (ANV, TSX), Barrick Gold (ABX, TSX), Iamgold (IMG, TSX), Kinross Gold (K, TSX) and Newmont Gold (NEM, NYSE) are “particularly vulnerable” to credit rating downgrades according to Standard & Poor’s in the new RatingsDirect report entitled:  Will Falling Prices Tarnish North American Gold Producers’ Credit Quality?  “Specifically, we estimate that these companies would breach the adjusted debt-to-EBITDA ratio, funds from operations (FFO)-to-debt ratio, or liquidity thresholds previously highlighted in the downside scenarios in our most recent research reports on each issuer,” the S&P report stated…

Russia Oil & Gas Production Remains High

Figures showing that Russian Oil and gas production hasn’t been affected by Western sanctions underpins the oversupply in global Oil markets, keeping prices under pressure.  “The continued high level of Oil production in Russia is playing its part in the oversupply on the world-wide Oil market,” said Commerzbank which reported that according to the Russian Ministry of Energy, the country produced 10.6 million barrels a day of Crude Oil and condensates in October, only slightly down from September and only just short of the record post-Soviet Union era high…the oversupply continues to put pressure on OPEC which has so far confounded the market by refusing to rein in production (there are internal squabbles)…many had expected OPEC members to slash production to shore up prices…

Today’s Equity Markets

Asia

China’s Shanghai Composite rose to a 20-month peak overnight, advancing for a 5th straight session…the Shanghai climbed 10 points to close at 2431…mixed economic data out of China…HSBC’s final PMI for October rose to a 3-month high at 50.4, unchanged from a preliminary reading and higher than September’s figure…the report followed data over the weekend that showed China’s official PMI for October falling to a 5-month low at 50.8…other data today showed the country’s services sector growing at its slowest pace in 9 months in October, with the official services PMI falling to 53.8 from 54 in September…

No trading in Japan today due to a holiday there…

Europe

European markets finished modestly lower today after data revealed that euro zone manufacturing activity expanded slightly less than previously thought in October…

North America & Tomorrow’s Congressional Elections

The Dow is off 32 points as of 8:30 am Pacific while the S&P 500 is up slightly, hitting a new record high…the TSX is down 64 points while the Venture is flat at 770…

The U.S. manufacturing sector slowed in October to its lowest rate of growth since July, while a gauge of new orders hit its lowest level since January, an industry report showed this morning…

Findings from the latest Wall Street Journal/NBC News poll show that the most important issues for Americans as they go to the polls tomorrow are job creation/economic growth (41%), ending gridlock/getting things done (36%) and the deficit/government spending.  “This is really the last chance for America to pass judgment on the Obama administration and its policies,” former GOP presidential nominee Mitt Romney stated on “Fox News Sunday”…Democratic candidates have been weighed down by the President’s unpopularity – his approval rating is around 40%, a far cry from the days of “Yes We Can”…

It’s important to keep in mind that in two southern Senate matchups – Louisiana and Georgia – polls show the races are too tight to call, creating a possibility (though this is still considered unlikely) for run-off elections that could delay for weeks knowing who will control Congress’ upper chamber…

A clear outcome tomorrow could set the market up for additional upside into the end of the year…historically, midterm elections correspond with market strength…the S&P 500 has rallied an average of 16% in the 6 months that follow midterms going back to 1950, according to Nuveen Asset Management…meanwhile, Barclays noted that since 1928, the S&P 500 has posted a median return of 7% in the 90 days after a midterm, with returns positive 86% of the time…

Dow-Gold Comparative Chart

This is an interesting chart that goes back to 1980 and shows the relationship between the Dow and the price of Gold…generally, though there have been some exceptions (in particular, 1985–1988 and 2009–2010), bullion tends to move in the opposite direction of the Dow, and the strength of equity markets since the beginning of 2013 has been particularly problematic for Gold…when it comes, and it will eventually, a major correction in the Dow can be expected to have a very bullish impact on Gold…

Gold 1-Year Daily Chart

Gold’s challenge this week will be to hold support around the $1,150 level (give or take $10 or $20) as shown in John’s 5-year weekly chart posted Saturday…this 1-year daily chart shows RSI(2) levels at an extreme low (less than 1%) which suggests that some near-term relief could be on the way…note how the 50-day moving average (SMA) reversed to the downside at the end of August and provided stiff resistance last month when Gold tried but failed to push through the $1,250’s…sell pressure (CMF) has weakened since peaking in September/October…

Reservoir Minerals Corp. (RMC, TSX-V) Update

One Gold stock that managed to buck the trend last week was Reservoir Minerals (RMC, TSX-V)…its action this week – whether it confirms a possible reversal – is something to keep an eye on for another piece of evidence that the quality juniors are stabilizing…Reservoir, which had just over $40 million in cash at the end of August, reported last week that diamond drilling has resumed with 5 rigs operating on its Cukaru Peki deposit and other Copper-Gold targets as part of the very promising Timok Project in eastern Serbia…Freeport-McMorRan (FCX, NYSE) is the operator of the JV and picking up the tab on all exploration expenses…

