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Gold is trading lower to start the final week of the second quarter after last week’s nearly $100 drop…as of 5:10 am Pacific, the yellow metal is off $15 an ounce at $1,284…next major support is around $1,250 as our updated chart showed yesterday…Silver is 44 cents lower at $19.66 as it again tests the top of a support band between $19.50 and $17.50 (see updated charts at bottom of today’s Morning Musings)…Copper is off 7 pennies at $3.03…Crude Oil is down 13 cents at $93.56 while the U.S. Dollar Index, after surging nearly 2 points last week, is up another one-quarter of a point at 82.68…

Gold…And Other Unloved Commodities

If you’re a contrarian, you’ll see plenty of hope with regard to Gold in our report this morning…by the way, according to Bank of America Merrill Lynch’s June global fund manager survey, investors’ allocation to commodities in general has fallen to the lowest level on record, with 32% underweight…”One way or another, the U.S. is getting toward the end of its liquidity cycle…and that is supporting U.S. yields and it’s supporting the U.S. dollar, and that’s going to be a headwind for the Gold price and all commodity prices going forward,” claimed Erik Wytenus, head of foreign exchange and commodities at JP Morgan Private Bank, in an interview with CNBC…

India’s Gold demand has slowed lately, but Société Générale expects the market to “carry on as normal” in the long-term…the government has sought to restrict imports to deal with a current-account deficit, including another recent hike in the import levy…“We are expecting this to cause some dislocation in the market in the short-term as jewelers and importers adjust their trading and pricing mechanisms,” SocGen stated…“In the longer-term, however, especially given the religious significance of Gold in India, we would expect the market to readjust and carry on as normal…we are looking for a substantial rebound in overall jewelry demand in India this year; the first 4 months have been extremely strong, although the market is now slowing, not only because of the government changes, but also due to rising rupee Gold price and to the time of year…the festival season is over and the monsoon season is starting…the Indian government is currently expecting a ‘normal’ monsoon season, with rains perhaps 98% of the long-term average, which would be positive for Gold demand later in the year”…

Perfect Set-Up For The Next Bull Run

As we mentioned in yesterday’s Week In Review And A Look Ahead, bullion is now at a price that makes extracting it almost unprofitable for some companies…this is certainly bullish for the long-term…producers are clearly accelerating their recent efforts to become “lean and mean” during this lower Gold price environment, a healthy process similar to what much of corporate America went through immediately following the 2008 financial crisis…most miners’ capital spending has peaked and operating expenses are starting to fall after the large increases in labor costs and capital budgets during the rapid growth in the mining industry over the past number of years…the pain in the Gold stock space right now is also going to have an impact on future supply (much less exploration, mine projects delayed or some mines shutting down) – another long-term bullish dynamic…so the current weakness in Gold is actually setting up the next bull phase in both Gold and Gold stocks, one that ultimately could produce one of the most spectacular bull runs ever…those who are saying that Gold’s long-term bull market is over are way off the mark for the reasons just stated, plus the fact that after climbing each year for more than a decade, Gold has simply experienced a very normal major correction…it has lost about one-third of its value since the September 2011 high – really, a very normal pullback within a long-term bull market in any commodity or stock index…even lower prices are possible and likely, but our guess is that the bottom has to be somewhere between $1,250 and $1,000…it’s interesting to note that premiums for Gold physical delivery in Shanghai jumped to a staggering $34.82 per ounce overnight Thursday, according to Scotiabank analysts…China is likely buying the dip and buying it big…

Speaking of China and Gold, it’s estimated that an average of approximately 30,000 brides per day (5 million in total) are set to receive Gold at their weddings through the rest of this year, and July is going to be particularly busy with 14 auspicious days for Chinese couples…”Some 10 million weddings take place every year in China,” stated Manoj Khota, a bullion trader who caters to several Chinese citizens who live in Kolkata and Mumbai…the China Gold Association has said total demand in 2013 could be near 900 to 1,000 tonnes in China, surpassing demand from India…Chinese people appear to be buying up Gold bars by the dozen, since they are easy to trade (source: www.MineWeb.com)…

Frank Holmes’ Weekly Investor Alert at www.usfunds.com over the weekend included some interesting comments regarding Gold and a fascinating updated chart – the year-over-year percent change oscillator for bullion…”Based on our oscillator data, the yellow metal is now in extremely oversold territory…on an annual basis, bullion is down 2.6 standard deviations, which is the worst reading over the past 10 years…this is the opposite reading that Gold buyers had in the summer of 2011, when it was up 2 standard deviations, or at the $1,900 level…before this market event occurred (last week’s drop), I said that Gold could fall another 10%, but that there could be a 30% upside over the next 18 months…you can see the upside potential in the chart, as Gold appears due for a reversal toward the mean”…

