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If you listened to our interview with President David W. Johnston the other day, you’ll know there’s good reason to “Follow The Rainbow” very closely right now as the company’s 2012 exploration program is now underway with an intense degree of prospecting throughout its West Kootenay Big Strike Project and its newly-acquired flake graphite claims in the nearby Valhalla Metamorphic Complex.  As GoldQuest Mining (GQC, TSX-V) clearly demonstrated today, discoveries can yield huge returns no matter what the overall market environment might be.

Drilling is just around the corner for Rainbow, beginning at the Gold Viking Property (part of the Big Strike Gold-Silver Project) which could be part of the same Ottawa Mines’ system that produced Silver at an incredible average grade of 62 ounces per ton in the 1900’s.  During my Rainbow due diligence late last year, I was on the Gold Viking Property and crawled over 400 feet into one of the old adits.  The vein widths were impressive, there was an obvious smell of sulphur, and pyrite, chalcopyrite and galena mineralization was very visible in different areas.  The “oldtimers” were going for the “super high-grade” and left a lot of great material behind.  In the 1930’s, according to Moose Mountain’s 43-101 technical report, one recorded 3-tonne shipment of ore from this particular vein carried an average of 5 ounces of Gold per tonne and 41 ounces of Silver per tonne. Needless to say, Rainbow has some highly prospective structures to drill into and there’s a very good chance the oldtimers completely missed the motherlode.

Gold Viking has never been previously drilled.  Neither has the adjacent Ottawa Property which which was part of the 1.8 million ounces of Silver produced by the Ottawa Mines at an average grade of 62 ounces per ton, as mentioned above.  This is a prolific region for Gold and Silver.  Grade is “King” these days and RBW has a glorious opportunity to deliver some eye-popping results.

Rainbow is planning to drill from nine separate sites over a 500-metre distance in the central portion of Gold Viking, and multiple holes can be drilled from each site.  Interestingly, on the far western side of the property, I suspect there could be flake graphite in metamorphic rock which is why privately-held Eagle Graphite has nudged right up to the southwestern corner of Gold Viking.   What an interesting summer this will be!

But Gold Viking is just the beginning.  The International Silver Property, considered to be Rainbow’s flagship, is 70 km to the north and has returned spectacular high-grade Silver numbers from sampling and small-scale mining in the early 1900’s.  It, too, has never been drilled.

Besides the International, Gold Viking and Ottawa, Rainbow is also focusing on the Referendum Property near Nelson which has a stockwork system on the eastern side of the property that holds potential for open-pit mining.  Johnston told us in this week’s interview that the company is considering a bulk sample at the Referendum which, if carried out, could be a valuable revenue-generator for the company.

In Nevada, Rainbow is planning a drill program for the former-producing Jewel Ridge Property which returned a terrific near-surface intersection of 2.1 g/t Au over 39.6 metres several years ago.  This property has also been under-explored and is situated contiguous to Barrick’s Ruby Hill Mine to the north.  The odds of Rainbow going in there and pulling out some initial impressive results has to be considered good given the historicals on this property.

Below is John’s updated Rainbow chart after today’s action with RBW gaining 2 pennies to close at 18.5 cents.  Notice the classic “W” formation in the RSI(14) on this 6-month daily chart – very bullish.  A chart tells a thousand words, and RBW is one of the few companies on the Venture at the moment with rising 100, 200 and 300-day moving averages.

If there’s an area of Canada not on many radar screens at the moment that could really grab some exploration headlines in the near future, it’s the West Kootenays.  Rainbow, with a tight capital share structure and a current market cap of only $6 million, is the leader in this mineral-rich district.

Note: The writer (Jon) and John (chart) both hold share positions in RBW (Terry does not).

