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The world didn’t come to an end today as it seems some investors had feared Friday when renewed selling came into the market toward the end of the day.  Some Canadian investors, in particular, may have been a little skittish given that today is a holiday in Canada – no stock trading – while U.S. and world markets are open.  They didn’t want to be caught in what they feared might be a gap-down Tuesday morning.  Fear and greed, as always, rule the markets.

Rainbow Resources (RBW, TSX-V) got caught up in that “Friday Fear Factor” and it seems just a couple of skittish investors panicked and hit the sell button late in the session, taking RBW down to an area of strong support.  No chart damage was done, as John shows below, with RBW continuing to trade in a horizontal channel with several indicators remaining positive.  Rainbow is drawing closer to the start of a drill campaign at its Big Strike Project, and prospecting is also now underway.  Gold and Silver are recovering, and the markets this week have the potential of rebounding sharply out of very oversold conditions.

As of 8:00 am Pacific, the Dow is up over 100 points.  The TSX and the Venture could both experience a gap-up tomorrow as opposed to a gap-down.

Note: Both John and Jon hold positions in RBW (Terry does not).

TSX Venture Exchange and Gold

It wasn’t a pleasant week on the financial markets as the Dow suffered its worst week of the year, falling 4% after its 12th losing session out of 13 Friday, while the speculative Venture Exchange really got hit hard, losing 9% of its value last week after closing Friday at 1228.  Since February 29, the Venture has plummeted 28% from a 2012 high of 1696 to its lowest point – 1215 – since September, 2009.  Relief to the Venture started to come Thursday when Gold rose strongly after hitting a 10-month low of $1526.70.

Where to from here?

Over the past few years the Venture Exchange and commodities have performed best when the Federal Reserve has engaged in “quantitative easing” or, in the early part of this year, when the ECB was in the midst of its LTRO program.  Given the recent escalation in the euro zone crisis, and an apparent weakening of the U.S. economy, additional measures from the Fed – besides a commitment to maintaining a zero interest rate policy through 2014 – and a “big policy” response out of Europe to keep the euro zone intact, could be in the cards.  Perhaps this growing possibility is what woke up Gold on Thursday.

Stock markets are clearly deeply oversold and pessimism is high – typically what one sees at an important bottom.

Below is John’s updated chart for the CDNX.  For now, it appears conditions are ideal for a near-term rally in the Venture in concert with the broader markets.  Only time will tell if a bottom has actually been put in, but at 1215 that’s quite possible – especially with the apparent turnaround in precious metals.   The Venture is down 51% from its 2011 post-crash high of 2465 while the TSX Gold Index has plunged as much as 42% from its all-time high last summer.

Gold

Gold rallied sharply Thursday and Friday, in what appeared to be more than just a short-covering bounce, after successfully testing strong support in the low $1,500’s and putting in a hammer candle.   “Growth” appears to have prevailed over “austerity” in Europe and elsewhere.  If global central banks crank up the printing presses, the yellow metal could go ballistic.  In addition, the U.S. Dollar Index hit resistance and critically overbought levels last week.  Look for Gold to build on this new momentum and power higher next week as our updated chart suggests.

The chart below, taken from www.usfunds.com, shows the 60-day percentage change of the Gold price and the U.S. Dollar.  Gold’s recent weakness has triggered a -2.2 sigma event in standard deviation terms. Over the past 10 years, this has happened less than 2% of the time. Historically, each time Gold has touched the -2 sigma mark, the precious metal has rallied.

TSX Gold Index

The TSX Gold Index was unchanged for the week at 286 after an intra-day low of 266 Wednesday, an area of support from early 2009.  The drop from February 23 to Wednesday’s low was a whopping 32%, even greater than the drop in the juniors (28% for the Venture).  The producers rallied Wednesday, Thursday and Friday, giving hope that this nasty correction has come to an end.

In an interview on Mineweb.net, Gold Fields CEO Nick Holland said that the Gold industry needs a price above $1,500 per ounce, otherwise curtailment of projects, rationalization and possibly more consolidation was in the cards. Holland pointed out that the all-in cost of the industry to produce an ounce of Gold is probably around $1,400 per ounce and that doesn’t leave a lot of margin at $1,500. CIBC recently pegged $1,700 per ounce as the replacement cost for an ounce of Gold and highlighted that tax increases have been one of the fastest growing components of the cost creep.

Silver

Silver fell 17 cents last week to close at $28.72 but also formed a hammer reversal after touching a low of $26.73 intra-day Wednesday.  It looks very bullish at the moment as John shows in this 2.5-year weekly chart.

Copper lost 18 cents last week and closed at $3.49.  Crude Oil fell another $4.65 to $91.48, putting it below the $92 level for the first time since last October.  The U.S. Dollar Index, meanwhile, has been on a powerful run and gained nearly a point last week to finish at 81.09.  It ran into resistance above 81.50, however, and needs to unwind an extreme overbought condition.

