CDNX and Gold
As predicted in this space last weekend, the CDNX finally overcame resistance at 2300 with a powerful advance of 102 points last week (4.4%) on strong volume. The market was down as much as 11 points intra-day Friday on weakness in Gold but rallied to close the week at 2370.
What we saw last week was a major breakout in the CDNX and the start of a new uptrend with the first significant area of resistance at about 2450. John’s new Fibonacci target level is 2790. It appears the pause in January was exactly what the CDNX needed to re-energize itself and resume its amazing uptrend and bull market run. It’s possible that through the rest of February and March we could see a return of the situation we saw from September through early November when the CDNX got into an extended overbought condition as it climbed about 500 points. Only time will tell, but it appears this market wants to test significantly higher levels. The strong out-performance of the CDNX vs. Gold and the TSX Gold Index since early December suggests Gold hit bottom just above $1,300 and could surprise some people with an explosive move to the upside.
One of our astute readers recently pointed out how Gold once again held support at its 150-day moving average (SMA). The bottom in late January was $1,308, just $2.50 above the 150-day at that point. Gold successfully tested the 150-day in February, 2010 (followed by a big rally in March), and again in July of last year (followed by a major rally). The last time Gold fell below its 150-day SMA was in July, 2008, just prior to a major crash. Gold has managed to hold above its 150-day for two years now since January, 2009.
The TSX Gold Index, meanwhile, has once again bounced off its 300-day SMA where it has repeatedly found support over the last two years.
Given the action in the CDNX and the other indicators mentioned above, we believe there is no doubt that Gold has indeed hit bottom and could now be on its way to John’s $1,650 target area as illustrated in his January 16 article, “The Big Golden Picture”.
Gold gained $11 this past week to close Friday at $1,349. 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.
Silver enjoyed a strong week, finishing at $29.14, and is looking very bullish as well.
The U.S. Mint reported record sales of one-ounce American Eagle silver coins during January, nearly 50% higher than any month in the Mint’s 26 years of published sales. January, 2011, sales were more than 300% higher than the 1,900,000 one-ounce silver coins sold during January, 2010.