Oversold RSI(14) conditions have emerged on this 1.5-year weekly RMC chart, mirroring the overbought conditions during February/March when the stock hit an all-time high of $7.54…RMC hit a yearly low of $3.40 October 15…there is strong Fib. support in the $3 to $4 range ($3.24, $3.56 and $3.88) and chart resistance around $5…

RMC is off 14 cents at $3.75 as of 8:30 am Pacific…

Mission Ready Services Inc. (MRS, TSX-V) Update

Mission Ready Services (MRS, TSX-V) has been a Venture “out-performer” over the past couple of rocky months, climbing 60% since the end of August on the strength of new contracts and the successful completion of a $4 million financing…the company provides solutions to the global defense, security and first-responder markets (a good space to be in right now) in the areas of cleaning, logistics, maintenance, program management and client representation…

Technically, MRS remains within an upsloping channel on this 6-month daily chart after recently hitting a high of 48 cents and retracing last week to support at 35 cents…a good test this week will be whether MRS can push through new chart resistance at 40 cents…the stock is down a penny at 38 cents as of 8:30 am Pacific…

Graphene 3D Lab Inc. (GGG, TSX-V) Update

If you can stomach volatility, you’ll want to continue to keep a close eye on Graphene 3D Lab Inc. (GGG, TSX-V) which has been bouncing around significantly, creating opportunities for savvy traders…the 50-day moving average (SMA), currently at $1.70, has been providing support on pullbacks but is flattening out, and GGG will have to push hard in the week ahead to avoid a reversal to the downside in this SMA…

GGG is off 2 cents at $1.73 through the first 2 hours of trading…

Slyce Inc. (SLC, TSX-V)

Slyce (SLC, TSX-V), formerly Oculus Ventures, was a solid performer on strong volume in October, and it’s starting November off on a powerful note…the company’s strategy is to position itself as a pivotal player in the emerging visual web by providing its technology to retailers, brands, app developers and digital publishers, enabling their apps to recognize products for instant purchase…Slyce will provide its technology in exchange for integration, licensing and per search fees, percentage sales splits and big data provision and analysis…the company is currently working with a growing list of Fortune 1000 brands and companies as well as multiple innovative developers…

Technically, SLC has found strong support at 70 cents and the primary trend is bullish according to the ADX indicator…as always, perform your own due diligence…

SLC is up 12 cents at 90 cents as of 8:30 am Pacific…

Silver Short-Term Chart

What’s encouraging about this short-term Silver chart is the divergence between RSI(14) and price, and the spike down to the $16 level (and slightly below) that we were hoping and expecting to see as a sign of at least a near-term bottom…note the downtrend line in place since July…a large gap has opened up between the current price and that downtrend line which is serving as major resistance…

Silver 11-Year Monthly Chart 

In this 11-year monthly chart, note the two downtrend lines since the 2011 peak…of concern is the bearish trend (-DI has increased significantly over the last few months but there’s room for that trend to accelerate)…for now, Silver is holding within a support band…

Silver 34-Year Monthly Chart

This 34-year monthly chart suggests that Silver is in the process of bottoming out but may not have found a final low just yet, though RSI(14) is at previous support…this can be considered a “Wave 4” move to the downside that could certainly test strong Fib. and chart support around $15 before reversing…sell pressure has really intensified this year…

Note:  John, Terry and Jon do not hold share positions in RMC, MRS, GGG or SLC.

TSX Venture Exchange and Gold

Gold’s Halloween scare – an intra-day drop of nearly $40 to a fresh 4-year low – was encouragingly mostly shrugged off by the Venture Friday which interestingly touched support at 760 and then closed at its high of the day, 769.59.  This potential “hammer reversal” requires confirmation Monday.

The divergence between RSI(14) and price last week is curious.  As shown on our 9-month daily chart, the Venture’s new low of 760 was not confirmed by RSI(14) which hit extreme levels earlier in the month.  In addition, sell pressure (CMF) has weakened considerably from its mid-October peak and was very low Friday as the Index hit 760.  The evidence suggests that selling – at least for now – may have exhausted itself.  The next couple of trading days will reveal much in terms of whether the Venture’s 26% slide over 43 trading sessions (vs. a 35% drop over the same period in the TSX Gold Index) is over.

For the week, the Venture fell 35 points or 4.3% vs. a whopping 15% decline in the TSX Gold Index (the Gold Index hit a low Friday not seen since late 2002 after a 40% correction which was then followed by an immediate major leg up).

What we’ve witnessed over the last couple of months are extreme moves.  Whether this has been a capitulation moment, or a sign of more trouble brewing further down the road, is impossible to conclude at the moment.  However, history has taught us that whenever bearish or bullish sentiment reach certain extremes, that’s the ideal time to either buy or sell.  In this carnage, we’re convinced there are some Golden opportunities and we’ll be focusing on some of the best in the week ahead.

