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TSX Venture Exchange and Gold

The 860 support level held last week for the Venture and a strong rally Friday, thanks to a rebound in Gold, allowed the Index to close a volatile week down just 15 points at 881.  For the month, the Venture slid 8%.  By comparison, the TSX Gold Index fell 17% while Gold itself was down 11%.  For the second quarter, the Venture was off 19.8%, the TSX Gold Index plunged a whopping 32.5% while bullion was down 23% (the biggest quarterly percentage loss for Gold since 1968, according to Reuters).  The fact that the Venture has been outperforming both Gold and the TSX Gold Index recently, although modestly, suggests to us that Gold’s decline could very well be in its final stages.  If you recall, the Venture led bullion and the Gold Index to the downside in 2011 and 2012.  It’ll be very interesting to see if this current trend grows stronger during the 3rd quarter.

We’re not convinced Gold or even the Venture have each found a bottom yet (see charts below), but to us that doesn’t matter:  The worst of the huge sell-off the last couple of years is over, and the smartest time to be a buyer is when there’s blood in the streets.  We’re seeing that now, and even more blood will likely flow in the coming weeks/months.  But we’re also seeing some tremendous opportunities for both the short-term and the long-term by focusing on special niche situations (discovery opportunities) in the junior resource market that have the potential to perform exceedingly  well even if Gold’s slide continues.  And there’s one area of Canada we particularly like at the moment for exploration, and that’s British Columbia.  One recent blessing we can all be thankful for is that the NDP didn’t gain power there in the May elections.  We’ll be focusing a lot on B.C., especially the northern part of the province, over the summer with at least a couple of site/area visits.

Just one common sense opportunity in northern B.C., as we’ve been mentioning recently, is the Telegraph Creek area.  Since late April, when Colorado Resources (CXO, TSX-V) announced an important Copper-Gold discovery through impressive drill hole NR13-001, investors, prospectors and geologists have been intensely focused on the Iskut-Red Chris region – and for good reason.  Results from just 4 holes have been released, but all information to date points toward the possibility that North ROK could ultimately rival Imperial Metals‘ Red Chris deposit which is slated to go into production next year.  But an advanced exploration property about 60 miles to the west-northwest of North ROK could really ignite the entire region over the summer once Peter Bernier’s Prosper Gold (PGX.H, TSX-V) team goes to work.  Prosper Gold has optioned Firesteel Resources‘ (FTR, TSX-V) Copper Creek Property (as its “qualifying transaction”) which is right on trend with some of the major deposits and mines discovered to the south within B.C.’s prolific “Golden Triangle”.  Bernier’s highly skilled team found the massive Blackwater deposit in central B.C. (Richfield Ventures was bought out by New Gold Inc. for half a billion dollars in 2011), and until just recently they were searching the globe for their next huge hit to vend into Prosper Gold.  They believe they have found it in Copper Creek – hence the deal with Firesteel.   We expect the drills to start turning soon at Copper Creek, a property we’ve researched extensively.  For confirmation regarding its potential, we’ve spoken to not only Bernier but many respected geologists and prospectors in B.C. who have all said essentially the same thing – Copper Creek is “exceedingly good”.  Firesteel simply doesn’t have the technical expertise to take this 7,000-hectare Copper-Gold porphyry prospect to the next level.  Prosper Gold has that expertise, led by award-winning geologist Dirk Tempelman-Kluit.  Three simple words on the Prosper Gold home page brand this company and opportunity perfectly:  Exploration.  Discovery.  Wealth.

One fact that has gone unnoticed by investors and (sleepy) brokers alike is that Garibaldi Resources (GGI, TSX-V), trading below its working capital position at just 6 cents, holds a massive land position (17,000 hectares, 100%-owned) and a geologically very prospective property contiguous to the western and southern borders of Copper Creek.  For various reasons, Prosper Gold will have to deal with Garibaldi.  One of the reasons is that exploration work carried out over the years at GGI’s Grizzly Property strongly suggests that the Copper Creek mineralized system extends well onto the Grizzly.  Over the last year or so, Teck Resources (TCK, TSX) has staked a large area right up to the southern boundary of the Grizzly.  So the Grizzly is sandwiched in between two highly interesting and credible neighbors – Bernier’s Prosper Gold, and Teck.  In the northwest corner of the Grizzly, a large intrusive exists that some geologists believe could actually be the “heat engine” that’s driving the mineralization in this entire area.  Fortunes are born in bear markets.  A valuation re-set of Garibaldi is going to occur very quickly in our opinion, and remember you read it first at BMR.  To make serious money in the markets, you want to be ahead of the crowd.  You need to do your homework and engage in forward-thinking.  We’re ahead of the crowd with our interpretation of the significance of the Grizzly Property, and we’re convinced that interest in it is going to accelerate dramatically over the summer as events unfold at Copper Creek.  We’ve met both the President and CEO of Garibaldi, Steve Regoci, and the CFO, Barrie Di Castri.  Despite their focus on their Mexican properties, they’re well aware of the strategic importance of the Grizzly Property.  Regoci and his team have the ability in our view to execute on this opportunity to drive shareholder value.

