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Gold has traded between $1,460 and $1,481 so far today…as of 7:00 am Pacific, the yellow metal is down $8 an ounce at $1,468…Silver is off 43 cents at $24.16…Copper is down 2 pennies at $3.19..Crude Oil is 42 cents lower at $94.08 while the U.S. Dollar Index is down one-third of a point at 81.86…

Gold is headed for its worst monthly performance since December, 2011, though it’s not all “doom and gloom”…while assets in bullion-backed exchange-traded products shrank by the most on record,  this was countered by a sharp increase in physical demand from China, India and elsewhere following the metal’s historic 2-day mid-month plunge…Australia’s Perth Mint, which refines nearly all of the nation’s bullion, said that demand has jumped to the highest level in five years after prices plunged, with the factory kept open over the April 23-24 weekend to meet orders…coin sales by the U.S. Mint will show their best monthly performance since December, 2009, while premiums to secure supplies in India rose to five times the level before the slump…Gold jumped 4.2% last week, the most in 15 months…the volume for the benchmark contract on the Shanghai Gold Exchange surged to a record last week…Gold ETP holdings have declined nearly 170 metric tons in April, marking the biggest monthly drop on record in tonnage terms according to data compiled by Bloomberg…while the Gold price has recovered more than 11% from a two-year low of $1,322 April 16, it’s still more than 5% below the April 11 close that preceded the rout…Silver has suffered more than Gold this month – it is down 15%…

Inflation On The Decline In Euro Zone: Good Chance EBC Will Announce Rate Cut Thursday

As we’ve been pointing out recently, inflation continues to trend lower around the globe – not helpful for Gold – and that will no doubt be a concern for the Federal Reserve as it convenes today and tomorrow, and the European Central when it meets Thursday…the odds of a rate cut by the ECB increased significantly today after euro zone inflation eased to 1.2% in April, the lowest level since February, 2010, and well below economists’ expectations…the ECB’s own inflation target is 2%…meanwhile, the seasonally adjusted unemployment rate in the euro zone hit 12.1%, up from 12% in March and 11% a year ago, as reported this morning by Eurostat – the EU’s statistics office…youth unemployment was nearly double the headline rate and there was no sign of improvement in the worst-hit countries such as Spain and Portugal…

U.S. Expects First Cut In Debt Since 2007

Here’s a pleasant surprise:   The U.S. Treasury expects to pay down debt in the second quarter of 2013 as the budget deficits that has dominated national politics starts to shrink…ahead of an announcement today on the details of its quarterly borrowing schedule, the Treasury said it expects to repay a net $35 billion in the second quarter, compared with a February estimate that it would have to borrow $103 billion…“The decrease in borrowing relates primarily to higher receipts, lower outlays, and changes in cash balance assumptions”, said the Treasury…nominal spending is basically unchanged since the final quarter of 2010, one of the longest periods of “restraint” in postwar U.S. history…meanwhile, tax revenues have picked up with the economic recovery, and the expiration of a payroll tax break at the start of the year is adding about $10 billion a month to revenues…before everyone gets too excited, however, keep in mind that the second quarter is always the best for government cash flow because tax returns are due in April…the Treasury expects to issue $223 billion of debt again in the third quarter…the International Monetary Fund forecasts that the U.S. will borrow 6.5% of gross domestic product in 2013, down from 8.5% in 2012 and 10% in 2011…but analysts at Goldman Sachs estimate that in the first quarter of 2013 the deficit was running at a cyclically adjusted level of just 4.5%…

Today’s Markets

Japan’s Nikkei average fell 23 points overnight to close at 13861…conflicting economic data came out of Japan today…on a positive note, household spending surged 5.2% in March over last year and the unemployment rate fell to 4.1%, below forecasts of 4.3%… however, retail sales disappointed, actually declining 0.3% against expectations of a 0.6% rise…industrial output, meanwhile, posted a meager rise of 0.2% in March over the previous month…markets in China remain closed for the Golden Week holiday – trading resumes Thursday when important PMI manufacturing data will also be released…as of 7:00 am Pacific, the Dow is off 66 points at 14752 while the TSX has shed 67 points to 12246…the Venture is off a point at 964…the S&P 500 closed at a new all-time high yesterday, 1594…about half of S&P 500 companies have reported first quarter earnings with 69% topping estimates., according to Thomas Reuters…revenue numbers, however, have been surprisingly weak with nearly 60% of companies missing forecasts…this is not good for the hiring outlook as employment tends to become the victim of a disappointing revenue backdrop…companies unable to expand their top lines likely will focus on cutting expenses to achieve profits…

TSX Gold Index Through The HGU

While Gold itself has climbed more than 10% above its April 16 intra-day low of $1,322, the TSX Gold Index is only 9% higher than its April 17 intra-day low of 183…at yesterday’s close of 200, the Index is down 21.5% for the month vs. a 7.9% drop in Gold…for the year, the Gold Index is off a whopping 34% and has been in a consistent decline since late September when it rallied to just above 350…a rebound is certainly overdue after a drop of 43% during the last 7 months, and May appears to be a logical time for that…for the Gold stocks to stage a decent recovery, the metal will need to work its way through resistance at the Fibonacci $1,484 level where it reacted last Friday, and climb back above $1,500…this is certainly possible, but the declining 50-day moving average (SMA) at $1,550 and other resistance at that previous support area will probably prove troublesome for Gold…a move above $1,550 seems much less likely than a brief surge past $1,500…Yamana Gold (YRI, TSX) and New Gold (NGD, TSX) both report earnings after the close today and tomorrow, respectively, and reports from those companies that exceed expectations would certainly help to restore confidence in the sector…there’s a strong case to be made that the TSX Gold Index will rally somewhat in May, along with the Venture, but both are still vulnerable to another plunge in Gold prices later during the quarter or the year – a drop that would serve, at the very least, as a re-test of the April 16 low…John’s 1-year HGU (TSX) chart shows the recent dramatic sell-off below channel support on huge volume, creating what’s called an “exhaustion gap” and then an “island”…typically in a case such as this, you’ll see a recovery back to the old channel support which is now resistance (just under $4 for the HGU)…the HGU closed yesterday at $3.12 and is down 16 cents at $2.96 through the first 30 minutes of trading today…

Trueclaim Exploration (TRM, TSX-V) Chart Update

Like many juniors, Trueclaim Exploration (TRM, TSX-V) is working hard to raise cash and make things happen…it won’t be easy…the Trueclaim chart, however, does offer some hope…the stock fell as low as 4.5 cents April 15 during the Goldman Sachs Gold Smash, but has since climbed back up to the 7-cent level…technically, for TRM to gain further traction, it must get above the 8-cent resistance level – plain and simple…TRM’s rising 200-day SMA is currently at 6.5 cents while the 100-day SMA has flattened out at 7.5 cents and is threatening to go into decline…May will be an important month for TRM…

Graphite One Resources (GPH, TSX-V)

