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CDNX and Gold

The CDNX advanced for a seventh straight week, successfully overcoming hesitation around 1700 and closing Friday at 1745 for a weekly gain of 45 points on heavy volume.    This market is super-charged and feeding on itself with fresh discoveries and major moves in precious metals and commodities across the board (think of this as 2008 in reverse).   The “trend is your friend”, as the saying goes, and BMR believes a move of historic proportions is underway with the CDNX that could push the Index well above 2000 by early next year.  The next major band of resistance is between 1900 and 2000, a level that conceivably could be reached this month before a minor pullback sets in.

It’s interesting to note that 1969 is the CDNX’s 200-week moving average.  In early July, 2008, the CDNX fell below its 200-week moving average which marked the beginning of a quick and painful reversal to the downside (a spectacular plunge as we all know).  Our theory is that the CDNX will soon challenge its 200-week moving average where it will meet resistance and likely react and consolidate.  The consolidation will unwind a heavily overbought condition and prepare the market for another huge move, a push through the 200-week moving average to the next major resistance area around 2400.

Are we too optimistic?  Not likely.  The fundamentals driving Gold and commodities in general right now are exceptionally strong.  And Gold is trading well above the levels it was when the CDNX was nearly double where it is now three years ago.  What’s more, and this is crucial, the general public is still essentially uninvolved in this market and a lot of cash remains on the sidelines.  I was at a family get-together last weekend and my step-brother, who a few years ago was heavily invested in the speculative market (at the wrong time) and continually giving me a list of his favorite stocks, is typical of the average investor right now as he’s avoiding the “risky” penny stocks and keeping his money in large cap dividend-paying stocks.  I asked him what he thought about Gold at the moment and he replied, “I’m not one to jump on the bandwagon”.  I chuckled at that one as he has a short memory and we’re also not even close to the bandwagon or “mania phase” yet.  That will come.  When it does, my step-brother will unfortunately be piling in at the wrong time once again.  It’s a very good sign that Lawrence, and all the other Lawrences out there, are presently avoiding Gold and Gold mining stocks.

Gold hit a new record high of $1,321.80 Friday, one day after a $22 intraday sell-off that took the yellow metal to as low as $1,295.  That showed the amazing resiliency and strength of this market – buyers are immediately stepping in on any weakness, and we’re seeing that with the CDNX as well.  There are many factors driving Gold right now, not the least of which is the fact it’s being viewed more and more as an alternative currency.  It’s the one currency that can’t be devalued as many others currently are including the American Dollar.

The impact of China and other emerging cash economies on the Gold market is hugely significant.  China’s growing appetite (at all levels) for Gold is going to sustain and help fuel this bull market for some time to come.  Over the last five years China’s Gold demand has grown by an average annual rate of 13%.  The World Gold Council predicts that Chinese Gold consumption could double in the next decade and that’s likely a conservative forecast.

Gold closed Friday at $1319, a $22 weekly increase after $27 and $23 advances respectively the previous two weeks.  Silver, which jumped 12.3% in September vs. only 4.6% for Gold, closed Friday at $22.09 – its highest level in 30 years.  Since Silver is an industrial metal as much as a precious metal, its recent performance is an encouraging sign as far as the world economy is concerned.  And the world economy, along with the markets, are being influenced more and more by the emerging economies (the “E-7” led by China and India) whose combined gross domestic product is expected to match the G-7 by 2019.  China is certainly looking ahead to the future – it has been and will continue to be on an unprecedented commodities grab.