Gold has strengthened again today after finding strong support in the low $1,500’s…as of 6:10 am Pacific, the yellow metal is up $13 an ounce at $1,587 after touching a high of $1,595.50 overnight…Silver is 27 cents higher at $28.32…Copper is up 3 pennies at $3.52…Crude Oil is flat at $92.52 while the U.S. Dollar Index, which has advanced for 14 consecutive trading days, is off slightly at 81.38…there’s no question the Dollar Index is heavily overbought and due for an imminent technical correction which should be supportive of Gold and the equity markets…

Barrick Gold (ABX, TSX)

We don’t often focus on the big producers but below is a chart from John on Barrick which provides some encouragement that the sharp downtrend in the TSX Gold Index since late February (33%) could be over…in the chart below you’ll see what needs to happen first – Barrick (and others) must get through their downtrend lines…a bullish “W” on Barrick’s RSI(14) gives good evidence that a true reversal could be underway…

Silver Statistics

Total silver supply should rise to over 1 billion ounces this year for the first time in history, as mine output continues to grow in response to strong margins for producers, according to a New York-based commodities consulting group…the CPM Group said investment demand for Silver will remain historically high, but down slightly from last year’s level….although investment demand for silver has grown over the past couple of years, the metal remains a very small portion of total global financial assets, at 0.011%…this is much higher than the 0.006% held in total global financial assets in 2010, but under 1995’s level of 0.015%….fabrication demand for Silver is seen rising over last year, driven by use in electronic devices…Mexico remains the top producer of silver, with an 18.8% rise in output, to 152.8 million ounces in 2011…

Quote Of The Day- Jim Rogers

“I own real assets (Gold, Silver, agricultural commodities) because if the world economy gets better I’ll make money because of shortages and if things get worse they’ll print more money,” which will drive up the value of hard assets, Rogers told CNBC yesterday…

G-8 Meets At Camp David But All Eyes Are On The ECB

Leaders of the Group of Eight nations will be gathering at Camp David this weekend but analysts say the G8 is unlikely to come up with any major steps with regard to the euro zone problems, and the focus will remain on the ECB and its President, Mario Draghi…a “big policy” response is likely necessary from the ECB in order to tackle the current situation with Greece and the growing problems in Spain…it’ll be interesting to see what may develop over the next week or so…unlike the Federal Reserve, which has cut rates to zero, the ECB has kept interest rates at 1%… the ECB hasn’t bought government bonds in large amounts as the Fed did with its Quantitative Easing (QE) programs, though it has provided the banking system with two rounds of liquidity via the Long-Term Refinancing Operation (LTRO)…

Volatility Index

John has an interesting chart this morning on the VIX (Volatility Index) which has been rising steadily recently in tandem with increasing investor fears…based on the indicators shown below in this 6-month daily chart, the VIX is in “overbought” territory and appears to have limited upside potential over the immediate future which lends support to the prospect of an imminent rally in the equity markets…we’ll keep closely monitoring the VIX as it is a very useful indicator…an inverted head and shoulders pattern on the chart is somewhat ominous, but we’ll have to see how this plays out over the next few weeks…

Today’s Markets

Asian markets were down sharply overnight with Japan losing 3% and China off 34 points to 2345…European markets are now showing a little bit of green after starting the day in negative territory…stock index futures in New York as of 6:10 am Pacific are pointing toward a potentially good day on Wall Street with all eyes on the Facebook IPO…the Dow is overdue for a big move to the upside after posting losses in 11 out of the last 12 sessions…

The Venture Exchange, which closed up 10 points yesterday at 1228, seems have to have support in the low 1200’s…Gold’s move yesterday was very helpful…

Rainbow Resources (RBW, TSX-V)

As we were expecting, Rainbow Resources (RBW, TSX-V) has not ignored the activity in the Slocan Valley graphite region (Valhalla Metamorphic Complex) and has carved out a very nice land package for itself in close proximity to Eagle Graphite’s processing plant and Anglo-Swiss Resources‘ (ASW, TSX-V) Blu Starr Property…as market awareness of this very prospective flake graphite area grows, RBW is well-positioned to benefit…in addition, RBW is drawing closer to the start of a drill program at Gold Viking and has commenced prospecting on some of its Big Strike properties as well as the newly-acquired graphite claims…Rainbow has a lot on the go and has held up extremely well in a challenging market environment…with a lot of boots on the ground right now in the Kootenays, we’re now anticipating a wave of prospecting discoveries to begin very soon…we’ll have more on Rainbow in a special report early next week…

Additional Charts – Atac Resources (ATC, TSX-V) and Newstrike Capital (NES, TSX-V)

Like with Barrick and many other situations, Venture bellwether’s Atac Resources (ATC, TSX-V) and Newstrike Capital (NES, TSX-V) need to battle through their downtrend lines as shown in the charts below…ATC made a nice move yesterday, climbing 44 cents to close at $2.41…

Newstrike Capital (NES, TSX-V)

Note: John, Jon and Terry do not hold positions in ABX, ATC or NES.