A graphite stock we like with a very positive overall chart is Graphite One Resources (GPH, TSX-V) which we’ve mentioned in this space before…the company’s Graphite Creek Property in Alaska is a substantial resource, just 3 kilometres from tidewater, and the deposit remains open along strike to both the east and west, and downdip…yesterday, GPH announced that an initial test at Activation Laboratories Ltd. has demonstrated a leaching process capable of producing a high purity of 99.2% graphitic carbon (Cg) from a rough concentrate from Graphite Creek…the company is hoping to position itself in the $13 billion synthetic market with what it claims is the largest known flake graphite deposit in North America (for a public company at least, as we believe privately-held Eagle Graphite has one of the largest flake graphite deposits in the entire world in the West Kootenays)…below is a 2.5-year weekly chart for GPH…it has shown nice overall progression, slow but steady, since last November…it closed yesterday at 19 cents…there’s very strong technical support between 15 cents and the EMA(20) which is currently at 17.3 cents…as always, perform your own due diligence…

Note: John holds a share position in TRM while Jon holds share positions in GPH and HGU.

Gold is slightly firmer to begin the new week…as of 7:00 am Pacific, the yellow metal is up $3 an ounce at $1,466…Silver is up 14 cents to $24.18…Copper has gained 3 pennies to $3.20…Crude Oil is 29 cents higher at $93.29 while the U.S. Dollar Index is down one-fifth of a point at 82.19…

Strong physical buying out of India, China and elsewhere have helped give Gold a lift since the historic two-day drop of 13% April 12 and 15…May is the peak for Hindu wedding ceremonies in India where Gold is often bought to give to brides, so many Indians have taken advantage of the opportunity to buy the yellow metal at a significant discount…Gold imports in India, the world’s #1 consumer, are forecast to increase by up to 20% year-on-year in the second quarter, due to lower prices in local currency terms, according to the Bombay Bullion Association…at the same time, however, financial investors have been leaving the market…ETF’s held about 73.41 million troy ounces of Gold at the end of trade on Friday, down about 5.2% from April 11, before the slide, and down 13% from the start of the year, according to data from RBC Capital Markets (we’ve seen an unprecedented 11 straight weeks out outflows from precious metals funds)…Ed Lashinski, director of strategy and trading at RBC Capital Markets, told the Wall St. Journal that “it’s not a good sign when retail investors are buying and professionals are selling”…it’s interesting to note, however, that the COT structure for Gold at the moment is very bullish – commercial traders’ short positions have been trimmed to their lowest levels in ages…

Updated Gold Chart

So where does Gold go from here after climbing more than 10% from its intra-day low April 16?…we expected a bounce last week to at least $1,450 (Fibonacci 50% resistance level) and it got as high as $1,485 intra-day Friday (Fib. 61.8% resistance) before closing at $1,463 for a weekly gain of $57…historically, May is typically one of Gold’s best months, so it wouldn’t be surprising to see the yellow take a run at its 50-day moving average (SMA) in the near future which coincides with previous strong support (now resistance) at $1,550…this would also help to ease the still oversold condition of Gold stocks in general…entering today’s trading, the TSX Gold Index is down a whopping 22% for the month of April and 35% for the year…this Index, which closed at 198 Friday, definitely has room to move higher as part of a continued rebound in Gold…a previous support band between 225 and 240 can be expected to provide stiff resistance, however…the bigger picture outlook for Gold turned negative with the collapse (on high volume) below critical support at $1,550 and $1,500, so at the very least we expect to see a re-test of the recent low in the coming months and the possibility of new lows before the Gold price finally bottoms out…

HSBC:  Gold To Average $1,542 In 2013

Gold and Silver are “down but not out”, HSBC said Friday, calling for prices to stabilize as jewelry and coin purchases rise…nevertheless, following the sharp decline in prices earlier this month, the bank has trimmed 10% off its 2013 forecast with HSBC now looking for Gold to average $1,542 an ounce…their average Silver price forecast was trimmed by 20% to $26…the key drivers for Gold, HSBC said, will be investment, retail and central bank demand…investors have been exiting Gold exchange-traded funds, particularly given the strength in U.S. and Japanese equities…“If the economy is moving towards some level of normalization and faith in paper assets continues to improve, then we could see further outflows”, HSBC stated…“That said, we believe the bulk of liquidation has already occurred and that a large component of the market still has a ‘buy and hold’ trading strategy…similarly, a renewed period of risk aversion, uncertainty, or inflation could result in a renewed wave of ETF buying, supporting the Gold price…retail demand for Gold “is the main reason we expect prices to stabilize and move slowly higher”, HSBC said…“Lower prices attract greater buying, especially in India and China”…in fact, the bank said, a 15% rise in physical purchases in India and China would increase Gold consumption by 250 tons this year, a little less than total Gold exchange-traded-fund liquidation so far in 2013…U.S. coin sales have also been robust…HSBC also looks for central banks to remain buyers, forecasting 450 tons of purchases this year…

Deflation Threat:  Could The Fed Actually Ramp Up Its Bond Buying This Year?

In markets, it’s always wise to expect the unexpected…the general view in the investment community is that the Fed will begin to take its pedal off the metal and start to slowly wind down QE beginning either later this year or by early 2014, but what if circumstances actually convinced the Fed to increase its bond buying beyond the current $85 billion per month, putting QE on steroids like the Japanese are doing?…a weakening global economy and the growing threat of deflation could actually bring that about…the Commerce Department reported Friday that its personal consumption expenditure price index – one of the Fed’s favored measures of consumer price inflation – was up 1.2% in the first quarter from a year earlier, well below the central bank’s target…as Wall Street Journal ace reporter Jon Hilsenrath wrote in an excellent piece over the weekend, that was the weakest annual reading since the third quarter of 2008 when the U.S. was consumed by the financial crisis…the Fed’s goal is to try to keep inflation stable near 2%, a level that central bank officials believe supports steady economic growth and hiring…a slip much below that level, as Hilsenrath pointed out, could signal a weakening economy and flat wages…Hilsenrath quoted James Bullard, president of the Federal Reserve Bank of St. Louis, as saying, “I’m a little worried about it…I didn’t really expect inflation to be this low”…a weak global economy is holding down commodity price inflation…Crude Oil prices are down 10% from a year earlier, Gold is down significantly, and the Dow Jones-UBS broad index of commodity prices is off 5%…overall prices of goods imported to the U.S. are down 2.7% from a year earlier, according to the Bureau of Labor Statistics…meanwhile, U.S. wage inflation is modest in the slack job market…average hourly earnings of workers in March were up 1.8% from a year earlier…Hilsenrath pointed out that “several Fed officials have changed the way they are talking about inflation”…in a late March speech, New York Fed President William Dudley described inflation as “below” the Fed target…in mid-April, after new inflation data emerged, he described it as “well below” target…as Hilsenrath mentioned, that’s the kind of subtle change central bank officials often deploy after careful delberation…he quoted Eric Rosengren, president of the Boston Fed, as saying, “If inflation is lower and continues to go lower than our target, that would be another reason potentially for not pulling back on our program”…Bullard said he would consider supporting an increase in bond purchases if inflation fell much further…

