BullMarketRun.ca

CDNX and Gold

The CDNX got as high as 2391 early in the week before a 2.5% mini-pullback set in that took the Index down to as low as 2333 (its 10-day moving average) Thursday.  This is a trend we’ve seen repeatedly since last July – strong advances with occasional testing of the 10 or 20-day SMA’s.  For the week, the CDNX was off 12 points after closing Friday at 2358.  The Index reversed intra-day Thursday, as we expected, once it touched its 10-day SMA.  There is massive support on the CDNX chart at 2300 – the January resistance plus the current 20-day SMA.  The next major upside resistance is 2450 while John’s longer-term Fibonacci target remains intact at 2790.  In short, we anticipate continued strength in the CDNX with a move above 2400 quite possible this coming week.

Technology, potash, rare earth and energy plays have been the leaders on the CDNX so far this year.  This is the kind of “rotational leadership” that one often sees in a strong overall bull market.  While there are no doubt some excellent opportunities in those sectors (a couple of rare earth companies we mentioned last fall, GWG and RUU, have done extremely well), at BMR we focus on our niche which is the junior Golds.  They have been laggards through the first six weeks of 2011 but that’s how big money is made in the market – rather than join the crowd and chase the flavor of the day, look for some quality junior Gold exploration companies that have been under some pressure recently but still possess attractive overall charts.  The masses have yet to pile in to these stocks and when they do, look out.  By mid-year we expect that some of these companies could be trading at two, three, four or five times where they are now.

Gold moved higher again last week, closing ahead $8 at $1,357.  Gold’s 14-day moving average has turned positive which has always been a sign of impending bullishness, but there’s no doubt the yellow metal is facing some near-term resistance between $1,370 and $1,380 in the vicinity of its 50-day moving average.

The fundamental case for Gold remains solidly intact – currency instability and an overall lack of confidence in fiat currencies, an extended period of negative real interest rates (inflation is greater than the nominal interest rate, even in China and India despite increasing rates there), massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand, investment demand, emerging market growth, geopolitcal unrest and conflicts, and the list goes on.  It’s hard to imagine Gold not performing well in this environment.  Uncertainty surrounding Egypt and how developments there could impact other countries in the Middle East will be watched closely by Gold bugs in the coming weeks and months.

President Obama outlines his 2012 budget plan tomorrow – despite rhetoric about decreasing the deficit over the next decade, we have little faith that this President and Washington lawmakers will be able to make any major progress this year (or even next year) in terms of addressing the U.S. federal debt.  The problem likely won’t be tackled seriously until it turns into a full-blown crisis, whenever that happens.  At that point Gold will be much higher.

A couple of interesting notes concerning Gold:

The Industrial and Commercial Bank of China’s ICBC Gold Accumulation Plan (ICBC GAP) allows investors in China to accumulate Gold through a daily dollar averaging program. The minimum investment required is 200 Renminbi or 1 gram of Gold per day, which is equal to $42 dollars. One million accounts have already been opened since April, resulting in the purchase of over 10 tonnes of Gold thus far. The ICBC Bank is the world’s largest consumer bank with approximately 212 million accounts.

J.P. Morgan stated last week that it is the only tri-party collateral manager to accept physical Gold as collateral to satisfy securities lending and repo obligations with counterparties. This comes as more clients look to use Gold as a hedge against inflation and to post as collateral. “The ability to finance and leverage the broadest range of asset classes is important to our clients. Many clients are holding Gold on their balance sheets as an inflation hedge and are looking to make these assets work for them as collateral,” said John Rivett, Collateral Management Executive for J.P. Morgan Worldwide Securities Services.

Silver enjoyed another good week.  It got above $30 an ounce again before closing Friday at $29.91, a gain of 77 cents for the week.  Great Panther Silver (GPR, TSX) continues to be one of favorite silver plays and got as high as $2.88 this week.  We alerted our readers of a great opportunity when GPR fell below $2.00 at the end of January.