The Seeds Have Been Planted (And Continue To Be Planted) For The Next Big Run In Gold Stocks

There’s no better cure for low prices than low prices. The great benefit of the collapse in Gold prices in 2013 is that it forced producers (at least most of them) to start to become much more lean in terms of their cost structures. Producers, big and small, have started to make hard decisions in terms of costs, projects, and rationalizing their their overall operations. Exploration budgets among both producers and juniors have also been cut sharply. In addition, government policies across much of the globe are making it more difficult (sometimes impossible) for mining companies to carry out exploration or put Gold (or other) deposits into production, thanks to the ignorance of many politicians and the impact of radical and vocal environmentalists (technology has made it easier for groups opposing mining projects to organize and disseminate information, even in remote areas around the globe). Ultimately, all of these factors are going to eventually create a supply problem and therefore great opportunities in Gold and quality Gold stocks.  Think about it, where are the next major Gold deposits going to come from?  On top of that, grades have fallen significantly just over the past decade.

Gold

Gold couldn’t hold support at $1,200 and suffered its worst week since June of last year, falling $58 an ounce or 4.7% to close at $1,173, primarily due to a surging greenback.  The U.S. Dollar Index got fresh fuel from Wednesday’s unexpectedly hawkish tone from the Fed, and after the Bank of Japan surprised the markets Friday with a stimulus package that drove down the value of the yen and gave global stock markets a major boost.

There is certainly some concern about Gold falling below the $1,180 level, the 2013 double bottom low where it rallied from strongly on both occasions.  A $70 bounce off that area occurred after a perceived triple bottom around $1,180 during the first week of October.

So what are we looking at now?  John’s long-term weekly chart shows strong support for Gold around $1,150 – the metal dipped as low as $1,160 Friday.  Some follow-through weakness is certainly possible Monday or early in the week, but the $1,150 area – give or take $10 or $20 – has an excellent chance of providing a near-term floor.  RSI(14) on the 5-year weekly chart is approaching support, and interestingly is significantly above the RSI(14) low hit in June of last year.  A major increase in physical buying from Asia with Gold in the mid-$1,100’s would inject some needed confidence into this market.  Meanwhile, the Dollar Index is approaching major resistance in the high 80’s and bullion’s turnaround should certainly begin after the greenback’s parabolic move exhausts itself and overbought conditions start to unwind.

There is plenty of potential for volatility in the coming week, across all markets, with mid-term elections in the U.S. Tuesday (will Republicans take the Senate and gain control of Congress?) and a jobs report due Friday from the Labor Department.

Gold 5-Year Weekly Chart

Gold 6-Month Daily Chart

Gold’s recent inability to push through resistance in the low $1,250’s gave fresh encouragement to the bears who are now hoping that the $1,150 area will fail.  However, sell pressure was very unconvincing on this break below $1,180 as you can see on this 6-month daily chart.

Silver, unable to overcome resistance around $17.40, took the path of least resistance and plunged briefly below $16 an ounce Friday before closing at $16.18, a loss of $1.03 or 6% for the week (updated Silver charts Monday morning).  Copper remained flat at $3.06.  Crude Oil sank another 47 cents a barrel to $80.54 while the U.S. Dollar Index surged by more than a full point to close at 86.91.

The “Big Picture” View Of Gold

As Frank Holmes so effectively illustrates at www.usfunds.com, the long-term bull market in Gold has been 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, has had a huge impact on bullion and will continue to support prices.   Despite Gold’s largest annual drop in three decades in 2013, the fundamental long-term case for the metal remains solidly intact based on the following factors:

• Growing geopolitical tensions, fueled in part by the ISIS terrorist group (air strikes won’t stop them) and a highly dangerous and expansionist Russia under Vladimir Putin, have put world security in the most precarious state since World War II;
• Weak leadership in the United States and Europe is emboldening enemies of the West;
• Currency instability and an overall lack of confidence in fiat currencies;
• Historically low interest rates;
• Continued strong accumulation of Gold by China which intends to back up its currency with bullion;
• Massive government debt from the United States to Europe – a “day of reckoning” will come’;
• Continued net buying of Gold by central banks around the world;
• Flat mine supply and a sharp reduction in exploration and the number of major new discoveries.

Deflationary concerns around the globe and the prospect of Fed tapering had a lot to do with Gold’s plunge during the spring of 2013 below the technically and psychologically important $1,500 level, along with the strong performance of equities which drew momentum traders away from bullion. Deflationary concerns persist, and now Gold is having to grapple with a a much stronger U.S. Dollar.  However, we’re convinced that the 40% drop in Gold from its September 2011 all-time high is merely a healthy correction within an ongoing long-term bullish cycle that will take the metal to new all-time highs as the decade progresses.  There are many potential catalysts, including inflationary pressures that should eventually kick in, to power Gold to $2,000 and beyond within a few years.