Gold is higher this morning after yesterday’s significant intra-day turnaround…as of 6:00 am Pacific, the yellow metal is up $12 an ounce at $1,574…Silver is 61 cents higher at $28.45…Copper, which hit a new 4-month low yesterday before staging a bull hammer reversal like precious metals, is up 3 pennies to $3.47…Crude Oil is $1.07 higher at $90.97 while the U.S. Dollar Index is off slightly at 82.04…

Today’s Markets

Asian markets were mixed overnight with China falling a dozen points to 2351…European shares have rebounded significantly this morning despite an EU meeting in Brussels that accomplished little other than creating a framework for a major meeting near the end of June…meanwhile, regional data has provided additional evidence of a deterioration in economic activity in the euro zone…stock index futures in New York as of 6:00 am Pacific are pointing toward a modestly higher open on Wall Street…

The prospect of a Greek exit from the euro zone, rising losses at Spanish banks, and a failure of labor reform in Italy will force the European central bank to inject more liquidity into the banking system through its  long-term refinancing operation (LTRO) program, according to the chief economist at German banking giant Commerzbank in a report from CNBC this morning…

Yesterday’s Bullish Market Action

If you were keeping a close eye on the markets yesterday, you would have noticed a sharp intra-day reversal in the TSX Gold Index (as well as the Venture Exchange) even while Gold was down $20 an ounce…Gold and Silver both then rallied by the end of the day but the stocks led the way…this type of action is additional strong evidence that a turnaround in the sector is at hand, that important lows have likely been put in…as well, the latest COT statistics show that commercial traders have reduced their Gold and Silver short positions to levels even lower than they were at market lows last September and December…the “smart money” is therefore saying that Gold and Silver are now ready to begin new uptrends…

Below is a chart from John on the TSX Gold Index which has broken out of the downtrend that started near the end of February…

Venture Exchange

The Venture Exchange fell as low as 1231 yesterday before rebounding to close at its high of the day, 1256.48…look for follow-through action today as well as an overall volume increase…John’s latest CDNX chart shows a new uptrend appears ready to kick in…

GoldQuest Mining (GQC, TSX-V)

Yesterday morning in this space, we wrote about how GoldQuest was looking attractive at 6 cents with results pending from its drilling in the Dominican Republic…sure enough, news came out following the market close which was even better than expected as GQC has made an important new discovery at its Las Tres Palmas Project (Escandalosa) – 300 metres northwest of Hondo Valle and 2.5 km north of Escandalosa (two other strongly mineralized areas with a 43-101 deposit at the latter)…

Hole LTP-90 intersected 241 m grading 2.4 g/t Au plus Cu in what is the most northerly hole drilled to date by GoldQuest in a 3-km-long mineralized corridor…geologically consistent alteration and mineralization was observed from 30 metres to 261 metres…what’s different about this hole, compared to ones drilled in the Hondo Valle and Escandalosa Sur areas to the south, is the thickness of mineralization, more sulphides as well as high Gold values associated with high copper values at depth…a 12-metre section, for example, between 216 m and 228 m graded 16.95 g/t Au and 2.14% Cu…

The hole was terminated in mineralization, due to technical problems…the Romero discovery is open in all directions…it does not appear to be connected with Hondo Valle or Escandalosa Sur, but this is a rich geological area that GoldQuest is still trying to understand and at some point there’s a very good chance they will hit it big – perhaps Romero is it…more drilling, expected to begin shortly, will determine if that is the case or not…

GoldQuest also reported a solid hole from the northern flank of Escandalosa Sur (22 m grading 6 g/t Au), which should help increase resources at that deposit, though no significant mineralization was found south of Escandalosa Sur or between this area and Hondo Valle to the north…

GQC – What’s Coming

GoldQuest reported results from all 15 holes in this program (the other 14 were from Escandalosa Sur, Hondo Valle and other targets along the trend) so the market won’t be speculating on any additional holes to be reported in the near future from the Romero discovery or elsewhere…however, the fact that the Romero hole gets nicely richer at depth and ended in mineralization, plus the fact the discovery is open in all directions, will give speculators plenty to get charged up about…

Technically, GoldQuest will get an added boost if there are reversals to the upside (which seems quite likely) in the stock’s 100 and 200-day moving averages – giving it additional momentum…the declining 100-day SMA, currently at 10 cents, and the 200-day SMA, currently near 14 cents, have provided resistance for a year now…

GQC closed up a penny yesterday at 7.5 cents for a market cap of only $8.25 million, with the news coming out after the close…it will gap-up nicely this morning…generally speaking, in a situation like this, if a stock is able to hold its opening price through the first hour of trading, then that’s a very bullish sign…

Below is an updated chart from John for GQC, showing various resistance levels…

Prodigy Gold (PDG, TSX-V and OK Silver (OK, TSX-V)

John has chart updates on two these additional companies we’ve been tracking…

Prodigy Gold (PDG, TSX-V)

OK Silver (OK, TSX-V)

Note:  John holds a share position in OK (Jon and Terry do not).  John, Jon and Terry do not hold share positions in GQC or PDG.