Updated Silver Charts

John’s long-term chart (11-year monthly) confirms that while Silver could certainly bounce a little higher to alleviate oversold conditions at the moment – RSI(2) is at an extreme low – the primary trend is negative given several factors including the -DI/+DI crossover and the recent plunge below critical chart support and the Pitchfork tine…expect major resistance at $26…ultimately, there’s a good chance in our view that Silver could fall below the recent $22 low and test major support around $19…

Silver Long-Term Chart

Silver Short-Term Chart

The short-term chart shows that Silver is trying to build a base with support at $22…note the decline in buying pressure near the end of last year which turned into strong selling pressure by February…selling pressure has started to decline but could remain dominant for an extended period…

Central Banks Moving Into Equities

We all know that central banks around the globe (emerging markets in particular) have been loading up on Gold in recent years, but they’re also now starting to pile into equities…below is an excerpt from Frank Holmes’ “Investor Alert” over the weekend (www.usfunds.com):

“Now, central banks, which guard $11 trillion in foreign-exchange reserves, are making adjustments to their strategy and going for the equity play…according to a survey done by Central Banking Publications, among 60 central bankers, almost half see the need to add risk to their portfolio, and “23% said they own shares or plan to buy them” within the next five years, says Bloomberg News…one superstar player of equities is Bank of Japan, which indicated that by 2014 investments in equities will “more than double”…the Bank of Korea started buying Chinese companies in 2012, “increasing its equity investments to about $18.6 billion, or 5.7%  of the total”,  reports Bloomberg…these central bankers are moving to equities in an attempt to increase their potential yield in their portfolios in the face of negative real interest rates…Bloomberg says that while central banks have held government debt in the past, “when bond yields are below inflation in many countries, this (reliance on fixed-income] risks allowing the value of reserves to decline”…in addition, central banks are likely attracted by the dividend payouts, many of which are higher than bond yields…dividends, along with buybacks, have been driving the U.S. market higher…

Chinese Industrial Profits Falling

Growth in Chinese industrial companies’ profits slowed in March, adding to evidence the nation’s economic recovery is losing steam…net income increased 5.3% from a year earlier to 464.9 billion yuan ($75 billion), down from a 17.2% pace in the first two months, the National Bureau of Statistics said on its website Saturday…for the first quarter overall, profits rose 12.1% from a year earlier to 1.17 trillion yuan, it said…

Today’s Equity Markets

Markets in both Japan and China were closed today due to holidays in both countries…trading in Japans resumes tomorrow while the Shanghai Composite is shut down until Thursday…European shares are mixed in late trading overseas…Italy’s new government is preparing to announce its economic plan, after successfully selling 5- and 10-year bonds in the first auction since the country’s new prime minister (Enrico Letta) announced his cabinet…Italy’s new economy minister, Fabrizio Saccomanni, said in an interview yesterday that he plans to cut taxes and public spending and lower borrowing costs…potential market-moving events to watch out for this week include the FMOC meeting (Tuesday/Wednesday), the ECB meeting Thursday (a rate cut is expected), economic data out of China Thursday, and the U.S. jobs number Friday for the month of April…in addition, it’s a very busy week for earnings reports in North America…as of 7:00 am Pacific, the Dow is up 34 points at 14747…the TSX is 63 points higher at 12283 while the Venture has added a point at 966…as we mentioned over the weekend, the potential of a near-term rally in the Venture certainly exists – especially if Gold is able to push its way through resistance in the $1,480’s…

Updated Dow Chart

Technically, the Dow is looking a little tired at the moment and in need of a moderate pullback to unwind overbought conditions…volume, buy pressure and +DI are all declining which lends support to that view…such an event could be an excuse for Gold to temporarily regain some of its lustre and make a run at its 50-day SMA…as you can see below in John’s 2-5-year weekly Dow chart, the top of the wedge is now support at 14200…

TSX Venture Exchange and Gold

Mercifully, the Venture’s 11-week losing streak has finally come to an end.  The Index climbed 26 points or 2.8% last week, closing at 965, as Gold staged a rebound.  Volume, however, was light.  The long-term trend is still bearish but it’s possible that a tradeable rally has started that could take the Index well into the previous support band (now resistance) between 1000 and 1075.  For the first time since late January, the Venture has managed to crawl above its 10-day moving average (SMA) which has excellent potential to reverse to the upside early in the coming week – the last time this occurred was in late December.

One of the advantages of a market like this is that it take investors more time to react to excellent news (many are asleep at the switch).  So while the market is slow and very frustrating for many investors, keep a close watch nonetheless on news releases and trading halts as there are still occasions – albeit rare – when something hits the wire that’s really eye-popping.  A good example last week was Colorado Resources (CXO, TSX-V) which reported a drill hole Thursday that returned 331 metres grading .51% Cu and 0.67 g/t Au from its North ROK Property 190 km north of Stewart, B.C., near Imperial Metals‘ (III, TSX) Red Chris Mine Project.  Colorado opened at 25 cents Thursday and closed up 38 cents at 54 cents.  It gained 11 more pennies Friday to finish with a weekly gain of 333%.  There are still opportunities in this horrible market.

Below is a 13-year monthly chart from John.  We doubt that the Venture put in a “bottom” at the April 17 intra-day low of 918.  But watch for a May rally and treat it as such – a rally out of oversold conditions with a new low coming later.

Gold

Not unexpectedly, Gold rallied last week out of technically oversold conditions due in part to a strong pick-up in physical demand out of Asia and elsewhere.  U.S. Mint Gold bullion coin sales, for example, have hit 203,500 so far in April, the most of any month since December, 2009.  The yellow metal has climbed in 7 out of the last 9 sessions since the historic sell-off of more than $200 an ounce.  On Friday, Gold got as high as $1,485 where it hit Fibonacci resistance and then quickly sold off nearly $40 an ounce before recovering to close at $1,463 for a weekly gain of $57.

The coming week should be very interesting with three important events – a Federal Reserve meeting (Tuesday, Wednesday), a European central bank meeting (Thursday) and a U.S. monthly employment report (Friday).  So we should expect some more volatility in Gold.  China starts a 3-day holiday Monday, so this potentially could dampen some of the Gold demand coming out of that country.

Technically, one cannot rule out the possibility of Gold overcoming Fib. resistance in the $1,480’s and taking a run at $1,550 which previously of course was very strong support.  That’s also where the 50-day moving SMA is at the moment.  However, the primary trend is still bearish after that break below critical support at $1,550 and $1,500.  At the very least, we do expect a re-test of the recent low in the $1,320’s at some point this year, while the worst-case scenario is Gold bottoming out around $1,000.

