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TSX Venture Exchange and Gold

The Venture posted back-to-back session gains Thursday and Friday for just the third time since the beginning of March (we haven’t seen 3 consecutive winning sessions since mid-January), but still finished down a whopping 84 points (8.2%) for the week as it closed at 939 – the first weekly close below the 1000 level in just over 4 years.  The 11th straight weekly drop was due to across-the-board weakness in commodities including a spectacular plunge in the price of Gold which was smacked down into the low $1,300’s before recovering modestly to close Friday at $1,404.

While it’s possible the Venture could rally mildly out of temporarily oversold conditions in the coming days, the fact of the matter is that this Index is still very vulnerable to further declines and at the very least will likely need to test the next significant support level which is around 860. The gains Thursday and Friday were tepid and on light volume. Below is a 13-year monthly chart that puts into proper perspective the severe technical damage that has been inflicted on this market in recent weeks in particular.  Failure to hold above last year’s low of 1154 was a critical breach.  The good news is, eventually (impossible to predict exactly when at this point) there is going to be a buying opportunity of a lifetime in the Venture, or at least a very powerful rally that could be extremely profitable for those investors who are properly positioned at the time.

Gold

Gold got crushed Monday and Tuesday, falling as low as $1,321 an ounce in its most spectacular sell-off in over 3 decades.  A number of factors – technical and fundamental – are contributing to Gold’s weakness at the moment, and the shear power of last week’s drop convinces us there’s more downside action to come.  John’s long-term charts show a serious technical breakdown in Gold and the distinct possibility of an additional drop of more than 20% from current levels (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).  For now, Gold has potential to rally into the mid-$1,400’s which would help unwind the temporarily very oversold conditions that emerged early last week.  For those who think $1,321 last week was the bottom for bullion, Gold stocks and the Venture Exchange are saying it wasn’t.  The Venture topped out several months before Gold did in September, 2011, and we’d expect to see the Index bottom out in the same way (ahead of Gold) and begin to out-perform the metal prior to bullion’s next major advance.

Silver fell $2.56 last week to close at $23.29.  Copper was also weak, declining 20 cents to $3.15.  This is the first time since the fourth quarter of 2011 that Copper has closed below $3.20 a pound.  Technically, as John’s chart showed in Thursday’s Morning Musings, there’s more weakness to come in Copper which highlights the fact that deflationary forces are at work in the global economy.  Crude Oil lost ground last week as well, falling $3.28 a barrel to $88.01.  The U.S. Dollar Index, meanwhile, gained two-thirds of a point to close at 82.75.

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 is firmer today with physical demand giving the market a lift out of temporarily oversold conditions…as of 7:20 am Pacific, bullion is off its highs of the day but still up $10 ounce at $1,402…Silver is a nickel higher at $23.33…Copper is off 8 cents at $3.12…Crude Oil has gained 47 cents to $88.20 while the U.S. Dollar Index is down more than one-tenth of a point at 82.42…

The World Gold Council came out swinging yesterday with a strong statement:

“It has become increasingly clear over the course of the past week that the fall in the Gold price was triggered by speculative traders operating in the futures markets…their short-term view of generating a trading profit is in stark contrast to the views of long-term investors in Gold, as evidenced by the massive wave of physical Gold buying that began over the weekend and accelerated following Monday’s further decline…the surge in Gold purchases is spanning markets from India and China to the U.S., Japan and Europe…buyers are viewing this as an opportunity to purchase Gold at prices not seen in the past couple of years.

“The World Gold Council is uniquely positioned in the Gold market to get immediate feedback on market patterns…we are already seeing shortages for bars and coins in Dubai, while premiums in Mumbai are at $26/oz and $6 in Shanghai, indicating that buyers are willing to pay more than current spot prices for the metal.

“Clearly the desire to own Gold, as an investment and for adornment, has made itself felt in the physical market…Gold operates on the basic economic fundamentals of demand and supply…our view is that demand is strong while supply remains constrained, and that this dynamic ultimately drives the long-term price of the metal”…

“It’s Just Like The Sales After Christmas”

“It’s just like the sales after Christmas”, said Nigel Moffatt, treasurer at Perth Mint, in a Reuters story this morning…the Perth Mint, which opened in 1899 in response to the discovery of rich Gold deposits in Coolgardie and Kalgoorlie, refines between 300 and 400 tonnes of precious metals each year at what it says is the largest facility in the southern hemisphere…”Anything you could buy $200 cheaper today than you could last week becomes fairly tempting”, Moffatt added…”It’s surprising how such enormous liquidation brings such enormous interest at the other end from small investors…what we keep in terms of retail stocks, yes, they are being depleted fairly quickly…as usual, it appears that China is leading the charge”…

Updated Gold Chart

The big question is, has Gold put in a true bottom yet or are we just seeing a rally out of the very oversold conditions that emerged earlier this week?…we continue to remain very cautious given what the long-term chart is telling us after bullion broke critical support levels at $1,550 and $1,500…deflationary forces in the global economy are strengthening, so we disagree with the World Gold Council when it states that the recent plunge in the Gold price was merely the result of actions by speculative, short-term thinking traders…that’s what Gold bugs would like to hear (we continue to be “Gold bugs” as we believe bullion and Gold stocks have great value for the long-term), but something more fundamental is afoot at the moment and we’ll explore that angle in more detail next week…