We have long been bullish on the geological prospects for GoldQuest Mining’s (GQC, TSX-V) holdings in the Dominican Republic, and following this afternoon’s market close the company delivered what is unquestionably a “stellar” hole that should allow this stock to gap-up significantly in the morning – exactly the kind of drilling news that can help breathe fresh life into the beaten-down Venture Exchange (which also happened to stage an impressive intra-day reversal today along with the broader markets).

GoldQuest has made a major new discovery at its Las Tres Palmas Project (Escandalosa) with hole LTP-90, the most northerly hole in a 3-km-long mineralized corridor.  LTP-90 returned an impressive 231 metres grading 2.4 g/t Au including a section of 160 metres that assayed 0.62% Cu.  The hole is open at depth (it was terminated in mineralization due to technical reasons) with Au and Cu mineralization both increasing at depth (a 12-metre section from 216 to 228 metres, for example, graded 16.95 g/t Au and 2.14% Cu).

Geologically consistent alteration and mineralization was observed from 30 metres to 261 metres.

The discovery hole was 300 metres northwest of Hondo Valle and 2.5 kilometres north of Escandalosa Sur.  GQC also reported a near-surface 22-metre intersection grading 5.99 g/t Au on the northern flank of Escandalosa Sur (LTP-83) which will be considered in any future resource calculations for that deposit.  No significant mineralization was found south of La Escandalosa Sur or between that area and Hondo Valle.

Additional drilling is expected to begin shortly and undoubtedly will focus on the new discovery.

More on GQC in our pre-market Morning Musings tomorrow – John is also working on another GQC chart as an update to the one we posted this morning.  GQC closed up a penny today at 7.5 cents on 342,000 shares.

Gold touched a low of $1,550 this morning before rebounding…as of 5:05 am Pacific, the yellow metal is down $7 an ounce at $1,561…Silver is off 39 cents at $27.81…Copper is down 6 cents at $3.47…Crude Oil is 89 cents lower at $90.96, on growing hopes of a deal between Iran and the U.N. nuclear watchdog, while the U.S. Dollar Index is off slightly at 81.68…it faces stiff resistance around 81.80…

Healthy Demand For 0% German 2-year Bonds

Germany attracted healthy demand from investors wanting to lend to the country today despite offering no interest payments at a two-year bond sale, as worries about a Greek euro exit heightened demand for safe-haven assets…Germany sold 4.56 billion euros ($5.8 billion) of the new two-year bonds, which carry a 0% coupon, and with an average yield of just 0.07% it was almost free money for the country…with German government bond yields falling over the last year to record lows and with euro zone inflation at an annual rate of 2.6% last month, investors are actually losing money in real terms…

EU Informal Summit – Expectations Low

European leaders meet in Brussels tonight for an informal dinner being billed as a showdown between German Chancellor Angela Merkel and French President Francois Hollande over the tricky issue of Eurobonds – bonds issued by the EU and backed by euro zone members collectively…the Germans are still vehemently opposed to the idea of Eurobonds but are apparently much warmer to the idea of Project Bonds to fund infrastructure investment in the euro zone…

World Bank Cuts China Growth Forecast

The World Bank has cut its economic growth forecast for China this year to 8.2% and is urging the country to rely on easier fiscal policy that boosts consumption rather than state investment to lift activity…in a biannual East Asia and Pacific economic update, the World Bank said a slowing China will drag growth in emerging East Asia to two-year lows this year, but warned Europe’s seething debt crisis could inflict even bigger damage if it worsens…sluggish U.S. and European demand and a softening Chinese property market would combine to weigh on the Chinese economy in the near term, it said…but if governments and central banks act in time to stabilize activity, economies should recover next year…