Today’s Markets

As we mentioned over the weekend, there are growing concerns about China and those were certainly reflected in trading today as the Shanghai Composite took a 5% haircut, falling 110 points to close at 1963…that’s a fresh 2013 low…in an effort to soothe fears of a credit crunch in China’s banking system, the central bank stated today that bank liquidity remains reasonable and that it has asked commercial lenders to strengthen cash management…Japan’s Nikkei average slipped 167 points to 13063…European shares are in decidedly negative territory in late trading…Germany’s Ifo Business Climate Index for June was in line with expectations…the Bank for International Settlements (BIS) said over the weekend that it was time for central banks to exit their bond buying programs and that they should stop trying to spur a global economic recovery…in its annual report, the BIS said that central bank money had only bought time for policymakers…U.S. stock index futures are pointing to a 1% drop at the open in York York…investors will be paying close attention to 10-year Treasury yields this week which have been rising rapidly recently…major reports this week week include durable goods, consumer confidence and new home sales tomorrow, gross domestic product on Wednesday, then weekly jobless claims and personal income and spending Thursday…Friday will bring the Chicago Purchasing Managers’ Index and University of Michigan/Thomson Reuters consumer-sentiment index…the Dow closed at 14799 Friday…below is an updated chart from John showing a likely near-term drop to test a support band between 14500 and 14600…

China Watch

Goldman Sachs became the latest bank to downgrade China’s economic growth, saying this morning that tighter financial conditions and reforms are downside risks for the world’s second largest economy…the bank cut China’s gross domestic product (GDP) growth forecast for the second quarter to 7.5% on the year from 7.8% previously…it also revised full-year growth estimates to 7.4% for 2013 and 7.7% for 2014, from 7.8% and 8.4% respectively…the official growth target for the year is 7.5%…Goldman has joined a slew of banks and international agencies that have downgraded China’s economic growth forecast in recent weeks, citing the government’s tolerance for slower growth amid implementing structural reforms…Nomura is going as far as to predict that GDP growth may fall below 7% in the second half of the year…China’s economy grew at its slowest pace for 13 years in 2012…

For some time now, China watchers have argued that Beijing needs to do more to clamp down on the credit growth among local lenders as well as tolerate a slower level of growth to allow the economy to rebalance itself away from a dependence on manufacturing and investment towards consumption…the Wall Street Journal reported over the weekend that China’s government signaled little respite from the cash crunch that has afflicted its financial system since the beginning of June, suggesting tight conditions could continue to strain markets in the week ahead…a commentary published yesterday by the official Xinhua news agency said there was no shortage of funds in China’s financial system…rather, it said, a combination of speculation and non-bank forms of lending (often called shadow finance) were contributing to the surge in short-term lending rates…”It’s not that there’s no money, it’s that the money is not in the right places,” the commentary said…China’s interbank market – where banks lend each other money to meet their daily needs – has seen a surge in borrowing costs over the past 2 weeks…the benchmark 7-day repo rate closed at 11.6% Thursday before edging down on Friday…surging rates have raised concerns about an overstretched financial sector and a growing mismatch between short-term liabilities and long-term assets in the banks…reporter Tom Orklin wrote, “The People’s Bank of China has ample means at its disposal to ease funding conditions…its failure to do so has been interpreted by economists and market watchers as an attempt to shore up long-term financial stability by imposing market discipline on reckless lenders, even if that comes at the expense of short-term pain for the banks…David Mann, the head of regional research for Asia at Standard Chartered Bank in Singapore, stated, “The reluctance to intervene in the money markets, the tolerance of a lower rate of growth, it’s all part of the same story of China trying to secure a better long-term outlook for the economy”…

Colorado Resources (CXO, TSX-V) Raises $4 Million

Colorado Resources (CXO, TSX-V) announced Friday that it has arranged a non-brokered flow-through private placement of up to 5 million shares at 80 cents per share for gross proceeds of $4 million…half of the shares have been allocated to 1 unidentified “institutional investor”…while we would have liked to have seen a higher price for a flow-through deal, no warrants are attached and these could be “strategic” investors Colorado has assembled…this financing is being done with CXO’s market cap sitting at approximately $30 million…for comparison purposes, GoldQuest Mining’s (GQC, TSX-V) first financing last year was at 45 cents when the company’s market cap was about $50 million with the CDNX 30% higher than it is today…GoldQuest then completed another financing at $1.25 when its market cap had more than tripled…CXO started 2013 with $8 million in its treasury, and the company has just commenced a $2 million drill program (5,000 metres) at North ROK…