Gold is firmer this morning after bouncing off multi-month lows yesterday…as of 5:50 am Pacific, the yellow metal is up $15 an ounce at $1,555…Silver is 42 cents higher at $27.69…Copper is flat at $3.49…Crude Oil is 24 cents higher at $93.05 while the U.S. Dollar Index, which is looking for its 14th straight winning session, is up another one-fifth of a point this morning to 81.54…

For another view on the markets, comments this morning from technical analyst Clive Maund (www.clivemaund.com)…

“Gold and silver now critically oversold at strong support, dollar overstretched…

Please be aware that we could see a really big bounce in Gold and Silver here, and possibly an important reversal…Gold and Silver are right at STRONG support at their September lows, and critically oversold short-term as shown by their RSI indicators…the Dollar is showing signs that it is about to react after an incredible 13 up days in a row (trading days), with a very large white candle appearing on its chart on Tuesday, followed by a candle that approximates to a bearish “hanging man” – it is critically overbought on its RSI so its certainly a good time for it to take a breather…the “talking heads” on the major financial networks were starting to grudgingly acknowledge the possibility of QE coming to the rescue of the world economy, and it is quite clear that the moment the markets get the scent of the spigots being opened we could see a humongous rally, especially in the trampled down commodities sector…

Right now we are heading towards deflation – this is why the markets are going cold turkey…they are clamouring for another fix – everything now depends on how long our illustrious leaders can hold out before caving in to their demands…we must watch carefully for the first real signs of them doing so, this will be the point the tide turns…the charts suggest that there is a possibility of this occurring very soon”…(Clive Maund)…

John’s latest Gold gives strong evidence that we may have seen an important bottom in Gold yesterday…

A turnaround in the CRB Index, currently resting at support, also appears to be in the cards…

Chinese Gold Buying Surges In First Quarter

World Gold demand fell 5% to 1,097.6 metric tons during the first quarter compared to the same period a year ago, with jewelry consumption down but investment demand higher, the World Gold Council said in its quarterly trends report released this morning…

“It was quite a complex quarter,” said Marcus Grubb, managing director for investment at the World Gold Council…he pointed out that prices climbed year-on-year despite the lower global demand, including a sharp decline in buying from India, historically the world’s largest consumer…this meant there had to be “a lot of positives” elsewhere for demand to hold up as well as it did, Grubb said…Chinese buying surged, far outpacing India for both Gold jewelry and investment, and central banks remained net buyers…

In value terms, global Gold demand rose 16% year-on-year to $59.7 billion, with an average price of $1,690.57 per ounce that was up 22% from the same period a year ago, the WGC said…

First-quarter global gold supply rose 5% year-on-year to 1,070.3 metric tons as both mine production and recycling grew.

Data for the report was compiled by the London-based consultancy Thomson Reuters GFMS…

New York Hard Assets Conference

We received this email last night from one of our friends who had just attended the New York Hard Assets Conference:

“We had an opportunity to attend the presentations by Rick Rule, Paul Van Eeden, John Kaiser, Louis James and the Keynote speaker, Eric Sprott…

Louis James of Casey Research gave his reasons to be a Gold buyer – the key was the ” FEAR” factor and he elaborated…in his opinion, “Gold is still in a long term bull market”…

Eric Sprott spoke on the reasons why in his opinion, he is still looking for “$2,000 Gold prices and higher Silver prices before year-end”…

Rick Rule commented that in his opinion, “this market is the best buying opportunity since 2008“…

We were on information overload, and one of the main questions was ” Where is the bottom”?…there were diverse opinions, but the general consensus seemed to be that “We are near or at the bottom”…again, in this market you have to think like a contrarian, and several of the speakers told the audience that these times are buying opportunities of a lifetime…

Of GREAT SIGNIFICANCE IS THIS INFORMATION…the interwoven thread of the conference was still on how the investor should be looking at a company to invest in…the following are the keys to investment, in this order:  Management with significant experience in the industry (engineers, geologists etc.)…Board of Directors, seasoned and experienced…well-financed and having the ability to finance – connections in the industry…and lastly, unique property/properties and an active drill program…another point that was prevalent, is that when the market is volatile and negative, like this, companies have to communicate and engage investors to makes sure their concerns are answered…general consensus again was if the company is not communicating, it;s time to reevaluate your position, there must be ongoing communication”…