Below is a 6-month daily chart for Gold which shows Fibonacci resistance levels at $1,421, $1,453 and $1,484…any near-term rallies are going to be very hard-pressed to climb above $1,484, for sure – it will take massive heavy-lifting to overcome attacks from the shorts immediately below $1,500, and for that matter throughout the $1,400’s…perception is reality, and right now the reality in the minds of many traders is that the bull market in Gold is over…

Copper & Oil – Also Gearing Up For Big Downside Moves?

Yesterday, we posted a Copper chart from John which was decidedly bearish…we’re just the messenger calling it like it is…we’d rather see Copper zoom higher but the reality is, there are significant risks to the downside in this metal at the moment and that’s not a good sign for the global economy or markets in general…at the very least, expect Copper to strongly test a support band between $2.60 and $3.00…

Our other concern is Crude Oil…below is a very interesting 10-year monthly WTIC chart…”decision time” for Crude is drawing near given the symmetrical triangle formation…will Crude break to the upside, or the downside?…it’s impossible to say based on this chart…fundamentally, however, markets go up or down based on supply and demand…a significant amount of new supply is coming into the Oil market (notably from the United States which in five years may not have to import Oil from any country other than Canada) and if you accept the premise that growth in the global economy may disappoint this year, then you have a good case that WTIC will likely break to the downside (lower Oil prices, however, would ultimately help spur economic growth and would also be positive for Gold stocks)…

TD Securities:  Market Balances For Some Industrial Commodities Tilted Toward Oversupply For Now

“Even the previously uber bullish U.S. equity market is starting to signal economic trouble ahead”, according to TD Securities…muted demand outlook means the market balances for a number of industrial commodities likely will remain tilted toward oversupply for now, TDS says…”A poor demand outlook in the coming months also had a negative impact on platinum and palladium, metals which are likely to have long-term structural deficits”, TDS believes…”The PGM’s group should have a speedier recovery when the demand conditions do eventually improve, but there will be a short-term price to pay nonetheless…in addition, the growing likelihood that supply will grow at a faster pace than demand for industrial commodities like copper, aluminum and Oil have contributed to the industrial commodity slide of late…the fundamental change in the long-term supply/demand balance expectation has been the greatest for Copper, which has moved from a deficit to a surplus outlook…this suggests that Copper should no longer trade significantly above the cost structure”…

According to CPM Group, a New York-based metals consultancy, $2.80 is the total cost paid by some of the world’s highest-cost Copper miners to produce a pound of the metal…a sustained period at or below this price would force some mining companies to defer expansion plans and shutter unprofitable production…

Today’s Markets

China’s Shanghai Composite rallied strongly overnight, closing 47 points higher at 2245…analysts stated that comments from China’s Central Bank suggesting a widening of the yuan’s trading ban fueled the move…China was Asian’s top performing market for the week, climbing 1.7% to a 3-week high…European shares are up modestly in late trading overseas while U.S. markets are down for the third day in a row…as of 7:20 am Pacific, the Dow has retreated 38 points to 14499…the TSX is fighting to stay above the 12000 mark…it’s up slightly through the first 50 minutes of trading at 12008…the Venture, meanwhile, is at 936 for a gain of 3 points…

We certainly haven’t given up on the Venture, and it’s important to point out that critical reversals in this Index have tended to occur about every 2 years as shown in John’s chart below…this gives us hope that at some point during this second quarter, the Venture bear market may finally bottom out…the next major support level is 860…

CDNX – Gold Comparative Chart

Below is a 2-year weekly chart from John that shows how the Venture and Gold are both currently in “cliff mode”, searching for a bottom which may not be far off but investor patience is critical…RSI(14) for the Venture on this 2-year weekly chart is at 15.59, an extreme level but it could very well fall a little more…

Giyana Gold Corp. (WDG, TSX-V)

In the midst of these poor markets in April so far, it’s interesting to note that Giyana Gold (WDG, TSX-V) is up 63% this month based on yesterday’s closing price of 75 cents…it finished March at 46 cents…note the support and resistance areas within the channel over the past couple of years…

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

Gold briefly topped $1,400 an ounce this morning amid reports of an increase in physical demand for the metal with prices at a 2-year low…as of 7:45 am Pacific, bullion is up $18 an ounce at $1,395…Silver is up a nickel at $23.36…Crude Oil is relatively unchanged at $86.75 while the U.S. Dollar Index is down nearly one-fifth of a point at 82.47…

Physical demand for Gold at these reduced price levels appears to be picking up…the China Gold Association has reported that retail sales tripled across China Monday and Tuesday…meanwhile, HSBC says, “Although still weak, the underlying physical market is responding to the price decline…we believe coin and small bar demand is rising…this is evidenced by a rise in premiums for Gold bars in Singapore to their highest levels in 18 months, according to Reuters…we also believe central banks, notably in the emerging world, may be attracted to the market at these prices…these USD-laden central banks still require bullion to help diversify their foreign-exchange holdings”…