Updated Venture Chart

Below is a 9-month daily Venture chart from John following Friday’s 881 close.  The 10-day moving average (SMA, not shown on the chart) is 894 while the 20-day is 920.  Near the end of April and into early May, and again near the end of May into early June, the Venture broke above its 10-day SMA.  Importantly, the Venture’s 20-day SMA has not been able to reverse to the upside since January.  When it finally does, we can have greater confidence that a significant rally has started.  Next major support below 860 is 800.  Significant resistance around 920 as shown on the chart.

Gold

Gold got hammered again last week, falling below $1,200 an ounce ($1,180) for the first time in 3 years.  It’s hard to say if Friday’s reversal will turn out to be significant – it may have been the result of month-end and quarter-end “window dressing”.  But a rally from current levels is certainly possible after the latest $200 drop.  The Venture held important support, and so too did the TSX Gold Index.  Ultimately, we do see strong potential for a 50% Fibonacci retracement of Gold’s gains from the 1999 low of $253 to the 2011 high of $1,924.  This would mean a bottom for Gold just slightly below $1,100.  Almost everyone was bullish on Gold in the summer of 2011.  Now the opposite is true.  That tells us bullion is in the final stages of its decline – be patient and don’t panic.

The SPDR Gold ETF has seen more than $18 billion in outflows this year, losing nearly 30% of its assets under management, according to IndexUniverse.

“Short Gold futures positioning on COMEX is at an all-time high and nearly every broker is now negative Gold,” analysts at ETF Securities said in a report.  “Therefore, while further downside in the short-term is possible, investors with longer-term time-horizons may start to look at the recent sell-off as a longer-term accumulation opportunity.”

MacNeil Curry, technical strategist at Bank of America Merrill Lynch, has issued a “GOLD BEARS BEWARE” warning in a research note, saying proprietary models at his firm suggest a bottom is near.

Silver touched the middle of a strong support band between $17.50 and $19.50 last week, and closed strongly Friday with a gain of $1.15 an ounce to finish the week at $19.66.  We’ll have more on Silver Tuesday including John’s latest charts.  Copper fell a nickel to $3.05 (strong support between $2.90 and $3.00).  Crude Oil jumped $2.87 a barrel to $96.56 while the U.S. Dollar Index climbed three-quarters of a point to 83.18.

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, along with the strong performance of equities which are drawing money away from bullion.  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.

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.  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 perspective (His money that we have been given stewardship of), He will bless you.  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.

Gold dipped as low as $1,180 early this morning but has recovered to $1,197 as of 6:50 am Pacific after briefly climbing back above $1,200…Silver is 29 cents higher at $18.91…Copper is up 2 pennies at $3.05…Crude Oil is up 32 cents at $97.37 while the U.S. Dollar Index is flat at 82.96…a note to our readers:  Monday of course is “Canada Day”…our regular “Week In Review And A Look Ahead” will be posted tomorrow, and there will be no postings Sunday or Monday…regular postings resume Tuesday and will continue uninterrupted next week despite the U.S. holiday Thursday…

Unlike the big sell-off that occurred in April, physical demand for Gold hasn’t shown up in recent days which could lend support to the yellow metal…Gold is now down about 30% this year with most of those losses during this second quarter which of course comes to a close today…with a 25% decline, this is believed to be Gold’s worst quarterly performance since at least 1920…holdings of the SPDR Gold Trust, the world’s largest exchange-traded Gold fund, stood unchanged yesterday after posting their second-biggest percentage drop in holdings this year on Tuesday – down 1.7% or 16.23 tons – to their lowest levels in more than four years…