Below is 6-month daily chart from John.  A move above $1,500 would certainly give a boost to Gold stocks, though we’d be very interested in the HGD (Horizons Bear Plus ETF for the S&P/TSX Global Gold Index) at $1,525-$1.,550 Gold.

Silver gained 75 cents last week, closing at $24.04.  Copper gained 2 pennies to $3.17.  Crude Oil climbed $4.99 a barrel to $93 while the U.S. Dollar Index fell one-quarter of a point to 82.47.

The “Big Picture” View Of Gold

As Frank Holmes so effectively illustrates at www.usfunds.com, the long-term bull market in Gold has been 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, has had a huge impact on bullion.  Despite its current weakness, the fundamental long-term 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, a Fed balance sheet now in excess of $3 trillion and expanding at $85 billion a month, money supply growth around the globe, massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand, emerging market growth, geopolitical unrest and conflicts…the list goes on.  However, deflation is prevailing over inflation in the world economy and this had a lot to do with Gold’s recent plunge below the technically and psychologically important $1,500 level. Where and when Gold bottoms out in this cyclical correction is anyone’s guess, but we do expect new all-time highs later in the decade.  There are many reasons to believe that Gold’s long-term bull market is still intact despite a major correction from the 2011 all-time high of just above $1,900 an ounce.

Gold, coming off its best two-day performance in over a year, has traded between $1,458 and $1,480 so far today…as of 7:20 am Pacific, bullion is up $11 an ounce at $1,479..Silver is up 6 cents to $24.46…Copper is down 4 cents to $3.21…Crude Oil is 49 cents lower at $93.15 while the U.S. Dollar Index has declined one-quarter of a point to 82.53…

The $1,484 Fibonacci level. as John has pointed out on his charts, is the next key price area to watch after Gold broke above $1,453 yesterday…we view the sharp rebound since early last week as just that – a normal bounce out of oversold conditions and not the beginning of a major new push to the upside…at the very least, we ultimately expect to see a re-test of Gold’s recent low…holdings of the largest Gold-backed exchange-traded fund, the SPDR Gold Trust, dipped 0.25% to 1,090.27 tonnes yesterday from 1,092.98 on Wednesday…currently, holdings are at their lowest level since September, 2009…”Heavy disinvestment from ETF investors is being offset by strong physical demand in key markets such as India and China, but neither of these is likely to continue indefinitely, and which runs its course first could determine whether the (Gold) price moves $100/oz higher or lower”, Macquarie said in a note…there’s a 3-day holiday coming up in China next week (May Day break) which could slow down some of the physical buying from that country…

U.S. Q1 GDP Growth Disappoints

U.S. economic growth regained speed in the first quarter, but not as much as expected, which could heighten fears the already weakening economy could struggle to handle deep government spending cuts and higher taxes…gross domestic product expanded at 2.5 percent annual rate, the Commerce Department reported this morning, after growth nearly stalled at 0.4% in the fourth quarter…the increase, however, missed most economists’ expectations for a 3% growth pace…in addition, part of the acceleration in activity reflected farmers’ filling up silos after a drought last summer decimated crop output…removing inventories, the growth rate was a tepid 1.5%…on a positive note, consumer spending, which which accounts for more than two-thirds of U.S. economic activity, increased at a 3.2% pace – the fastest since the fourth quarter of 2010…it grew at a 1.8% rate in the fourth quarter of last year…the Federal Reserve meets next week and is widely expected to keep purchasing bonds at a pace of $85 billion a month…data ranging from employment to retail sales and manufacturing weakened substantially in March after robust gains in the first two months of the year…there are indications the weakness persisted into April…

Bank of Japan Upgrades Outlook

The Bank of Japan has sharply upgraded its outlook for the world’s third-largest economy and raised its forecast for inflation even as data showed the nation slipped deeper into deflation in March…today, as the BOJ released its semi-annual report on prices and economic activity, it said that its policy board members expect inflation to average 1.4% in the next fiscal year, rising to 1.9% the year after (the current fiscal year began this month)…the BOJ predicts the economy will start picking up by the middle of this year and lifted its forecast for real GDP growth to 2.9% from 2.3%…thereafter, prices would be pushed up by a combination of increasing demand, a weaker yen and rising expectations of inflation, the BOJ said…

Bundesbank Criticizes ECB’s Bond Buying

Reuters reported this morning that the head of the Bundesbank has sharply criticized the European Central Bank’s plan to buy the debt of highly indebted states in a confidential report, according to German newspaper Handelsblatt…in the 29-page report prepared for Germany’s Constitutional Court, the Bundesbank warns that the purchase of such debt could “compromise the independence of the central bank” and could be difficult to stop, the paper said in an article made available yesterday…Bundesbank chief Jens Weidmann was the only ECB Council member to oppose the plan from the outset, which he described as “tantamount to financing governments by printing banknotes”…the Constitutional Court, Germany’s highest tribunal, is due to consider OMT in June, Handelsblatt said…in its report for the court the Bundesbank noted that the OMT program could reduce the incentive for euro zone governments to reform…

China’s Leaders Concerned About Financial Risks, Face Tough Balancing Act

China must work to strengthen its economy while also guarding against financial risks, the country’s top leaders said in a special meeting convened amid rising concerns about the near-term growth outlook…the Financial Times reported this morning that the Politburo Standing Committee, the highest decision-making body in China, met to discuss economic policy after reporting two weeks ago that growth slid to 7.7% in the first quarter, an unexpected decline from its 7.9% pace in the final quarter of 2012..a survey of purchasing managers published by HSBC this week suggested that momentum has remained sluggish in April…the politburo pledged to bolster domestic consumption and to make it easier for companies to gain approval for investment projects…at the same time, it vowed to standardize the financing mechanism for local governments, addressing concerns about the mountain of debt they have accumulated through backdoor channels…Ding Shuang, an economist with Citi, made some insightful comments in the Financial Times article regarding the Politburo meeting and the dilemma facing Chinese policymakers at the moment…”It is difficult to achieve both objectives (bolstering the economy and guarding against financial risks)…from the context, I’m left with the impression that they may tolerate lower growth to emphasize more the quality of growth and reduce financial risk”…he noted that Xi Jinping and Li Keqiang, China’s new leaders, are only at the start of what is expected to be a 10-year term in office…“They have a long time horizon…the last thing they would like to do is to exhaust all their growth-support tools at the beginning of their tenure only to face problems later”, Shuang stated…