Today’s Markets

The Dow and the TSX have each been down for 10 out of the last 11 sessions, and various technical indicators show a sharp rebound is likely imminent…stock index futures in New York as of 5:50 am Pacific are pointing to a relatively flat open…new U.S. claims for unemployment benefits were unchanged last week…European markets are weak this morning as worries over Spanish lender Bankia caused its shares to fall more than 20%, hitting markets and adding to growing fears of contagion from Greece’s economic crisis…a BIG policy response, something resembling a Marshall Plan-style package, is going to be necessary if Germany and others want to keep Greece in the euro zone…the problem. of course, with Greece exiting the euro zone is that such an event could lead to a domino effect which would threaten to rip apart the entire group…a BIG policy response would be inflationary and would require printing huge amounts of money, and that could be the catalyst that gets Gold and the stock markets on track again for higher levels

Asian stocks were generally positive overnight with China gaining 33 points to 23.79…

A Positive Contrarian Sign

Wall Street strategists are the most negative they’ve been on stocks since the bull market began more than three years ago…the consensus view of U.S. equity strategists from major banks is for investors to allocate just 52% of their portfolio to stocks and the rest to fixed income, commodities or cash, according to a Bloomberg survey…this is the lowest allocation for stocks since the nearly 50% level that the survey reached back in March 2009…

John has three company charts this morning – Yamana Gold (YRI, TSX), Northern Graphite (NGC, TSX-V) and Anglo-Swiss Resources (ASW, TSX-V)…the chart for Yamana provides encouragement that the TSX Gold Index, after plummeting 32% since near the end of February, has finally landed on support and is about to rebound…

Yamana Gold (YRI, TSX)

Northern Graphite (NGC, TSX-V)

Anglo-Swiss Resources (ASW, TSX-V)

Note: John and Jon hold positions in ASW (Terry does not).  John, Jon and Terry do not hold positions in YRI or NGC.

Gold is attempting to hold above its December low and stage a reversal…reports of a pick-up in physical demand from Asia are encouraging…as of 6:00 am Pacific, the yellow metal is down $4 an ounce at $1,540 after falling as low as $1,526 overnight …Silver is 22 cents lower at $27.50…Copper is off a nickel at $3.50…Crude Oil is $1.14 lower at $92.84 while the surging U.S. Dollar Index is unchanged at 81.26 after briefly climbing above 81.50…

Amazingly, the Dollar Index is up for 12 consecutive trading sessions – the first time that has occurred, according to the Wall Street Journal, in 27 years…this shows the anxiety traders/investors have over the situation in Europe, but this has also created a very overbought technical situation that will need to unwind very soon (that process could now be underway) which should bring some relief to the battered stock markets and Gold…another factor to consider is that the Fed has about as much interest in a runaway U.S. Dollar as it does in a runaway Gold price…that brings up another point on a broader issue…the likelihood of a significant policy response from the Fed and/or the ECB is growing by the day given the escalation in the euro zone debt crisis and growing concerns over an economic slowdown in China… below is an updated Dollar Index chart from John…

The euro continues to trade within a support band between 126 and 129, and indicators are approaching bearish limits…the euro hit a low of 126.80 this morning and is currently trading slightly higher at 127.44…

Today’s Markets

European markets have turned positive for the day while stock index futures in New York are pointing to a higher open on Wall Street…the TSX has declined in 9 out of the last 10 sessions (1,000 points or 8%0 with triple digit losses in 6 of those sessions)…the Venture has fallen in 8 out of the last 10 sessions (191 points or 13%)…

Gold Stocks – “Buy When Nobody Wants To Buy”

Gold stocks took another beating yesterday with the TSX Gold Index plunging 10 more points to 267…May is only half over and the Gold Index is already down 14% for the month…it’s also now off more than 40% from last summer’s all-time high…there is support around the 260 area on the Index, so a bottom or a rebound is likely near at hand…

In an interesting interview with The Gold Report, a link to which was provided in our comments section yesterday, Bob Moriarty gave some words of wisdom to investors…

“The mere fact that shares are hard to sell and there’s very low volume is a buy signal all by itself…if you want to make a fortune in the junior mining segment, buy when nobody wants to buy and sell when everybody wants to buy…if that were all you did, you’d make 100% a year…juniors have a 200-400% range every year…buy when things hit a new low, sell when they hit a new high and ignore all the gurus” – Bob Moriarty.