Nonetheless, when y0u see a headline at www.CNBC.com as posted this morning – “Gold Crashes Through Production Cost Levels” – you know instinctively that a turnaround is probably not far off…as we showed yesterday with John’s long-term chart, there is exceptional support right around the $1,100 level…what would actually be positive to see is a capitulation move very soon down to that area, followed by a sharp reversal…who knows how this will play out, but the bearish sentiment now is the mirror image of the euphoria in September 2011…that’s a bullish scenario…most investors would be very happy getting in on an investment within 10% or 20% of the bottom, and that’s probably the situation with Gold right now…the Fib. targets are between $900 and $1,100…significant mine supply will come off the market if Gold trades below $1,200 an ounce for an extended period, and that will ultimately be price-supportive…this is a great time to be stepping into Gold – when no one wants it…

Today’s Markets

Japan’s Nikkei average soared 454 points or 3.5% overnight to close the month at 13677…for that quarter, that was a 10% gain…China’s Shanghai Composite jumped 1.5% overnight but still finished down 11.5% for the quarter at 1979…European shares are down moderately in late trading overseas…as of 6:50 am Pacific, the Dow is off 93 points at 14931…buy-and-hold billionaire Ron Baron told CNBC this morning that former Treasury Secretary Tim Geithner said at an event he attended that the Federal Reserve’s exit strategy would take about five years…the chairman and CEO of Baron Capital said in a “Squawk Box” interview that he interpreted Geithner’s comments to mean the tapering of the Fed’s $85 billion-a-month bond-buying program would last that long…the TSX has added 11 points in early trading while the Venture, which has so far held important support at 860, is currently up 2 points at 862…Eagle Hill Exploration Corp. (EAG, TSX-V) is one of the most active stocks this morning after announcing that it has entered into a binding agreement to acquire the remaining 25% ownership of the Windfall Lake Property from Noront Resources Ltd. (NOT, TSX-V)…the company has also entered into financing agreements with Southern Arc Minerals Inc. (SA, TSX-V) and Dundee Corp. to provide a total of $12-million through two private placements of units at 7.5 cents per unit…EAG is up 1.5 cents to 8.5 cents on those positive developments…

Copper and CRB Index Chart Updates

Charts show that both Copper and the CRB Index are still vulnerable to additional weakness but both are close to important support levels – $2.90 to $3.00 for Copper, and 267 for the CRB Index (the July 2012 low) which closed yesterday at 277…

Copper 2.5-Year Weekly Chart

CRB Index 5-Year Weekly Chart

Special Update:  Garibaldi Resources (GGI, TSX-V) & The Emerging Telegraph Creek Play

As most readers know, we recently had our boots on the ground in the Iskut River region of British Columbia where Colorado Resources (CXO, TSX-V) has made an important Copper-Gold discovery.  North ROK is very much for real – CXO has a great opportunity to uncover a major deposit.

What most investors haven’t caught on to yet, however, is what’s brewing about 60 miles to the west-northwest in B.C.’s and Canada’s next red-hot exploration camp – the Telegraph Creek area.  In addition to our trip, we have spoken with numerous geologists, prospectors and company officials over the last several weeks as part of an exhaustive due diligence effort to ensure that our information and conclusions are accurate.  We will be reporting much more on this in July, but below are a few initial highlights:

When it starts trading this summer, Peter Bernier’s Prosper Gold will draw plenty of attention – no matter what the markets are doing (PGX.H has cut a deal with FTR to acquire up to 80% of the Copper Creek Property).  But one way to play this deal NOW (besides FTR) and get ahead of the anticipated August stampede is through Garibaldi Resources (GGI, TSX-V).   Why, you ask?  Well, the large scale Copper-Gold alkalic porphyry system that Bernier and his highly respected group are going after at the 7,000-hectare Copper Creek Property almost certainly extends to the south onto Garibaldi’s 17,000-hectare Grizzly Property. In fact, the “heat engine” for the mineralization in this entire area may indeed originate on the Grizzly Property with a large intrusive body – Mount Kaketsa – in the northwest corner.

• Size does matter, and Copper Creek and Grizzly are a combined 240 sq. km (North ROK, by comparison, is about 50 sq. km);

• Drill permits are already in place for Copper Creek and Bernier’s group is ready to hit the ground running as soon as final approval for Prosper Gold’s qualifying transaction is approved by the Venture Exchange;

• Bernier has assembled the same team that he had with Richfield Ventures which made the massive Gold-Silver discovery at Blackwater (New Gold Inc. bought out Richfield in 2011 for over half a billion dollars);

• Copper Creek features widespread copper oxides near-surface, underlain by significantly higher grade Copper-Gold values in sulphide mineralization at depth.  Firesteel got very encouraging results from about two dozen relatively shallow drill holes, many of which ended in good mineralization.  All zones are open in every direction, including at depth.  Prospectors and geologists have told us that some of the showings at surface are eye-popping – extensive outcropping in areas featuring azurite, malachite, pyrite, pyrrhotite, and a variety of other (as yet unknown) sulphides.  Firesteel spent $4 million on this project since 2004 but didn’t have the kind of technical team necessary to prove up a major deposit – Prosper Gold has that team.

