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Gold is recovering after falling as low as $1,6654 overnight…as of 7:00 am Pacific, the yellow metal is up $4 an ounce at $1,583…Silver has gained 15 cents to $28.66…Copper is off 6 pennies to $3.47…Crude Oil has fallen $1.43 a barrel to $90.62 while the U.S. Dollar Index continues to surge (not a good sign), gaining more than one-third of a point to 82.37…we’ll have more on the Dollar Index Monday…if today’s gains hold., it will have decisively broken out on a weekly basis above important resistance around 81.50 – negating what appeared to be a head-and-shoulders pattern that had formed for over a year…Gold has put in its longest run of monthly declines (5) since 1997…

Today’s Markets

Though Japan’s Nikkei average eked out a small gain, Asian markets were generally lower overnight…China’s Shanghai Composite fell 6 points to 2360…growth in Chinese factories cooled in February to a five-month low after domestic and foreign demand slackened, an official government survey showed today, missing market forecasts and underscoring China’s patchy economic recovery…the official Purchasing Managers’ Index (PMI) eased to 50.1 after seasonal adjustments, the National Bureau of Statistics said, down from January’s 50.4 and the weakest since September, 2012…the index nevertheless signals that a mild economic recovery is still taking hold in China…the 50-point level separates expanding activity from contraction versus the previous month in China’s vast factory sector…European shares are weaker today as euro zone manufacturing and unemployment data raised concerns about the region’s sluggish economy…it’s only fitting that a comedian has become one of Italy’s most powerful political voices…the country’s seasonally adjusted unemployment rate jumped to 11.7% in January from 11.3% the month before to hit its highest level for at lesat 21 years, data showed this morning…youth unemployment also jumped to an all-time high of 38.7%  from 37.1%… rising unemployment was a major issue in the national election on Sunday and Monday which saw a dramatic surge in support for the anti-establishment 5-Star Movement led by comic Beppe Grillo…the election left Italy in political chaos, with no clear parliamentary majority emerging and two clowns – Grillo and Silvio Berlusconi – in the forefront…Italy is the euro zone’s fourth largest economy, and has the world’s third largest sovereign bond market, behind the United States and Japan…the U.S. borrows for 1.90%, Japan 0.67%, but Italy has to pay 4.80%, a heavy premium in today’s credit markets…with Italy’s massive debt-to-GDP of around 120%, the function of their bond markets and the level of interest rates that they must pay to service that debt are vitally important…yields on the Italian 10-year long bond have jumped about 80 basis points in a month…keep an eye on the 10-year Italian bond note…if it surges past 5.25%, equity markets could become very jittery…North American markets are under mild pressure in early trading…the Dow is off 70 points, the TSX has lost 66 points while the Venture Exchange is down 7 points to 1127…

Fresh U.S. Economic Data, “Sequestration” Starts

American consumers increased spending modestly in January from December…income, however, plunged by the most in two decades although the decline followed a one-time surge in December…the Commerce Department reported this morning that consumer spending rose 0.2% in January…the gain was driven by an increase in spending on services, primarily reflecting higher heating bills..spending on durable goods such as cars and non-durable goods such as clothing actually fell…income growth declined 3.6% in January, the biggest drop since January, 1993…but it followed a hefty 2.6% rise in December, a gain that reflected a rush by companies to pay dividends and bonuses before income taxes increased on top earners…the U.S. government enters a controversial new phase of deficit cutting today as an automatic trigger begins slicing budgets in some areas while leaving programs such as Medicare and Medicaid – among the largest drivers of future debt – largely untouched…the $85 billion in so-called sequester cuts push Washington, and the nation’s economy, into uncertain waters…but by focusing on a proportionally small level of spending, the sequester fight is distracting attention from longer-term deficit issues that need to be addressed…

Dow Chart

There is growing technical evidence that a correction in the Dow is near at hand…given the fact that Gold prices have been moving in the opposite direction of the equity markets in recent months, this also suggests that March could mark a reversal in the 5-month slide in bullion…last year, Gold was very weak in March – we could see just the opposite this time around…

Below is a 1.5-year Dow weekly chart from John…from mid-December to the end of February, the Dow climbed from around 11750 to a high this week of 14149 in orderly fashion within an upsloping channel…this move has seen three run-ups and two retracements with recent trading at the top of the channel…

On the chart, two periods are identified…Period #1 is Sept/12 and Period #2 is Feb/13…compare the candle patterns – both show that as soon as the Index reaches the top of the channel the subsequent candles meet resistance and have trouble moving higher even though the buy pressure increases…the sellers match the buyers until, as we see in Period #1, the bears finally win and the Index retraces down to the bottom of the channel…also the +DI in each period starts to decline at the time when the Index first reaches the top of the channel…this is indicated by the vertical red dotted line…

For Period #2, RSI is relatively very high and the level of buy Pressure is far less than that of Period #1…the conclusion from this analysis is that the Index is very vulnerable to a retracement to a support level or to the bottom of the channel in the near future…

GoldQuest Mining (GQC, TSX-V)

We encourage investors to closely read GoldQuest’s February 11 news release regarding new targets and its drilling strategy at Las Tres Palmas, a highly promising trend that of course also hosts the company’s Romero discovery that helped propel the stock over the $2 level last summer…potential overall market volatility this month could open up some fabulous opportunities in many quality juniors, GoldQuest being no exception…GQC is currently trading within a support band (.40 to .485 cents) as noted in John’s 2.5-year weekly chart below…as an “awareness” issue, breach of this support is certainly possible given current technical patterns and oversold conditions – as always – would create attractive opportunities…

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