Canaco (CAN, TSX-V) Gets KO’d

The Venture Exchange hit a new 52-week low yesterday, helped in no small part by a disappointing if not bewildering resource estimate from Canaco Resources (CAN, TSX-V) for its Handeni Project in Tanzania…how Canaco could drill 400 holes and over 100,000 metres and still come out with only about a million indicated and inferred ounces is a mystery to many (using a cut-off grade of 0.5 gram per tonne Gold, Magambazi is estimated to contain an indicated mineral resource of 15.2 million tonnes grading 1.48 g/t Au and containing 721,300 ounces, as well as an inferred mineral resource estimate of 6.7 million tonnes grading 1.36 g/t Au and containing 292,400 ounces)…investors were expecting much better from Canaco and headed straight for the exists, sending the stock price down 67% to 29.5 cents for a market cap below the company’s cash value…it’s unfortunate that CAN has become CANNOT in this case…they ought to pick up their toys in Tanzania and invest in something else in North America but under different management…

Canaco’s woes yesterday helped send the Venture Exchange through the 1300 support area like a knife through butter, and the Index closed down 64 points at 1240 on the second-highest volume day since the end of February…there is great value in many plays right now, and all that’s needed is a shift in sentiment which will come…as investors, the only thing to really be fearful of at the moment is our own emotions…

Gold has rebounded off a 4.5-month low of $1,546 this morning…as of 5:55 am Pacific, bullion is up $4 an ounce at $1,561…Silver is 14 cents higher at $28.32 after briefly dipping below $28 an ounce…Copper is flat at $3.59…Crude Oil is up 25 cents at $95.00 while the U.S. Dollar Index is relatively unchanged at 80.66…

Gold is trading at its lowest levels since December, but Morgan Stanley analysts say Gold’s bull market “is not over” and that they are buyers of the metal at current prices…the recent sell-off in prices is “consistent with distressed selling and long liquidation”, but they think prices will recover in the coming weeks…they say the factors that have supported Gold remain in place: the European sovereign debt crisis and low interest rates…they also note that the low level of speculative net-length in the CFTC reports is a positive sign…

Technically, the last time Gold’s 9-day RSI was at the 19% level was in mid December – just prior to the spike low to $1,528 on December 29…at that time a bullish divergence formed on the momentum indicator and prices rallied higher…Gold could certainly re-test the $1,528 level in the coming days and perhaps even dip below that briefly on a “capitulation” sell-off, but the $1,500 level really has to hold…

Today’s Markets

European equities inched up from 2012 lows this morning, cheered by better-than-expected economic data, but gains were capped by concerns about the future of the euro zone and the possibility of Greece’s exit from the bloc…Asian markets were mixed today with the Shanghai Composite closing down 6 points at 2375…stock index futures in New York as of 5:55 am Pacific are pointing toward a positive open on Wall Street…

The Venture Exchange hit a new 52-week low yesterday of 1301.74 and closed at 1304 but on relatively tame volume, well down from levels seen a week ago when the CDNX plunged 59 points in one day…the TSX Gold Index also hit a new 52-week low yesterday of 277…it is down exactly 30% in just under three months after the February 23 intra-day yearly high of 393…since last summer’s peak, the Gold Index has caved a whopping 39%…

The Canadian Dollar Indicator

The Canadian Dollar, interestingly, is often a reliable indicator of the direction of the commodity sensitive Canadian stock markets, and right now the Dollar is telling us that stocks are ready for a turnaround…the Dollar is sitting right at support based on several indicators…since there is a clear correlation between the Dollar and the TSX and the Venture Exchange, we can have some hope that the week will end on a more positive note than it has started…

John has three individual company chart updates this morning, beginning with Great Panther Silver (GPR, TSX) which shows all the elements of a stock at or near a bottom which is positive again for the market as a whole…

Abcourt Mines (ABI, TSX-V)

Focus Metals (FMS, TSX-V)

Note: John, Jon and Terry do not hold positions in GPR, ABI or FMS.

After losing over $60 last week, Gold continues to slide but has to be nearing a bottom…as of 4:30 am Pacific, the yellow metal is off $18 an ounce at $1,562 after dropping as low as $1,558…Silver is down 55 cents at $28.34…Copper is 6 cents lower at $3.61…Crude Oil, after declining nearly $9 a barrel over the last two weeks, has given up another $1.95 a barrel to $94.18 while the U.S. Dollar Index has strengthened again to 80.50…

Today’s Markets

Asian markets were generally weaker overnight with China making some early gains but finishing 14 points lower at 2381…European markets are down sharply by over 2% while stock index futures in New York as of 4:30 am Pacific are pointing toward a weak open for Wall Street…

China Moves To Boost Growth, “Austerity” Is Losing

China’s central bank cut the amount of cash that banks must hold as reserves on Saturday, pumping out more funds that could be used for lending to head off a sharper slowdown in the world’s second-largest economy…the People’s Bank of China delivered a 50-basis-point cut in banks’ reserve requirement ratio (RRR), effective from May 18…the latest RRR cut –  the third in six months – came a day after a flurry of data showed that the Chinese economy was slowing faster than expected, with industrial production weakening sharply in April and investment slowing to its lowest level in nearly a decade…