Holdings in bullion-backed exchanged-traded products lost 3.5% to 2,364.9 tons this month, according to data compiled by Bloomberg…holdings in the SPDR Gold Trust, the biggest ETP backed by Gold, are 1,134.79 tons, according to data on the fund’s website, the lowest level in 3 years…there is the potential for a further selloff in ETP holdings, Goldman Sachs said in a report dated yesterday…about 11% of the remaining assets were bought at levels at or above current prices, Goldman said in the report…

Updated TSX Gold Index Chart

While some pundits are saying Gold may have bottomed Tuesday when it plunged to the low $1,300’s, we’re not so sure based on John’s charts plus the fact the Gold stocks (and the Venture Exchange) have not yet signaled a turnaround in the metal…the type of day that we’re looking for to indicate that Gold may have found a bottom – even a temporary low – is when bullion is down and the Gold stocks suddenly take off in the opposite direction on strong volume, followed soon thereafter by a reversal in the metal…we haven’t seen that yet in this decline but it’s something everyone should be watching for…one of our major concerns regarding Gold at the moment is that this has the look and feel of a correction that is not normal, so extra caution is warranted as the overall pullback has the potential to be more severe than most might expect…while the buying opportunity of a lifetime may present itself at some point in the near future, the key is to be patient…unfortunately, all indications are that neither the Venture Exchange or the TSX Gold Index have found a bottom yet…it’s appearing increasingly likely that the Venture is going to test support at 860, as we suggested last weekend, while support levels for the TSX Gold Index are at 175 and 150 as shown in this 12-year monthly chart…RSI(2) is at an extreme low…this suggests that the Gold Index is in the process of trying to find a bottom but additional significant weakness could still occur…it’s up a few points at 188 in early trading today…

What Is Copper Telling Us?

With so much attention focused on Gold recently, pundits are overlooking the technical deterioration that continues in Copper as the metal has closed below $3.20 for the first time since October, 2011…earlier this month, Copper’s 50-day moving average (SMA) crossed below the 200-day SMA…RSI(14) on John’s 5-year chart is at 42% and falling quickly…Copper has a critical support band between $2.60 and $3.00 and a near-term test of the top of that support ($3.00) appears almost certain…weakness in Copper is usually not a good sign for the direction of the global economy or the broad equity markets…

Today’s Markets

Asian markets were mostly mildly lower overnight, though China’s Shanghai Composite Index posted a slight gain to close at 2198…the sudden reversal in the Chinese Index in early February corresponds with the weakness that started around that time in commodities, the TSX and the Venture Exchange…what these markets appear to be confirming is a slowdown/problems in the Chinese economy which would certainly have a negative impact on global economic growth…the Shanghai is currently caught in a downtrend with important Fibonacci support at 2150…if the Shanghai cannot hold that level, then batten down the hatches…

European shares are mixed in late trading overseas while the Dow is off 36 points through the first 75 minutes of trading in New York…weekly U.S. jobless claims gained 4,000 to a seasonally adjusted 352,000, according to the Labor Department in its report issued this morning…meanwhile, business activity in the mid-Atlantic region expanded at a smaller-than-expected rate, according to the Philadelphia Fed survey…and a gauge of future U.S. economic activity dipped in March for the first time in seven months, according to the Conference Board…the TSX is up 12 points as of 7:45 am Pacific while the Venture is off 2 points at 922…

Ainsworth Lumber (ANS, TSX) Updated Chart

Forestry/lumber stocks have significantly outperformed the TSX since last summer, thanks to a strong recovery in the U.S. housing sector…Ainsworth Lumber (ANS, TSX), for example, an OSB producer, has more than tripled in less than a year…as expected, a normal correction has started in Ainsworth and in other stocks in this sphere…for those who may have missed the initial run-up, another good entry may appear sometime this quarter…below is an updated ANS chart (2-month daily) that provides some guidance with regard to near-term support levels…the rising 100 and 200-day moving averages, not indicated on this chart, are at $3.20 and $2.80, respectively…the Fibonacci retracement levels are at $3.40, $3.57 and $3.75…as always, perform your own due diligence…and remember, patience is a virtue – the trend is your friend, and the short-term trend in the overall markets right now is negative…ANS is up 2 pennies at $3.84 as of 7:45 am Pacific…

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

Gold has traded between $1,365 and $1,396 so far today…as of 7:30 am Pacific, the yellow metal is up $19 an ounce at $1,388…Silver has reversed earlier losses and is 19 cents higher at $23.53…Copper – and this isn’t a good sign – has declined another 12 cents to $3.19 as the International Monetary Fund cut its growth forecast for China…Crude Oil has slipped 84 cents a barrel to $87.88 while the U.S. Dollar Index is up two-thirds of a point to 82.47…