Today’s Equity Markets

Asian markets were mostly lower overnight with japan’s Nikkei average slipping 42 points to close at 13884…it was still Asia’s best performing Index of the week, however, gaining 4.3%…China’s Shanghai Composite fell 21 points to 2188 (2150 is a key support area that needs to be watched closely)…European shares have accelerated to the downside in late trading overseas after release of U.S. GDP…meanwhile, “growth” forecasts for Spain for this year have been revised down from -0.5%  to -1.3%…the Dow is unchanged through the first 50 minutes of trading, despite the lower-than-expected GDP number…U.S. consumer sentiment eased in April as Americans remained concerned about their employment and financial prospects, a survey released on Friday showed…the Thomson Reuters/University of Michigan’s final reading on the overall index on consumer sentiment fell to 76.4 from 78.6 in March, although it topped economists’ expectations for 73.2…the TSX is down 63 points to 12265 while the Venture is relatively flat at 963…Colorado Resources (CXO, TSX-V), yesterday’s big mover on the CDNX, is off a penny at 53 cents after trading as low as 46 cents and as high as 60 cents…hole NR-13-001 was impressive, returning 333 metres grading 0.51% Cu and 0.67 g/t Au…the property is approximately 190 km north of Stewart and 15 km northwest of Imperial Metals‘ (III, TSX) Red Chris Mine which is currently in an advanced development stage…

Below is a 3-year weekly TSX chart…recently, the TSX broke below trendline support that was part of an upsloping channel in place since the middle of last year…what has happened this week is that the Index has bounced up to that support line which is now resistance and is also accompanied by the declining 20-day moving average (SMA)…so the TSX has some work to do to drag itself out of what appears to be a downtrend…a high net worth portfolio manager we spoke with yesterday has his clients in an “unusually” high cash position (35%) and is expecting a 5 to 10% decline from current levels in the TSX…

Canadian Dollar Update

The loonie at the moment is stuck in a trading range between 97 and 99 cents…watch the loonie carefully – if it breaks in either direction, above resistance or below support, for another clue regarding the direction of the Canadian economy and the equity markets…below is a 3-year weekly chart…

Eagle Hill Exploration (EAG, TSX-V) Updated Chart

It’s difficult to get respect these days in the exploration business…Eagle Hill (EAG, TSX-V) released drill results yesterday from its Windfall Lake Property in northwestern Quebec, including 40 metres grading 6.18 g/t Au (58 to 98 metres depth)…assays from an additional 4100 metres of drilling that started in February are still pending…the stock climbed as high as 10.5 cents yesterday before closing up 2 cents at 9.5 cents on total volume (all exchanges) of nearly 2 million shares…it’s quiet this morning, off a penny at 8.5 cents…below is a 15-month weekly chart…notice the non-stop selling pressure (albeit now starting to decline) in this stock over the last 15 months…technical resistance is at 11 cents…

SilverCrest Mines Inc. (SVL, TSX-V) Updated Chart

SilverCrest Mines (SVL, TSX-V) has recovered after dipping as low as $1.79 last week…the support band beginning around $1.70 is indeed critical for SVL – that level has been tested several times since late 2011 – and any drop below that could precipitate a dangerous decline…SVL is up another nickel to $2.28 as of 7:20 am Pacific…below is a 2.5-year weekly chart from John…

Note: John, Jon and Terry do not hold share positions in EAG, SVL or CXO.

Gold continues to push higher, hitting the Fibonacci 50% target ($1,453) on a rebound as John charted last weekend…if this level is surpassed on a closing basis in the near future, and the chances are good in our view that it will be, then the next resistance area is $1,484…as of 7:10 am Pacific, bullion is up $20 an ounce at $1,451…Silver is 62 cents higher at $23.78…Copper has added 8 pennies to $3.24…Crude Oil has gained 13 cents to $91.56 while the U.S. Dollar Index is off its lows of the day but still down over one-tenth of a point at 82.77…

Short-covering, weakness in the U.S. dollar, the prospect of a rate cut by the ECB next week, and reports of continued increased physical buying are all factors contributing to Gold’s rebound this week as bullion emerges from temporarily deeply oversold conditions…traders are also citing support from central bank buying after International Monetary Fund data showed that Russia, Kazakhstan and Turkey had continued to add to their holdings in March…

Below is an updated 6-month TSX Gold Index chart which has formed a bottom, for the time being, at 183…a strong bullish candle formed yesterday, accompanied by impressive volume…as we mentioned Tuesday, the best way for speculative investors to play this rebound is through the HGU (Horizons Bull Plus ETF for the S&P/TSX Global Gold Index) which was a particularly attractive buying opportunity Tuesday when it pulled back into the $2.80’s…it jumped 13% yesterday as the TSX Gold Index climbed nearly 7%…John has a chart for the HGU below the Gold Index chart…these are very good “awareness” charts as they clearly show where strong resistance is on both…the previous support band between 225 and 240 is going to be the problematic area for the Gold Index, while the HGU should be expected to run out of steam if and when it approaches the previous channel support where it broke down from earlier this month…bullion, of course, will face stiff resistance at and immediately below $1,500…the Gold Index is currently up 3 points at 207 (there should be support now at 200) while the HGU has climbed another 12 cents to $3.38…

TSX Gold Index 6-Month Daily Chart

HGU 1-Year Daily Chart

Today’s Equity Markets

Asian markets were mixed overnight with China’s Shanghai Composite falling 19 points to 2199 while Japan’s Nikkei Average gained 83 points to 13926…investors will be watching Bank of Japan chief Haruhiko Kuroda tomorrow for signs of any further stimulus as the central bank meets for the first time after unveiling a blockbuster easing program earlier this month…European shares are flat in late trading overseas, while North American markets are up slightly through the first hour of trading today…as of 7:10 am Pacific, the Dow is 39 points higher at 14716…a batch of better-than-expected earnings came out this morning along with an upbeat jobless claims report…the TSX has added another 40 points while the Venture is up 2 points at 954…

Probe Mines (PRB, TSX-V)

A very interesting situation at the moment is Probe Mines (PRB, TSX-V) which is down almost 30% this month, thanks to the plunge in Gold…as luck would have it, Probe issued an important news release Friday, April 9, when Gold started its dramatic plunge…Probe, blessed with $30 million in its treasury as of January 31, reported a series of drill results from its Borden Lake Project in Ontario April 9 that featured a high-grade step-out intercept of 25 metres grading 4.6 g/t Au 500 metres along strike from the previous limits of the deposit (southeast area, interval depth between 358 and 383 metres)….the company also expanded near-surface mineralization elsewhere…the deposit remains open in all directions, and the latest resource estimate showed 3.7 million ounces in the indicated category (112.8 million tonnes grading 1.02 g/t Au) and 625,000 ounces in the inferred category (18 million tonnes grading 1.08 g/t Au) at a cut-off grade of 0.5 g/t Au…the scope of this project is changing significantly with a focus toward high-grade resources that may persist for a considerable distance along strike, as Probe reported April 9 and earlier…more results from winter drilling are on the way…at yesterday’s closing price of $1.16, Probe’s market value is a modest $78 million…the company not only has an open-pit resource, but a good chance of pulling together a high-grade underground opportunity…this is shaping up to be a world class deposit, and it’s surrounded by all the necessary infrastructure in a safe jurisdiction…technically, Probe appears to have found support in the immediate vicinity of its 1000-day moving average (SMA), currently at $1.20, as it did last year at 90 cents and in 2010 around 30 cents…once resistance around the 10-day SMA ($1.25) is overcome, this could move north again in a hurry – particularly if the Gold price continues to rebound…as always, perform your own due diligence…PRB opened 4 cents higher at $1.20 this morning and is currently up 6 cents at $1.22…

Rainbow Resources (RBW, TSX-V)

Given current market conditions, it’s encouraging to see that Rainbow Resources (RBW, TSX-V) has completed the first tranche ($345,000) of its recently announced private placement as the company prepares to resume exploration at the Gold Viking and Jewel Ridge properties where promising discoveries were made last last year…like almost every other junior resource stock, RBW has been under pressure recently…the company, however, is determined to push ahead and the quality of its land packages in B.C. and Nevada provide a strong foundation for future success…below is an updated RBW chart from John which provides some clear encouragement after the stock dipped to a nickel…

Note: John and Jon both hold share positions in RBW while Jon also holds a share position in PRB.