Given recent elections in France and Greece, plus elections in Germany’s most populous state yesterday with Chancellor Merkel’s Conservatives suffering a crushing defeat, it appears “growth” is going to win out over “austerity” around the globe and China will lead the way…this has to be considered bullish for Gold and commodities…even in Alberta, one of North America’s most conservative jurisdictions, voters last month turned down the fiscally conservative Wildrose Party and re-elected a bunch of liberals (“Progressive” Conservatives) who are spending like drunken sailors and have run five consecutive deficit budgets…this bodes well for President Obama and the Democrats in November, especially if Republican Mitt Romney can’t deliver the conservative message in a powerful way…conservatives around the globe lack an effective messenger…

One should not underestimate China’s ability to fire up its monetary and fiscal firepower – it has the ability to do so in “shock and awe” fashion (its debt as a percentage of GDP is lower than that of any G-7 country), especially now that inflation is less of a concern…there are political motivations as well…the flow of money is already sending Chinese stocks higher, and commodities will soon follow…monetary stimulus is already in full swing…on the fiscal side, expect faster, fatter spending on infrastructure and social housing, more tax breaks for business and incentives to boost consumer spending over the second half of the year…China has the money to do it…

Shanghai Composite Divergence With The CRB – Bullish For Commodities

We have three very revealing charts this morning, two from John and another from CEBM Group which specializes in Chinese market research…

The main point we want to get across with these charts is that there appears to be a definite correlation between the Shanghai Composite Index and the CRB Index…over the last several years, the Chinese stock market has been a very reliable leading indicator of commodity prices…check the chart below and see how a sharp rise in the Shanghai in the summer of 2010 occurred before a very strong advance in commodities…conversely, the Shanghai broke down in December, 2010, suggesting trouble was on the way for commodities…what’s highly interesting at the moment is that there’s another major divergence between the Shanghai and the CRB Index – in otherwords, the current bullish action in the Shanghai suggests that commodity prices are likely bottoming out and will start to climb this summer…John’s first chart, a 2.5-year weekly chart, compares the Shanghai with both the CRB Index and the CDNX…

Chart #1

Chart #2

John’s second chart is a 10-year monthly chart that also shows how the Shanghai broke down prior to the 2008 commodity crash, led commodities higher beginning in late 2008/early 2009, gave another warning signal in late 2010, and appears ready once again to cross above the CRB Index which is bullish for commodities going forward…notice also how the CRB Index is approaching a strong support band…

Chart #3

Our third chart is from CEBM Group which shows the Shanghai Composite led economic growth in China by four months in 2009 and appears to have bottomed out again recently prior to an important low in economic growth, likely during this second quarter…

Greece and the Euro Zone

Greece’s exit from the euro zone  “would be possible”, even if not in Europe’s interest, and countries should have a democratic right to quit, according to a member of the ECB’s governing council (Luc Coene, the central bank governor of Belgium)…that makes perfect sense…in fact, Greece should be thrown right out of the euro zone for what amounts to incompetent as well as criminal behavior with its finances…a chain is only as strong as its weakest link, so cutting Greece loose from the euro zone is exactly what that country deserves and the world won’t come to an end as a result – in fact, it’ll be better off…

Coene’s interview with the Financial Times highlights how euro zone policy makers are losing patience with Athens after an inconclusive election threw into doubt Greece’s commitment to reforms demanded under its international bailout…the European Union estimates that the economy of the 17 countries that use the euro is in recession in the wake of a debt crisis that has prompted savage spending cuts and a jump in unemployment to record highs…the European Commission, the executive arm of the EU, forecasts that the euro zone economy will contract by 0.3% in 2012 and grow by 1% next year…its prediction for 2012 is far weaker than the one it gave last November, when it predicted growth of 0.5%…a year ago it was predicting growth of 1.8%…

Friday’s forecasts provide clear evidence of the impact of Europe’s debt crisis on the euro zone economy over the past year as governments have struggled to introduce deficit-reduction measures and business and consumer confidence has taken a dive…Olli Rehn, the EU’s monetary affairs chief, said the recession is likely to be “mild” and “short-lived”…

Given the political winds that are blowing, expect the euro zone and the ECB to pull out all the stops to try to kick-start growth…

BMR Exclusive – Slocan Valley Staking Rush

Publicly-available mineral files show a staking rush is unfolding in the Slocan Valley in southeastern British Columbia, in the area between privately-held Eagle Graphite’s flake graphite deposit, Rainbow Resources‘ (RBW, TSX-V) Gold Viking Property, and more than 20 kilometres south beyond Anglo-Swiss Resources‘ (ASW, TSX-V) Blu Starr Property…we believe a major resource story is developing here, and additional parties are staking ground though it’s impossible to tell exactly who as sometimes a company for strategic reasons will “mask” its staking by doing so through another name…