Views On Gold

Eric Sprott, commenting in the Globe and Mail this morning, likens the current pullback in Gold to 2008 when the price fell 30% in eight months amid the financial crisis to $700 an ounce, only to rally to nearly $900 by the end of the year and all the way to $1,900 in the late summer of 2011…

Goldman Sachs, which last week astutely changed its long Gold call to a short recommendation, says a huge shift has just happened in the commodity market, especially in bullion and natural gas…”There are weeks when decades happen”, Goldman analysts wrote in a research note yesterday as reported in an article this morning by CNBC’s Matt Clinch…”Over the previous five years the two highest conviction trades in the commodity complex were being long Gold in response to the debasing actions of central banks around the world and short natural gas in response to the shale revolution…these two trends have now likely reversed and our conviction in these new trends has risen significantly over the past month”, they added…Goldman’s recommendations aren’t always money-makers…according to both Reuters and the Financial Times, Goldman closed out its long Brent Crude recommendation Monday with a loss of 15% for investors who followed the call…back in 2008, Goldman was calling for $200 Crude Oil when it was trading around $130 a barrel, and we all know what happened after that…late in 2011, they were also anticipating new all-time high Gold prices in 2012 – as many people were (including us)…

According to Massachusetts-based EPFR Global, exchange-traded products linked to Gold have dropped $37.2 billion in 2013 as the metal hit a two-year low yesterday…Gold funds have suffered net outflows of $11.2 billion this year through April 10, the most since 2011, while global and U.S. equity funds had net inflows of $21.25 billion…

Central banks are among the biggest losers due to Gold’s collapse as they own 31,694.8 metric tons, or 19% of all the Gold mined, according to the World Gold Council…after rallying for 12 straight years, the metal has tumbled 30% from its September, 2011, record of $1,924 an ounce…global central bank monetary easing, along with growing corporate profits and slowing inflation, has boosted global equities by $2.28 trillion this year, according to data compiled by Bloomberg, and part of the stampede into equities (U.S. and Japan in particular) has certainly come at the expense of Gold…

According to the JPMorgan index, global inflation peaked at 4% in 2011 and has fallen steadily since…global prices in February were up only about 2.5% from a year earlier, the bank’s index says…JPMorgan has two scenarios for what happens next…its main one is based on a “bottom-up” collection of analysts’ forecasted price trends sector by sector around the world…that shows inflation rising very slightly from its current level for the rest of 2013…in contrast, JPMorgan’s “top-down” analysis, which is prepared by the banks’ economists and takes into account prices of commodity futures contracts, among other factors, shows inflation moving down closer to 2% in the second half of 2013…the headline on JPMorgan’s report – “The Slide In Global Inflation May Not Be Over”…

Today’s Markets

Asian markets were mixed overnight…Japan’s Nikkei average climbed 161 points to close at 13383…China’s Shanghai Composite, meanwhile, was quiet as it slipped just a point to finish at 2194…the Financial Times reported today hat a senior auditor in China had warned that local government debt is “out of control” and could spark a bigger financial crisis than the U.S. housing market crash…the report comes after disappointing growth numbers from China on Monday sparked a sell-off in commodities which fed through to global equities…European shares are significantly lower in late trading overseas…in North America, the Dow and TSX are both off more than 100 points through the first hour of trading while the Venture is down another 15 points at 945…

Low Cost Producers To Watch

The possibility of another down-leg in Gold could bring about some incredible bargains for long-term investors in producers with strong balance sheets and all-in “sustaining costs” that are significantly below the industry average…as we’ve stated many times here before, one of the best-run companies in the Gold sector in our view is New Gold Inc. (NGD, TSX-V) which will be reporting its Q1 results May 1…NGD‘s adjusted net earnings for all of 2012 were 40 cents per share ($184 million), and the company finished the year with a cash balance of nearly $700 million…assumptions used in NGD’s 2013 guidance were similar to those of most of its peers and include average Gold, Silver and Copper prices of $1,600 per ounce, $30 per ounce and $3.50 per pound, but New Gold is better positioned than most to handle the lower price environment for these metals…not surprisingly, the New Gold chart is showing weakness at the moment, and where we see the strongest technical support is in the $4 to $5 range which implies we haven’t seen the bottom yet in Gold…the last time NGD was trading at $5, Gold was at $1,250 which could happen again…NGD is up slightly in early trading at $7.05…

Yamana Gold (YRI, TSX)

Yamana Gold’s (YRI, TSX) chart is also showing increased down momentum which again suggests that Gold hasn’t hit bottom yet…YRI will be reporting its Q1 results April 30…CEO Peter Marrone has the company focused on quality ounces per share which contribute to cash flow and earnings growth…YRI is down about 30% since Gold’s all-time high in September, 2011, vs. a nearly 60% drop since that time in the TSX Gold Index…nearest strong support on the chart ranges from $9.20 to $11.00…as of 7:30 am Pacific, YRI is up 19 cents at $12.07…

D’Arianne Resources Inc. (DAN, TSX-V)