Mining Industry Aggregate Market Cap At Lowest Level Since December

The mining industry’s aggregate market capitalization fell in April to $1.82 trillion, the lowest level since December, according to Metals Economic Group…they stated their pipeline activity index showed that significant drilling results also appear to be stalling…Gold drilling has remained flat since peaking in November and base metals results are at levels similar to late 2010/early 2011 after a moderate spike in February…

Today’s Markets

Japan, with a nearly 2% loss, led Asian markets lower overnight while European shares are down significantly this morning as well in the order of 2%…stock index futures in New York as of 5:30 am Pacific are pointing toward a weak opening (75-point loss) on Wall Street…

Venture Exchange

The Venture climbed as high as 1261 yesterday with an intra-day gain of as much as 33 points but couldn’t hold that level and closed up 19 points at 1248…below is John’s updated CDNX chart which shows some encouraging signs but investor patience is required as the Index tries to gain traction and establish some “up” momentum…

GoldQuest Mining (GQC, TSX-V)

GoldQuest has been trading recently at levels not seen since the depths of the 2008 Crash, yet the company is drilling its still very promising La Escandalosa Property in the Dominican Republic with initial results due in the near future…a 3,000-metre program commenced back in February and is testing the northern and southern extensions of known mineralization…previous results included 53 metres grading 3.02 g/t Au in hole #41 at Escandalosa Sur and 17 metres of 3.45 g/t Au in hole #65 to the north at Hondo Valle…this is a flat-lying, near-surface deposit and the current drilling has an excellent chance of significantly expanding resources…with GQC trading around 6 cents for a market cap of only $6.6 million, a very good drill result – even in this market – has the potential to push the stock significantly higher…John’s updated GQC chart shows resistance around 10 cents…

Gold Standard Ventures (GV, TSX-V)

GV has been a top performer on the Venture this year thanks to excellent drilling results from its Railroad Project in Nevada…a cleansing of the recently overbought technical condition has occurred, setting the stage for a possible test of resistance at the $3 level…

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

Gold has pulled back this morning after touching $1,600 yesterday following strong gains late last week…as of 4:30 am Pacific, the yellow metal is down $11 an ounce at $1,581 after hitting a low of $1,571 overnight…Silver is 25 cents lower at $28.22…Copper is down a penny at $3.53…Crude Oil is off 47 cents at $92.10 while the U.S. Dollar Index has climbed one-quarter of a point to 81.25…

Today’s Markets

Canadian markets return to action after yesterday’s Victoria Day holiday…the long weekend for Canadian investors brought no negative surprises…the Dow reversed yesterday, gaining 135 points to close at 1205…markets are heavily oversold across the board other than the U.S. Dollar Index, and a recovery should gain some traction this week simply from a technical perspective…Asian markets were up overnight with China gaining 25 points to close at 2373…European shares are higher this morning by about 1%, in advance of an informal EU Summit tomorrow in Brussels, while stock index futures in New York as of 4:30 am Pacific are pointing to a flat open on Wall Street…

BMR Interviews Rainbow President

Jon conducted a very interesting interview last night with Rainbow Resources‘ (RBW, TSX-V) President David W. Johnston, and the audio file is expected to be uploaded to the BMR site later today…Johnston covered numerous topics from the company’s Big Strike Project to Jewel Ridge (assay results from a sampling program are expected very soon) to the flake graphite situation in the Slocan Valley…Johnston revealed the company is considering conducting a 10,000 tonne bulk sample at its promising Referendum Property, part of the Big Strike Project, while drilling is set to commence at Gold Viking as soon as drill permits – expected soon – are received…the snow is melting quickly now in the Kootenays which is allowing prospectors to cover a lot of ground at the moment…Johnston also outlined plans for a major market awareness campaign that Rainbow is preparing to launch…as John detailed yesterday, the Rainbow chart continues to look strong despite some late selling Friday that appeared to have everything to do with overall market nervousness entering the long weekend…

Growth Over Austerity & Massive Bailouts – Get Ready For The “Big Bazooka”