Companies Maneuvering For Ground In Iskut-Telegraph Creek Regions

This should come as no surprise…BMR research is showing there’s a lot of “positioning” happening right now in the Iskut and Telegraph Creek regions, a flurry of negotiations among companies and between companies and prospectors for strategic ground…so it’ll be very interesting to see how the landscape looks over the next couple of months…cash is “King” at the moment, and companies with money in the till are in an excellent position to gain a foothold in the area or add to their existing land packages…VVN closed Friday at 11.5 cents…

Victory Ventures (VVN, TSX-V)

One of our early favorites in the Iskut region – Victory Ventures (VVN, TSX-V) – continues to be a strong performer, and it was also the first company besides Colorado to launch a drill program in the North ROK-Red Chris area…Victory is also one of those companies in a relatively strong financial position that has the ability to pull the trigger on a deal and expand its footprint in the area if it so chooses…VVN has been keeping its cards close to its chest recently – no news since the beginning of the month when drilling commenced at its Copau Property east of North ROK and north of Red Chris, but we expect VVN to be making plenty of noise during the upcoming third quarter (July, August and September) which will be critical in terms of exploration in the area…

Technically, Victory continues to have one of the best charts of any company in this exciting early-stage area play…below is an updated 4-month daily VVN chart from John…note the upsloping channel and the strong support…all the major moving averages are in bullish alignment…

Garibaldi Resources (GGI, TSX-V)

We’ll be sending out a BMR eAlert in the next couple of days regarding Garibaldi Resources (GGI, TSX-V) which holds a hugely strategic 17,000-hectare land package immediately below the Copper Creek Property that Pete Bernier’s Prosper Gold (PGX.H, TSX-V) has optioned from Firesteel Resources (FTR, TSX-V) as its qualifying transaction…most investors haven’t caught on to the importance of this yet as we’ll explain further in our eAlert…GGI closed Friday at 5.5 cents…it also holds an attractive package of properties in Mexico…the company’s latest financials (Jan. 31) showed it had working capital of 12 cents per share ($7 million)…

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Puma Exploration Inc. (PUM, TSX-V)

To make money in this difficult junior resource market at the moment, one theme investors must focus on is discovery situations (as we’ve seen with the Iskut River play and some other select opportunities)…Puma Exploration (PUM, TSX-V) has been getting some interesting results from its Nicholas-Denys Property in New Brunswick, 20 km north of Bathurst, where it’s currently drilling a deep hole targeting a major magnetic anomaly from surface to a depth of 1,000 metres…Puma believes it’s on the trail of a “major world class porphyry system”…that could be interpreted as being a little over-promotional at this stage, but there’s no question this property holds significant potential with different types of mineralization that could be representative of a major system: skarn Copper, skarn Iron-Copper, skarn Zinc, polymetallic lenses, Gold-Silver veins and Molybdenum porphyry…at Friday’s close of 26.5 cents, the stock has doubled over the last 19 trading sessions since May 28, a day before the company released assay results from hole FM12-02 that intersected continuous low-grade Cu and Mo mineralization over the entire length of the hole (722 metres)…

We don’t suggest chasing this one at the moment but definitely put it on your radar screen…the smartest strategy, we believe, is to wait for more news as the stock is currently in overbought territory and up against resistance…closest strong support is at 20 cents…

Mega Precious Metals Inc. (MGP, TSX-V) Updated Chart

Last week, we introduced Mega Precious Metals (MGP, TSX-V) at 13 cents and it continued to climb to finish the week at 17 cents, slightly above its 100-day moving average (SMA) and immediately below the first Fibonacci resistance level at 18 cents…the 50-day SMA, currently at 12.5 cents, has reversed to the upside and this is where strong support can be expected…MGP is making progress with its Monument Bay Project in Manitoba…

Giyani Gold Corp. (WDG, TSX-V) Updated Chart

Giyani Gold (WDG, TSX-V) has been on fire since the end of March, more than doubling in price despite the sell-off in Gold and weakness on the Venture…a big test will be if it can break above resistance at $1.10 on strong volume…

Updated Silver Charts

Below is a 3-year weekly chart from John showing the support band for Silver between $17.50 and $19.50…sell pressure remains strong…

Long-Term Chart

At 1.22%, RSI(2) can’t fall much further on this 11-year monthly chart…

Note: John and Jon both hold share positions in VVN.  Jon also holds share positions in CXO and GGI.