A company in the non-precious metals sector that is certainly worthy of our readers’ due diligence is D’Arianne Resources Inc. (DAN, TSX-V)…we’ve mentioned DAN before in this space, and the stock has also been performing well in the context of a bad overall market…D’Arianne is developing a large phosphate project (phosphate of course is an essential component of fertilizer) in Quebec with a bankable feasibility study expected later this year…the proposed open-pit Lac a Paul mine is expected to produce high quality igneous apatite concentrate with little or no containment…D’Arianne is in a sector that many analysts are growing increasingly bullish on…technically, the stock has been trading in a horizontal channel between 80 cents and $1.47 since November, 2011…a breakout at some point this year seems highly possible as this interesting project continues to progress…DAN closed at $1.31 yesterday but hasn’t traded so far this morning…

Note: John., Jon and Terry do not hold positions in NGD, YRI or DAN.

Gold is rebounding moderately after dipping below $1,350 overnight…yesterday’s drop of around $125 an ounce eclipsed the rout on January 22, 1980, a day after bullion hit its then-record $850 on global panic over oil-led inflation due to the Soviet invasion of Afghanistan and the Iranian revolution…as of 6:00 am Pacific, Gold is up $43 an ounce at $1,396…Silver has gained $1.14 to to $23.83…Copper is off a penny at $3.27…Crude Oil is down 36 cents to $88.35 while the U.S. Dollar Index is off one-fifth of a point to 82.12…

Bullion finished yesterday 4.5 standard deviations below its 50-day moving average (SMA), the most oversold it has been – based on that measurement – since 1975 as the chart from Bespoke Investment shows below…so it’s no surprise we’re now starting to see Gold begin to rebound, especially with some short-covering taking place…however, does this mark a true reversal – has Gold’s decline already run its course?…or is Gold now in the midst of a “sucker’s rally”?…as you’ll see in our comments this morning, this is a very complex scenario that has to play itself out…

RBC:  “Significant Pain At $1,300 Gold”

In a study published yesterday, RBC Dominion Securities Inc. predicted “significant pain” if Gold were to trade at an average price of $1,300…“We would expect all the Gold producers in our coverage universe to cut all discretionary expenses, cut capital spending sharply, defer new capital development programs and in some cases cut dividends”,  the bank said in the report looking at producers to assess exposure to falling prices at price levels ranging from $1,500 an ounce to $1,200 an ounce…at $1,200 per ounce, the bank said, companies such as Barrick (ABX, TSX),  Kinross (K, TSX) and Newmont Gold Co. (NMC, TSX) could be downgraded to non-investment-grade levels…in the falling Gold price environment, the bank said, companies with big projects on the go may require additional debt to complete plans…Goldcorp Inc. (G, TSX), New Gold Inc. (NGD, TSX), Yamana Gold Inc. (YRI, TSX) and Agnico-Eagle (AEM, TSX) are among the miners best able to withstand lower prices because they have lower costs, lower levels of debt and have recently completed new mine development…miners with a higher proportion of Gold production from underground mines are also in better shape because they can change plans to access higher-grade, lower-cost ore, the bank report stated…

Gold 12-Year Chart

John has two long-term Gold charts this morning…the first chart (12-year monthly) shows how Gold has found support – for now at least – in the low $1,300’s, just above the Fibonacci 50% retracement level ($1,306)…RSI(14), however, has broken below previous support during the Crash of 2008 and this is a major concern…in addition, the Slow Stochastics indicator shows additional weakness in the price of Gold is possible…in other words, we need to be careful about trying to catch a falling knife here, or thinking that a bottom in Gold has already been put in…traders are likely going to short any rallies for now…

Gold 20-Year Monthly Chart

Below is an even longer-term chart from John that goes back two decades and includes, of course, the $253 low in 1999 and the $1,924 all-time high in September, 2011…April is the first time that sell pressure has been dominant since 2002…RSI(14) at 39% can fall further while the ADX indicator shows a bearish crossover for the first time since mid-1999…again, this now appears to be more than just a “normal” correction…rallies are going to occur from time to time to help alleviate extreme oversold conditions, but one cannot rule out the possibility of a further drop in Gold to the long-term Fibonacci support levels between $1,088 and $1,286…that is the risk…again, this is a complex scenario…the average “all-in-sustaining costs” for many producers is around $1,100 an ounce, so we little likelihood of Gold dropping below that level…

TSX Gold Index Chart

Gold producers, of course, have taken a beating with the TSX Gold Index down an incredible 24% through just the first half of April (36% for the year) as it closed yesterday at 194…the previous support band between 225 and 240 will now provide very stiff resistance on any move from current levels to the upside…RSI(2) has fallen below 1, the most extreme reading we’ve seen over the last dozen years…there is long-term support at 200, so we’ll see if this can hold in the coming days…there are still significant downside risks (following a rally out of grossly oversold conditions) given the chart damage that has been inflicted…