Gold continues to hold up above $1,400, an encouraging sign – for the short-term at least – as the yellow metal attempts to recover from the recent brutal sell-off…as of 7:35 am Pacific, Gold is up $12 an ounce at $1,426…Silver is 7 cents higher at $23.01…Copper has gained 6 pennies to $3.15…Crude Oil is up $1.12 cents to $90.31 while the U.S. Dollar Index is off slightly at 82.98…

The SPDR Gold Trust, the world’s largest Gold-backed exchange-traded fund, said its holdings fell 0.68% to 1,097.19 tonnes yesterday from 1,104.71 tonnes on Monday, their lowest level since October, 2009…but premiums for Gold bars soared to multi-year highs in Asia after a spate of physical buying ran down supplies, with dealers in top consumer India expecting a surge in imports this month…according to Reuters, sellers in Hong Kong were still quoting premiums as high as $3 an ounce to spot London prices, their highest level since October, 2011…

Global Silver investment rose in 2012 but fabrication demand dipped as the economy remained soft in many parts of the world, according to a report released today by the Silver Institute…total Silver demand rose to 1.048 billion ounces from 1.039 billion in 2011, according to the World Silver Survey 2013 published by the Silver Institute annually since 1990…data for the report was independently compiled by the London-based metals consultancy Thomson Reuters GFMS…total world Silver investment – including both implied net investment plus coins and medals – rose marginally to 252.7 million ounces last year, with this share of total Silver demand remaining steady at 24%, according to the report…total silver fabrication fell 6.6% to 846.8 million ounces in 2012…this accounted for 81% of total demand…despite the fall, this demand was described as still “relatively robust” by Neil Meader, head of precious metals research and forecasts at Thomson Reuters GFMS…meanwhile, Silver mining production rose 4% to a record 787 million ounces in 2012 from 757 million the year before, with the bulk of the increase being Silver that was a by-product of mining operations for other metals…However, the supply from government sales, Silver scrap and producer hedging all fell last year…total Silver supply from all of these sources climbed to 1.048 billion ounces in 2012 from 1.039 billion the year before…Mexico was the world’s largest Silver producing country in 2012 with record output of 162.2 million ounces, an increase of 6% from the prior year. gold, silver, lead and zinc…other top producing countries included China, 117 million ounces; Peru, 111.3 million; Australia, 56.9 million; and Russia, 45 million…

Barrick Gold (ABX, TSX) Reports Better-Than-Expected Q1 Profit

Barrick Gold (ABX, TSX), the world’s largest producer of Gold by sales, reported first quarter profit this morning that beat analysts’ estimates as costs rose less than expected…net income declined to $847 million, or 85 cents a share, from $1.04 billion, or $1.04, a year earlier…earnings excluding one-time items were 92 cents a share, topping the 86-cent average of 21 estimates compiled by Bloomberg…sales fell to $3.44 billion from $3.64 billion, trailing the $3.49 billion average of eight estimates…the company’s so-called total cash costs per ounce were $561, compared with $540 a year earlier and the $654 average of six estimates…all-in sustaining costs, an important metric recently introduced by Gold producers, were $919 an ounce…Barrick is up 57 cents in early trading to $18.58 which is still a nearly 40% drop for the month of April…according to Bloomberg, Barrick is getting 65% less Gold out of the ground when they mine a ton of earth compared to 13 years ago…like many producers, their profit threshold has been growing higher due to rising energy and wage costs coupled with diminishing ore grades…

Signs of Slowdown In U.S. Factory Activity

Orders for long-lasting U.S. manufactured goods recorded their biggest drop in seven months in March and a gauge of planned business spending rose modestly, adding to signs of a slowdown in factory activity…durable goods orders slumped 5.7% as demand fell almost across the board, the Commerce Department reported this morning…economists surveyed by Dow Jones Newswires expected a 2.9% drop in March orders…today’s report echoes other recent data suggesting solid but slowing growth through the first quarter of the year as consumers and businesses became increasingly cautious…business investment rose 6.7% in January but contracted a downwardly revised 4.8% in February…

Today’s Equity Markets

The Dow is off 11 points to 14709 through the 65 minutes of trading today…below is a 20-year weekly Dow chart from John…RSI(14) is beginning to retreat which could be a sign that the Dow is already in the early stages of a correction after pushing as high as 14888 April 11…note the trendline support…another test of that support, perhaps this quarter, is likely…

In Toronto, the TSX is 88 points higher at 12179 which puts it slightly above its 10-day moving average (SMA) which has provided consistent resistance since mid-March…the Venture has gained 2 points to 943…European shares are up in late trading overseas but off their session highs as German business sentiment data came in worse than expected…a growing number of analysts are of the opinion that the ECB will cut its benchmark interest rate at the next policy meeting in May…in Asia, Japan’s Nikkei average surged 2.3% overnight to close at 13843 while China’s Shanghai Composite recovered  34 points of 1.6% to finish at 2218 after yesterday’s big drop…below is an updated 6-month Shanghai chart from John, and it flashing some warning signs…the trend turned bearish near the end of February and remains so…an important support level is 2150…

Robex Resources Inc. (RBX, TSX-V) Update

Few stocks on the Venture so far this year have performed as well as Robex Resources Inc. (RBX, TSX-V) which is working on numerous Gold projects in Mali, West Africa, the most advanced of which is Nampala…a recent feasibility study for Nampala revealed a pre-tax net present value (NPV) of $113.6 million at a Gold price of $1,250 and an impressive internal rate of return (IRR) of 45.45%…Robex is up another penny-and-a-half in early trading today to 21.5 cents…its 52-week high (last month) is 22.5 cents which helps explain a large offer of 2 million shares this morning at 22 cents which is also a Fibonacci resistance level…half of that has been taken out in the last few minutes…below is a 2.5-year weekly chart from John…the upsloping channel is impressive, and RSI(14) at 57% leaves room for a potential breakout to a new 52-week high…as always, perform your own due diligence…