Over the weekend, Eagle Graphite (they operate one of only two flake graphite mines in all of North America) gobbled up approximately 100 square kilometres of additional claims in what’s called the Valhalla Metamorphic Complex (they already had an extensive land package, including ground very close to Rainbow’s Gold Viking Property)…what’s interesting is that some of the ground Eagle staked actually falls outside what has been considered to be the eastern boundary of this system…if Eagle is thinking this system extends a little farther to the east, then Rainbow could be looking at not only Gold and Silver targets at Gold Viking but flake graphite targets as well…Gold Viking is just over 20 kilometres to the east of Eagle’s graphite deposit…the fact Rainbow reported very strong conductors over Gold Viking suggests the possible presence of graphite as the mineral is known to produce off-the-chart conductors…

Eagle Graphite is now pinching up against Gold Viking from the west and the south…

The bigger picture, however, as we have been stating recently, is that the Valhalla Metamorphic Complex could prove to be North America’s flake graphite hot spot which 99.9% of investors aren’t even aware of as Eagle Graphite has been operating in obscurity as a private company in Canada’s western corner…that may not last for long…rumors on the street are that Eagle, which produces flake graphite at its processing plant near Nelson at a purity level ranging from 93% to 99%, is in advanced discussions regarding an IPO…whether they remain private or go public, it appears Eagle could dramatically transform the exploration scene in the Slocan Valley and the West Kootenays in general…Rainbow and Anglo-Swiss are two sure big winners in that scenario…

Speaking of Rainbow, John has a chart alert this morning – RSI(14) momentum, CMF(20) buying pressure and MACD are all increasing…this could be an interesting week for RBW, especially if the Slocan Valley flake graphite situation continues to heat up…Rainbow is also drawing closer to the start of drilling at its Big Strike Project in the West Kootenays…

Note: John and Jon both hold positions in RBW (Terry does not) with Jon increasing his position Friday.

Oh Oh, Osisko (OSK, TSX)

Things are heating up at Osisko Mining’s (OSK, TSX) Canadian Malartic Mine, literally…it was a rough week for Osisko last week as a mill fire and disappointing Q1 results, combined with a drop in Gold prices, sent the stock tumbling 24% to $7.40 a share…that’s a 50% drop from last summer…this serves as a reminder how difficult it is these days to bring a Gold deposit (especially a low-grade one) into production and operate it efficiently…

Calculating the all-in costs to produce an ounce of Gold by taking net income minus the revenue and dividing by the number of ounces produced showed Osisko’s all-in-cost to produce an ounce of Gold was $1,399 and this number was even higher than the average cost in 2011 of $1,366…the company ended the quarter with $144 million of cash and equivalents but one analyst, Daniel Earle of TD Securities, noted the balance sheets looks tight…given the obvious risks, the analyst expects the company’s cash balance to decline to $47 million in the third quarter with $245 million in long-term debt…

The Osisko chart shows there is support above $7 a share with RSI(14) now at its lowest level since late 2008…

Note: John, Jon and Terry do not hold positions in OSK.

Richmont Mines (RIC, TSX)

Another Gold miner in Quebec whose share price has taken a beating recently is Richmont Mines (RIC, TSX), one of our favorite smaller producers…Richmont, too, is having some mine problems as their Francoeur operation has yet to commence commercial production (one year behind schedule)…higher exploration and administration costs in the first quarter cut Richmont’s earnings-per-share to just 6 cents…the company’s Wasamac Property holds excellent potential, as evidenced by a recent drill result of 52 metres grading 6.4 g/t Au in the Main Zone, but the potential economics of that project need to be improved after the initial IRR was calculated at just 7%…Richmont, which has a book value of $4 per share, closed Friday at $6.04…below is John’s chart update…we see superb technical support in the vicinity of RIC’s 1,000-day rising moving average (SMA) just above $5 per share…

Note: John., Jon and Terry do not hold positions in RIC.

TSX Venture Exchange and Gold

After a couple of weeks of encouraging signs, the CDNX suddenly reversed course again last week as Gold fell below $1,600 an ounce and the Dow experienced its worst week of 2012 – pressured by news of JP Morgan’s trading loss and amid ongoing worries over the euro zone.

Will 2012 turn out to be a repeat of 2005 for the Venture Exchange?  We can only hope so.  Back in 2005, the Venture climbed steadily through January and February before beginning a nasty 22% correction in early March that lasted until the middle of May. Then the Index surged 40% higher by the end of the year.

Ironically, so far at least, we’ve seen the exact same pattern with the CDNX through the first four-and-a-half months of this year.   Tuesday’s 59-point drop was followed by an additional 15-point intra-day sell-off Wednesday (before the market reversed), sending the Index to a low of 1323 – a 22% correction from the February 29 high of 1696.  The Venture closed at 1346 Friday for a weekly loss of 4% or 59 points.