Today’s Markets

Asian markets trimmed their losses overnight with Japan’s Nikkei average closing down 54 points at 13221…China’s Shanghai Composite closed up 13 points at 2195…European shares are down moderately but off their session lows…German data released this morning shows investor morale has tumbled in April…stock index futures in New York as of 6:00 am Pacific are pointing to a strong opening on Wall Street today…however, as John’s chart shows, a correction in the Dow to at least the 14000 level now seems certain given the current technical picture as overbought conditions begin to unwind…

The TSX fell a whopping 333 points yesterday to close just above the 12000 level while the Venture Exchange plummeted 64 points to 958 – the first time this Index has been below 1000 since early 2009…next major support is at 860…

Commodity Weakness, Deflationary Scenario

The technical deterioration in the TSX is disturbing, and of course the Venture already flashed a warning signal in February when it could not hold an important support level in the 1150’s…this is about more than a sell-off in Gold…there is commodity weakness across the board which is painting a troubling deflationary picture of the global economy…China is a major concern, and its lower-than-expected Q1 GDP growth released yesterday raises alarm bells when viewed in the context of other economic data that has come out of that country recently…a report from the Financial Times showed that the world’s top commodities traders have pocketed nearly $250 billion over the last decade, riding a commodities super-cycle caused by the industrialization of China and other emerging countries…these boom years for China have now been superseded by uncertainty, according to Citi Bank….”Chinese overcapacity remains an issue, as the investment-led boom over the past few years increased plant capacity”,  it says…”A tighter financing environment awaits local governments due to the need to contain the expansion of local government debt and re-orient the economic model”…steel, cement, petrochemical, non-ferrous metals and thermal coal power could all be affected due to this belt tightening, according to Citi…

The commodity-sensitive TSX has fallen nearly 900 points over the past month and likely has further to go on the downside which is why we have been highlighting the double-short HXD ETF (S&P/TSX 60) ever since it was trading in the $7.60’s as our “Contarian Call” back in February…it ran into resistance around $8.40 and then found support recently at $8.00 before shooting back up, as predicted…this is essentially the TSX “in reverse”, and the fact this chart pattern is so bullish should be of concern to any TSX “longs”…this is different than the spike last November…the 6-month daily chart of the HXD below suggests there is more trouble ahead for the TSX despite today’s rebound…

Gold is getting hammered again today with much of the selling due to technical factors after bullion breached critical support levels Friday…as of 7:20 am Pacific, Gold is off $78 an ounce to $1,398 after tumbling $84 an ounce Friday…this is almost like August/September of 2011 in reverse when Gold was making $50+ daily moves to the upside on its way to an all-time high…it’s unlikely, however, that the $1,400 area is a bottom…a 50% Fibonacci retracement from the high of just over $1,924 would be considered a normal correction, and that would bring bullion down to the low $1,300’s as John shows in the 12-year monthly chart below…whether the Fib. 38.2% level ultimately gets tested or not is anyone’s guess in these volatile markets, but the low $1,300’s seems a certainty at this point – how long that takes to play itself out is again impossible to predict…we live in a world, however, where markets can move violently very quickly as we all witnessed in 2008…Gold needs to find a bottom – ideally, the quicker, the better…

The negative mood surrounding Gold has been heightened by the news last week that Cyprus would sell Gold as part of its bailout…although the quantity of Gold involved is tiny in the context of the overall market, at roughly 10 tonnes, Gold traders fear other financially troubled euro zone countries could follow suit at some point down the road…Portugal, Italy, Greece and Spain – the so-called PIGS, are believed to hold a combined 3,200 tonnes of Gold with about 75% of that total in Italy’s hands…

Silver is getting whacked again today as well…as of 7:20 am Pacific, it’s off $2.40 an ounce to $23.61 after dipping briefly below $23…John’s 3-year weekly chart below shows deeply oversold conditions and a support band between $24 and $26 an ounce…below that, the next major support begins at $19.50…

Silver Short-Term Chart

Silver Long-Term Chart

In recent weeks, John pointed out that Silver was approaching “decision time” and indeed it has broken below the “pitchfork” line as opposed to climbing above the down trendline in place for the past couple of years…RSI(2) shows extreme oversold conditions, though these could persist for a little while yet…Silver may ultimately have to test support around the $20 level before a bottom is put in…

Commodities are soft across the board today with Copper down 13 cents to $3.22 as China released a disappointing first quarter GDP number of 7.7%…the market was expecting an expansion of 8% which has led to a loss of confidence in the world’s second largest economy…”Slowing first quarter 2013 GDP growth despite massive credit expansion, much of it off balance sheet, spells bad, bad news for the Chinese economy”, stated Patrick Chovanec, chief strategist at Silvercrest Asset Management…when “exploding” credit growth is met by slower economic growth, this equates to a “dead end”, he added…Crude Oil is down nearly $3 a barrel to $88.55 while the U.S. Dollar Index is flat at $82.24…