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

Gold has traded in a range between $1,404 and $1,430 so far today…as of 7:40 am Pacific, the yellow metal is down $18 an ounce at $1,409…Silver is off 57 cents at $22.84…Copper is off its lows but still down 3 cents to $3.11 on weaker-than-expected PMI numbers out of China…Crude Oil is 64 cents lower at $88.55 while the U.S. Dollar Index has gained one-fifth of a point to 82.85…

The U.S. Mint’s website says it has sold 167,500 ounces in Gold coins so far this month, more than eight times year ago levels (the most since May, 2010) and up from 54,000 for all of last month…this is an example of the physical buying, at the consumer level, that has come into Gold after its recent spectacular drop of more than $200 an ounce…but Gold has nonetheless suffered some major technical damage, as our charts have shown, and reclaiming the $1,500 level anytime soon is going to require some incredible heavy lifting…Fibonacci resistance levels are at $1,453 and $1,484, and it’s hard to imagine the shorts aren’t already lining up…

While Mint sales are up dramatically this month, this has also been the weakest month on record for Gold-backed ETP’s around the world…outflows year-to-date are reported to be 277 tons, nearly equivalent to the total (279 tons) for all of last year…”This highlights the dichotomy that has developed between retail and institutional investors”, stated Barclays Capital…

Goldman Sachs said this morning it closed out its short Gold trade initiated earlier this month and is shifting its short-term position in commodities to neutral from overweight, based on a weakening global economic outlook…“We have closed our recommendation to short Comex Gold, as prices moved above the stop at $1,400 an ounce…we have exited the trade significantly below our original target of $1,450 an ounce for a potential gain of 10.4%”,  the firm said…

The TSX Gold Index – In Reverse

It’s often useful, and sometimes very profitable, to take a close look at the HGD which is the Horizons Bear Plus ETF for the S&P/TSX Global Gold Index…it climbed from $15 to $25, a gain of 67%, over just 7 sessions between April 9 and April 17…John’s 6-month chart shows that the bullish trend (for the short-term) has started to weaken, despite this morning’s strength, and a further drop to the 38.2% Fib. level just below $19 is very possible to help unwind overbought conditions…this supports the view that Gold has a good chance of pushing a little higher in the coming days to challenge the resistance levels John has outlined ($1,453 and $1,484)…speculative traders may therefore wish to consider the HGU (the Horizons Bull Plus ETF) to play this potential short-term opportunity while keeping in mind that the “big picture” trend for the HGD remains very bullish…as always, perform your own due diligence…the HGD is up $1.19 to $23.15 through the 80 minutes of trading today while the HGU is down 14 cents at $2.87 which likely presents a strategic entry point…

TSX – S&P 500 Comparison

Below is a long-term chart from John that serves as a very good “visual” of an important change in trend that actually began early last year between the performance of the TSX Composite and the S&P 500…going back over the last decade, you’ll notice the TSX has a history of experiencing periods (usually several years in duration) of under-performance or over-performance vs. the S&P…these periods coincide with strength or weakness in commodities…unfortunately, the TSX has returned to a period of under-performance vs. the S&P 500 and this is a strong sign that many commodities are likely going to struggle for the foreseeable future…adding to those problems, of course, are governments in at least a couple of important jurisdictions (Quebec, and soon British Columbia where the NDP is expected to gain power in next month’s elections) that are not resource-friendly…meanwhile, as the Globe and Mail reported yesterday, Standard & Poor’s is adding to the gloom with a study arguing that Canada’s economy will struggle not only with weak commodity prices but also with restrained consumer spending…“After being a growth leader among advanced economies in 2010 and 2011, Standard & Poor’s Ratings Services now sees the country taking a back seat in the global recovery”, stated Robert Palombi, a fixed-income analyst at Standard & Poor’s…between 2007 and 2011, Canada’s gross domestic product outperformed U.S. GDP, either through bigger growth or smaller declines…that marked the longest stretch of outperformance in at least 30 years, according to S&P…a noticeable part of the problem now is that commodities are no longer providing much support to either the Canadian economy or the stock market, where they represent about half of the TSX Composite in terms of their weighting…S&P believes that U.S. and Chinese growth won’t be strong enough to lift the global economy and drive commodity prices higher…

Today’s Markets

Some better-than-expected earnings reports, and rising new home sales, have lifted the Dow this morning…as of 7:40 am Pacific, it’s up 131 points at 14698…the TSX is off 29 points while the Venture is flat at 944…in Asia, China’s Shanghai Composite plunged 2.6% overnight after a preliminary reading of HSBC and Market Economics’ purchasing managers’ index fell from 51.6 in March to 50.5 in April…the survey was the first peek at economic data from China for April, giving investors an opportunity to assess the health of Asia’s largest economy after first quarter growth came in short of expectations…meanwhile, a sharp drop in German business activity overshadowed an easing downturn in France in April, surveys showed today, raising concerns over a further economic contraction in the euro zone…Markit’s flash euro zone services PMI, an early gauge of business activity each month, rose to 46.6 in April from 46.4 in March, below the 50 line that divides growth from contraction…the overall number was in line with expectations, but the extent of the decline in Germany was an unpleasant surprise…European shares, however, are up strongly in late trading as traders/investors have reacted enthusiastically to a positive Spanish bond auction…

OECD Wars Against Growth In Japanese Debt

The Organization for Economic Cooperation and Development (OECD) has warned Japan that taming its vast debt remains the country’s “paramount policy challenge”, as prime minister Shinzo Abe goes all out to reflate the sluggish economy via aggressive fiscal and monetary stimulus…in its annual survey of Japan, presented in Tokyo today, the OECD noted that government debt has risen faster than the economy has grown for more than 20 years, “almost without interruption”…

Fission Energy Corp. (FIS, TSX-V) Update

Fission Energy (FIS, TSX-V) and Alpha Minerals Inc. (AMW, TSX-V) reported excellent drill results yesterday from their Patterson lake uranium discovery including 53 metres grading 6.57% U3O8 in PLS13-051…that interval included 10.5 metres at 29.26% U3O8…this was a vertical hole completed to a depth of 282.5 metres, and it was collared 405 metres east of discovery hole PLS12-022 (8.5 metres at 1.07% U3O8…FIS climbed as high as 94 cents in early trading this morning after it closed up 6 cents yesterday on 2.8 million shares (all exchanges)…importantly, the stock was able to hold above its opening price yesterday as there was a gap-up following the halt…technically, FIS is starting to look stronger, as shown in John’s updated chart below, and a close above the 10-day moving average (SMA) at 92 cents today would be another encouraging sign…as of 7:40 am Pacific, FIS is up a penny at 91 cents…