The “big picture” emerging on the global financial scene is a sharply increased likelihood of a tsunami of money printing by central banks and government growth measures in order to prevent an immediate meltdown in Europe, keep Greece in the euro zone, and jump-start global growth…concerns are also mounting in China about the economic slowdown there which is partly due to the troubles in Europe…a slow motion but dangerous bank run is underway in Greece and Spain with the underlying fear of depositors not simply, or even mainly, one of bank failure…instead, they likely fear the devaluation of their deposits relative to those in the core economies if the euro should break up…a European deposit protection scheme to stop a run on periphery banks, further European Central Bank support for the financial sector, and increased borrowing to fund investment are just some of the possible measures on the table for discussion…central banks will have no choice but to fire up the printing presses which could mean everything from massive bailouts in Europe to a third round of “quantitative easing” in the United States, all of which will be inflationary and will lift asset prices…the exact timing of all of this is uncertain but can’t be far off (by the summer at the latest)…

Meanwhile, as just one example of what’s beginning the unfold, the Financial Times reports this morning that there has been no official announcement, no terms or conditions have been disclosed, but Greece’s banking system is being propped up by an estimated 100 billion euros of emergency liquidity provided by the country’s central bank – approved secretly by the European Central Bank in Frankfurt…

In addition, the the OECD this morning has joined French and EU officials in calling for a move toward jointly-guaranteed euro bonds…OECD chief economist Pier Carlo Padoan said the euro zone is “close to” the possible scenario of a 2% economic contraction this year that the Paris-based think tank laid out as its worst-case scenario last November…

China To Speed Up Infrastructure Construction Projects

The Chinese government is hinting that it’s preparing measures to boost sagging growth in the world’s second largest economy…the China Securities Journal said yesterday the government plans to speed up approval of infrastructure construction projects to improve the economy…the report followed pro-growth comments from Premier Wen Jiabao on Sunday…the slowdown in China’s economy has weighed on the commodities market, particularly since dismal economic data for April suggested the economy was heading for a sixth straight quarter of slowing growth…

Chinese consumers of thermal coal and iron ore are asking traders to defer cargos and – in some cases – defaulting on their contracts, in the clearest sign yet of the impact of the country’s economic slowdown on the global raw materials markets according to the Financial Times…the deferrals and defaults have only emerged in the last few days, traders said, and have contributed to a drop in iron ore and coal prices…

Other key economic indicators followed by Chinese policy makers, including electricity consumption, rail cargo volumes and disbursement of bank loans, point to a weaker than expected economy which raises the risk of a hard landing…soft commodities such as soybeans and cotton have also seen Chinese customers default in the past two weeks…

Highlighting a “worrying” weakness in consumer spending inside China, Kim Youngha, the head of Samsung’s China operations, said he expected the domestic market for technology goods to grow 7% this year in China, down from 10% last year…

Silver Chart Update

Since early 2011, Silver has found consistent support just above $26 an ounce and at some point in the coming few months we expect the down trendline to be broken…last week’s hammer candle is a bullish sign for this week even though prices are down this morning…in John’s chart below, notice how the oversold SS is showing the %K with a hinge…

U.S. Dollar Index Chart

It’s important to keep a close eye on the direction of the greenback at the moment, as a “cooling off” of the U.S. Dollar would be a bullish factor for commodities and the equity markets…while it’s up this morning, the U.S. Dollar Index appears poised to consolidate and catch its breath after a recent impressive string of gains…there is a strong resistance band between 81.50 and 81.78…

GDX – Market Vectors Gold Miners ETF

John’s final chart this morning examines the GDX which follows the price and yield performance of the NYSE Arca Gold Miners Index (GDM)…it also correlates very highly with the TSX Gold Index…the GDX is showing fresh momentum which leads us to believe this should be a good week for Gold stocks after what may been an important bottom last Wednesday…

Canadian markets were closed today but the Dow snapped out of its doldrums with an impressive 135-point gain as it closed near its high of the day at 12,504.

Of particular significance, which bodes well for the balance of the week, the uptrend in the VIX (Volatility Index) suffered a technical setback today as John details in the chart below (the overbought U.S. Dollar Index also declined and will likely have to consolidate for a period of time after such a strong run recently).