Today’s Equity Markets

Will this be the week that the Dow and the S&P 500 finally run out of gas?…about a third of the Dow Industrials and 70 S&P 500 companies, across the banking, consumer, pharmaceutical, technology and industrial sectors, report earnings this week…investors will be mining those reports for any indication of what corporate America expects to see in the coming months, and whether it’s confirming expectations for a mid-year dip in economic growth…the Dow is down 85 points through the first 50 minutes of trading…the TSX, more sensitive to commodities, has lost 219 points (currently at 12118) while the Venture is now below the 1000 mark for the first time since early 2009…as of 7:20 am Pacific, the Venture has retreated 47 points to 975…Asian markets were weaker overnight…Japan’s Nikkei average fell 209 points to close at 13276 while China’s Shanghai Composite lost 25 points to finish at 2182…European markets are down just under 1% in late trading overseas…

The head of institutional portfolio strategy at Oppenheimer Asset Management, Andrew Burkly, told CNBC with regard to the big run-up in the Dow and the S&P, and the sell-off in commodities: “Commodities are representing another example of just how odd this lack of risk-embracing rally we’ve seen is…while stocks are at all-time highs, a lot of risk indicators are not participating”…Burkly sees that as a sign of trouble for the market, and it is paralleling a disconnect in high-beta stocks which have been lagging the broader market for the past several weeks…”It’s signaling deterioration…I would say, historically, it’s not been good for forward performance of the stock market…you’re seeing the same thing in the emerging markets, the under-performance of commodities…small caps are okay, but not great”, he said…

TSX Updated Chart

A technically disturbing fact regarding the TSX is that it has slipped below important support where some long-term moving averages (SMA’s) also converge…below is a 3-year weekly chart from John…the TSX is clearly in at least a temporary downtrend which potentially could result in a test of the November low just beneath 11800…the next Fibonacci support levels are at 12072 and 11907…

TSX Gold Index Updated Chart

The month of April has been devastating for the TSX Gold Index as it has fallen by more than 20% with this morning’s drop slightly below 200…there is some chart support at 200, so we’ll see if it’s able to close at or above that level today…the Gold Index is currently less than 25% above its 2008 Crash low when Gold was trading at half the price it is now…some incredible deals are going to emerge out of this bloodbath as they did in 2008…

TSX Venture Exchange and Gold

The Venture Exchange suffered its 10th straight weekly decline thanks to Friday’s 26-point loss as Gold was hammered below $1,500 an ounce.  At 1023, the Venture is down 16.8% over the last 10 weeks vs. a 23.6% drop in the TSX Gold Index and an 11.5% fall ($191) in the price of Gold.  Since late January the Venture has traded below its 10-day moving average (SMA).  Any minor relief rallies have stalled at the 10-day, and that trend is likely to continue over the near-term.  It’s impossible to say where the bottom will be, but the Venture in our view is going to be hard-pressed to hold support around 1000 as Gold may ultimately have to drop another 10% or so before it finally hits a cycle low after failure of critical support in the $1,500’s.  Keep in mind, however, that it’s during periods like this when investors with a longer-term perspective can plant the seeds that deliver fantastic returns over the next few years when the bull market comes roaring back.  And it will.

Below is a 13-year monthly CDNX chart.  RSI(14), at 32%, continues to fall but is drawing closer to its 2008 Crash low.  The down trendline is clear.  Selling pressure is dominant.  There is support at and just below 1000, but the next major support is around 860.  At a time when the Dow and S&P 500 are both at all-time highs, and when Gold is still very close to a respectable $1,500, the extent of the slide in the junior resource market has been difficult for many investors to comprehend.  Not only have share prices taken a beating, but Venture financings in March were only a quarter of what they were (in total value) 2 years ago.  The regulatory environment, increased jurisdictional risks around the globe, and too many poorly run companies have all contributed to the Venture’s woes, in addition of course to the correction in Gold and weakness in many commodities in general.  But this is really the best time – during an atmosphere of despair and negativity – to be searching for diamonds in the rough that have the potential to become market leaders when conditions do improve.

Gold

From new record highs in the Dow and the S&P, to another bearish call on Gold by Goldman Sachs, to the likelihood of Cyprus having to sell most of its Gold (which financial basket case country might be next?), to general chart deterioration, there were several factors that contributed to bullion’s “moment of decision” Friday as it lost a whopping $84 an ounce to close at $1,477.  Bears have shown unequivocally that they are firmly in control of this market at the moment – the close below critical support levels at $1,550 and $1,500 is a clear indication of that.  Quite simply, Gold has enjoyed a spectacular run over the last dozen years, climbing more than six-fold from below $300 an ounce, and it has gotten tired.

We remain convinced, however, that the long-term bull market in Gold is still intact.  It’s important to note that most bull market cycles in any commodity or asset class typically experience several corrections of at least 30%.  In fact, Gold corrected 29% just five years ago before quickly bouncing back.  During the 1970’s bull market, Gold fell 47% before rising 8 times to peak at $800 an ounce.  Commodity bull markets have averaged 18 years over the past century with 14 years as a minimum.  We’re now in the 13th year of this Gold bull market, and no doubt this correction is laying the foundation for another dramatic move to the upside.  And it doesn’t take a rocket scientist to figure out what happens when supply is removed from the market.  Many Gold projects have been, and will continue to be, put on hold as they are simply not economical at a Gold price of $1,300.  Exploration is being cut back dramatically and this will limit the discovery of new deposits.