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

Gold has been as high as $1,440 today as a rebound continues from the dramatic sell-off early last week…as of 7:20 am Pacific, bullion is up $16 an ounce at $1,423…hedge funds and money managers raised their net longs in Gold futures and options in the week to April 16, a report by Commodity Futures Trading Commission (CFTC) showed on Friday, as new money entered the market at lower prices – likely in anticipation of a rally out of temporarily deeply oversold conditions…Silver is 13 cents higher at $23.42…Copper is off a penny at $3.14…Crude Oil is flat at 87.99 while the U.S. Dollar Index is up slightly at 82.80…

Gold has three Fibonacci resistance levels in the $1,400’s as John’s chart showed Friday – $1,421 (38.2%), $1,453 (50%) and $1,484 (61.8%)…given the breach of critical support, first at $1,550 and again at $1,500, the primary trend at the moment has to be considered bearish…it’s also important to keep in mind a Fibonacci 50% retracement of the secular trend from the $253 low in 1999 to the $1,924 high in 2011 would take bullion down to $1,088…few analysts are expecting that, which probably makes it more likely…so what we’re saying is that it’s wise to be cautious of any rallies in Gold at the moment when the next $300 move is more likely to be to the downside than the upside…longer-term, we’re of the strong opinion that Gold will reassert itself and ultimately push through the 2011 high…a major correction, as Gold is in the process of now, will help lay the foundation for that move…

The View From Barclays Capital

Barclays Capital says it now looks for Gold to average $1,483 an ounce in 2013, describing the macroeconomic backdrop as still supportive but the near-term outlook as fragile…central banks are likely to remain net buyers, unlike the 1990’s when they were net sellers, Barclays said…however, there is potential for continued selling of exchange-traded products…the supportive macroeconomic backdrop includes ongoing global central-bank balance sheet expansion, negative real interest rates, loose monetary policy and risk of longer-term inflation, according to Barclays…“Indeed our economists expect most major central banks to remain in easing mode throughout 2013″, Barclays said…“Despite the heightened uncertainty across Europe, Gold has been focused upon the U.S. market and the better-than-expected macro data has weighed upon prices…indeed, hawkish Fed minutes have been interpreted as suggesting that quantitative easing will be curtailed sooner than expected…however, our economists see the FOMC (Federal Open Market Committee) voting lineup for 2013 as having a more dovish tilt than the full group of FOMC participants”…Barclays said it does not feel market dynamics have switched to the low Gold-price environment of the 1990’s when gross shorts hit record highs, central banks were net sellers and producers were hedging with prices testing the cost of production…“Prices are currently closing in on the marginal cost of production plus sustaining capex, but hedging activity predominantly relates to project-related financing”, Barclays said…“gross shorts are elevated, but central banks remain on the buy side and, despite the Cyprus news, we expect official sector activity to remain on the demand side…we now expect prices to average $1,483/oz in 2013 and $1,450/oz in 2014…Gold will need to find support from the physical market in the near term, but investor interest continuing to unravel poses the largest downside risk we see for prices in the forthcoming weeks”…

Meanwhile, Barclays’ chief technical strategist, Dhiren Sarin, told CNBC this morning that last week’s plunge in Gold reflects a loss of faith in quantitative easing measures by central banks in the West, and the next asset class that could be vulnerable to heavy selling is equities…”The breakdown in Gold in euros and U.S. dollars tells us that some of the belief in quantitative easing measures has faded, and policies by central banks aren’t flowing through to investors…the asset class most vulnerable for a selloff after commodities is likely equities”, he stated…he expects European and U.S. stocks to be most at risk…

Silver Updated Charts

As usual each Monday morning, John has fresh long-term and short-term charts for Silver…there are several “big picture” problems with Silver at the moment which point to a heightened risk of a drop to at least $19.50 an ounce in the coming months after breach of critical support in the mid-$20’s…a bearish -DI/+DI crossover supports this view…in addition, buying pressure has turned to selling pressure, and last week’s decisive move below the pitchfork tine is also highly significant…RSI(2) is currently at an extreme low, so the current mild rally is not surprising but it will meet stiff resistance…note the very pronounced down trendline in place since the 2011 high – similar to the problem the Venture is having…

Silver Short-Term Chart

Below is a 3-year weekly chart that shows how intense the sell pressure was last week…over the short-term, Silver will need to demonstrate support at $22 an ounce – last week’s low…at the moment, oversold conditions are clearly prevalent…the $26 level provided strong support on numerous occasions over the last couple of years – that will now be strong resistance…

Today’s Equity Markets

North American markets are off modestly through the first 50 minutes of trading today…as of 7:20 am Pacific, the Dow is down 47 points at 14501…Caterpillar (CAT, NYSE) posted earnings and revenue that missed Wall Street expectations this morning…it also cut its full-year outlook for 2013 to reflect a drop in demand for heavy equipment from its mining customers…Canadian earnings season kicks off this week…the TSX has lost 18 points in early trading while the Venture has gained 4 points to 943…the Venture has an opportunity today to post 3 consecutive winning sessions for the first time since mid-January…volume remains low, however, and we still expect a test of support at 860…in Europe, shares are moderately higher in late trading…meanwhile, Japan’s Nikkei average climbed 252 points to finish the day at 13568, its highest level in almost five years…below is a 20-year monthly chart from John that shows the Nikkei is on track to reach the Fibonacci target of 14000…

TomaGold Corp. (LOT, TSX-V) & Quinto Real Capital Corp. (QIT, TSX-V)

TomaGold Corp. (LOT, TSX-V) and Quinto Real Capital Corp. (QIT, TSX-V) reported additional results this morning from Monster Lake in northwestern Quebec…while the grades and widths are generally favorable, they did not exceed expectations or surprise to the upside – hence the selling pressure…keep in mind, as well, that the combined market cap for this play was already $15 million after Friday’s close…the market also has little to speculate on over the coming weeks until the next round of drilling commences near the end of May…best results from holes 102 through 107 included 11.30 metres grading 8.65 g/t Au (M-13-105) and 4.8 metres grading 37.1 g/t Au (M-13-106)…the current strike length of the 325 Zone is over 150 metres while the vertical depth is 320 metres…the companies believe the system follows a classic pattern of Archean Gold deposits, so we’ll see what deeper drilling reveals…this is still an interesting play that deserves to be watched closely, but we’re not surprised with the market’s negative reaction today…below is the LOT chart through Friday…weakness has been creeping into the technical picture recently, especially after a break below the Fibonacci 38.2% retracement level at 24 cents…

Fission Energy (FIS, TSX-) and Alpha Minerals (AMW, TSX-V)

Fission Energy (FIS, TSX-V) and Alpha Minerals (AMW, TSX-V) were halted prior to market open, pending news…FIS closed Friday at 84 cents, a 33% drop from its recent 52-week high of $1.26 and in line with the pullback that John expected…we’ll see what the news brings today…technically, it’s important that support holds around 80 cents and that the 50-day moving average (SMA) doesn’t begin to decline…

Note: John, Jon and Terry do not hold share positions in LOT, QIT, FIS or AMW…