Below is John’s updated CDNX chart which gives us confidence that the 1300 support area should hold, especially given the extent of current oversold conditions as shown by the various indicators.  With a chart like this, now is the time to take advantage of the “fear factor”.  We suspect a lot of stock moved from weak hands into strong hands last week.

Gold

It was a rough week for bullion as the price fell as low as $1,571 after breaching technical support in the low $1,600’s.  For the week, Gold was down $62 after closing at $1,580.  The bullish inverted head-and-shoulders pattern, however, is still intact – albeit barely – as John outlines below.

Silver lost $1.45 an ounce to $28.89.  Copper tumbled 19 cents to $3.67.  Crude Oil lost another $2.36 to close at $96.13 while the U.S. Dollar Index gained nearly a full point to 80.30.

Shanghai Silver Futures Start Trading

The Shanghai Futures Exchange started trading silver futures this week.  Liberalization of precious metal trading in China has been a big driver of Gold over the last decade and China has been a net importer of Silver for investment and fabrication demand.  Given that Silver is a much smaller market than Gold, any pick-up in demand could prove to have quite a substantial price impact. China is a country which has a long association with the metal, having had a Silver-related currency standard up until the 1930’s.

Gold – 3 Straight Monthly Declines

Three consecutive months of falling Gold prices is rare, however you count it.  Between March, 2001, and April, 2012, the price of Gold never fell for three months in succession.  Since 1957, in fact, this has occurred only 65 times out of a total of 661 3-month periods.  Three-month declines don’t necessarily signal a bear trend. The S&P 500 suffered such falls in each of July, August and September last year, only to roar back beginning in October.

Revival In Gold Demand Coming From India?

The Indian government caved to pressure from local Gold retailers which had been on strike and decided to withdraw the levy of 1% excise duty that it had imposed.  With this move, Gold is set to become cheaper for consumers in India and traders expect a revival in demand in the coming crucial months.  Particularly, June and July are the important months for weddings and also for rural India as the monsoon rolls in across the country and cash crops are harvested. Importantly, the government has also decided to raise the threshold limit for cash purchases of jewelry whereby purchases below this level do not require the buyer to cite their income tax related PAN number.

China Takes More Steps To Boost Growth

China’s central bank cut the amount of cash that banks must hold as reserves this weekend, pumping out more funds that could be used for lending to head off sharper slowdown in the world’s second-largest economy.  The People’s Bank of China delivered a 50-basis-point cut in banks’ reserve requirement ratio (RRR), effective from May 18.  This should be positive for Gold and commodities in general.

The latest RRR cut – the third in six months – came a day after a flurry of data showed that the world’s second-largest economy was slowing faster than expected, with industrial production weakening sharply in April and investment slowing to its lowest level in nearly a decade.

Meanwhile, China’s annual inflation rate for April moderated to 3.4% from 3.6% in March.

The cut in bank reserves also comes as bank lending in April came in at a disappointing 681.8 billion yuan ($108.04 billion), lower than the 800 billion forecast, which raised doubts on whether Beijing has money supply settings sufficiently loose to keep the economy on an even keel.

The cut of RRR to 20.0 percent from 20.5% for big banks releases an estimated 400 billion yuan ($63.5 billion) that could be used for bank lending. Analysts reckon another 800 billion yuan’s worth of cuts has been earmarked for the rest of the year.

The central bank announced its first cut in RRR in three years on November 30 last year.  That move took the rate down from a record 21.5%. The second cut in this easing cycle was delivered in February.

Lowering RRR for banks helps China offset sluggish capital inflows that have been hit by skittish investors wary of investing their funds in higher-risk emerging markets at a time of global economic uncertainty driven mainly by Europe’s festering debt crisis.

Crucially, an RRR cut would help Beijing meet its target of growing money supply by 14% in 2012.

The “Big Picture” View Of Gold

As Frank Holmes so effectively illustrates at www.usfunds.com, Gold is being driven by both the Fear Trade and the Love Trade.  The transfer of wealth from west to east, and the accumulation of wealth particularly in China and India, is having a huge impact on Gold.

The fundamental case for Gold remains incredibly strong – currency instability and an overall lack of confidence in fiat currencies, governments and world leaders in general, an environment of historically low interest rates and negative real interest rates that won’t end anytime soon (inflation is greater than the nominal interest rate even in parts of the world where rates are increasing), money supply growth, massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand, investment demand, emerging market growth, geopolitical unrest and conflicts, and inflation concerns…the list goes on.  It’s hard to imagine Gold not performing well in this environment.  The Middle East is being turned on its head and that could ultimately have major positive consequences for Gold.