The first bearish technical development for Gold last week was when it couldn’t bust through resistance at $1,590 early in the week.  It managed to hold support on a closing basis at $1,550 until Friday when the bears were finally able to deliver a knock-out punch.  The breach of support at both $1,550 and $1,500 means we should expect further weakness going forward with the $1,500 to $1,600 area providing very stiff resistance on any rallies.  While Gold could find support between about $1,450 and $1,470 over the near-term, especially as some short-covering takes place, the likelihood of another 10% drop into the low $1,300’s has to be considered highly likely.  This would be about a 30% correction from the September 2011 high.

Below is a 2-year weekly chart from John.  Expect a further drop in RSI(14) before it finally bottoms out.

Silver tumbled $2.45 last week to close at $25.85 (John will have updated Silver charts Monday morning).  Copper lost a penny for the week, finishing at $3.35.  Crude Oil’s weakness continued as it fell $1.41 a barrel to $91.29 while the U.S. Dollar Index fell Friday, despite the huge loss in Gold, and closed the week down nearly half a point to 82.13.

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 the current price correction, 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), 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. Investment demand and inflation concerns have waned recently, contributing to Gold’s decline, but they could figure prominently again in the future.  There are many reasons to believe that Gold’s long-term bull market is still intact despite a 20%+ correction from the 2011 all-time high of just above $1,900 an ounce.

Welcome to our site, or at least the initial version of it!  BMR has been online for more than three years and strictly through word-of-mouth we have built a loyal following. 

We’re continuing with our plans to ultimately build a very unique investment and money-management resource site that goes considerably beyond what we have now.  While we focus a great deal on the Gold and Silver markets and trends in the global economy, and of course the technical health of the TSX Venture Exchange (CDNX), an important component of this site will always be original research on undiscovered junior exploration companies or small producers, mostly in the Gold and Silver exploration space, that offer very real and significant upside potential. We are extremely selective in the companies we feature and put forward to investors – we prefer quality over quantity.  However, investors must understand that these are still highly speculative situations and entail considerable risk, volatility and unpredictability.  Our stock coverage is for informational and entertainment purposes only and must not be viewed or interpreted as “buy”, “sell” or “hold” recommendations. We are not Registered Securities Advisers. Our opinions can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Adviser operating in accordance with the appropriate regulations in your area of jurisdiction. Always perform your own due diligence and please read our disclaimer at the bottom.

We use a combination of fundamental and technical factors in determining the value and potential of a stock.  In terms of fundamentals we look for a company with a superb project supported by strong management.  Management must possess integrity, solid ethics and a determination to succeed and build shareholder value.

At BullMarketRun (BMR) we approach the handling of money from a biblical perspective and this is an important topic we will be sharing with our readers (and listeners) as the site continues to develop. The Bible teaches so much about money and how to handle it and invest it –  there are literally thousands of verses on how we should handle the money and possessions that God entrusts us with.  By examining the life of Jesus and reading the Word of God, we can all become fully equipped to be successful investors and handle money wisely.  If it’s the other way around –  if you’re a slave to money by being in debt for instance, or if you don’t respect the value of money and spend it foolishly –  you’re in trouble and you’ll never be blessed financially.  We have a God who thinks big – He created the universe – and He wants us to think big  in every area of our lives.  When we handle money from a Biblical perpective (His money that we have been given stewardship of) He will bless our financial decisions and an increase of tenfold or a hundredfold is always possible.  This all begins, of course, with a personal relationship with Jesus Christ by accepting Him as your Lord and Savior and putting Him at the throne of your life.  It is the most important decision you’ll ever make.

God Bless,

Terry Dyer

Owner/Publisher, www.BullMarketRun.com

Disclaimer:

BullMarketRun.com (BMR) is completely independent from any companies it covers.  BMR accepts no compensation of any kind from any groups, individuals or corporations for coverage of any company mentioned on this site.  We accept no advertising either.  Our stock coverage is for informational and entertainment purposes only and must not be viewed or interpreted as “buy”, “sell” or “hold” recommendations. No investment opinion or other advice is being rendered on any stock or company. We strongly recommend that you consult with a qualified investment adviser, one licensed by appropriate regulatory agencies in your legal jurisdiction, and do your own due diligence and research before making any investment decisions. The stocks we cover, by definition, are highly speculative and potentially very volatile. Investors are cautioned that they may lose all or a portion of their investment if they make a purchase or short sale in these speculative stocks.  We are not Registered Securities Advisers. Our opinions can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Adviser operating in accordance with the appropriate regulations in your area of jurisdiction. It should be assumed that BMR personnel, writers and their associates may hold or dispose of or trade in positions in any securities mentioned herein at any time.  Owner/Publisher of BullMarketRun.com is Terry Dyer of Langley, British Columbia.

Forward Looking Statements:

All statements in BMR’s reports, other than statements of historical fact, may be forward-looking statements. These statements relate to future events or future performance. Forward-looking statements are often but not always identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.