• Garibaldi’s Grizzly Property, or at least a portion of it, will be essential to Bernier’s plans for the area, according to various knowledgeable individuals we’ve spoken to that understand both properties well;

• In 2006, Garibaldi completed an airborne magnetic survey over both Copper Creek and Grizzly, and the results were stunning as described in a technical report available on Garibaldi’s web site:

“For comparative purposes this survey covered the southern part of Firesteel’s Copper Creek Property…Results of the airborne magnetic survey showed that the rock units and structures which underlie the Copper Creek prospects appear to continue into the large area of low relief within the Garibaldi claims and identified several magnetic anomalies which are similar to the magnetic anomalies that are associated with the mineralized zones which comprise the Copper Creek Property; this area is referred to as the “South Target”. During 2007 and 2008 Garibaldi completed orientation soil geochemical surveys which reportedly returned copper values within the anomalous range determined by Firesteel for the Copper Creek property, however the surveys only covered a small fraction of the prospective area and will need to be expanded to cover the area of interest defined by the airborne magnetic survey.”

Below is a 3D perspective of the Copper Creek – Grizzly properties (we’ve added a star to show the large intrusive body that could be driving the fluids in this area):

Garibaldi closed yesterday (June 27) at 5 cents for a market capitalization of only $2.87 million.  GGI has 57.4 million shares outstanding and no warrants.  All stock options (4.3 million) are at 20 cents or higher.  As of April 30, the company had over 8 cents ($4.8 million) in working capital.

Garibaldi has considerable assets in Mexico which they have been focusing on.  However, the situation with Prosper Gold and Copper Creek has caught their attention, and it’s safe to assume that Bernier has “introduced” himself to Garibaldi as the newest member of the neighborhood – and the most important one to ever move in.  “We got luckier than a drill hole,” Garibaldi President and CEO Steve Regoci told me.  Regoci has a solid team himself at GGI and we expect them to be able to fully capitalize on this unique opportunity.

Our prediction:  This play will light up like a Christmas tree beginning in just a few weeks as Bernier tackles Copper Creek aggressively in Blackwater-style fashion.

The type of market we’re in right now, with Gold having fallen to $1,200 an ounce and the Venture sitting at levels not seen since just after the 2008 Crash, is one that always provides historic opportunities, and we’re seeing those in what’s unfolding at the moment in northern B.C.  Given the previous success of Bernier’s group, and all that we know about Copper Creek, we have an exceptionally high level of confidence that Prosper Gold will execute this opportunity with incredible precision and skill, just as they did with Blackwater.  This in turn should create a company-changing dynamic for Garibaldi Resources…more next week.  As always, perform your own due diligence.

Zenyatta Ventures (ZEN, TSX-V) Chart Update

Note: John, Jon and Terry do not hold share positions in ZEN.  Jon holds a share position in GGI.

Gold climbed as high as $1,246 overnight but has given back most of those gains…as of 7:35 am Pacific, the yellow metal is up $7 an ounce at $1,232…Silver is 34 cents higher at $18.86…Copper is up a penny at $3.04…Crude Oil is 52 cents higher at $96.02 while the U.S. Dollar Index has climbed one-fifth of a point to 83.06…

Reuters reported this morning that Gold premiums doubled in India on Wednesday as suppliers struggled to meet surging demand after a ban on consignment imports…India, the world’s biggest buyer of gold, now requires importers to pay upfront for inventory, making it difficult for smaller jewellers with lower working capital to source supplies…the government also raised the import duty to 8% n May to keep a lid on the surging current account deficit…most of the supplies are being met by privately held trading houses and state-run agencies such as Metals and Minerals Trading Corp of India Ltd., State Trading Corp. and PEC Ltd. through their imports in April and early May as banks await guidelines from the central bank on outright cash purchases…Indian Gold imports fell to $36 million in the second half of May from an average of $135 million per day in the first half, Finance Minister P. Chidambaram said earlier in June…India has ruled out a blanket ban on Gold imports or any increase in customs duty from the current 8%…

Huldra Silver Inc. (HDA, TSX-V), despite a high-grade Silver resource at Treasure Mountain, is an example of a trend – mines being put on “care and maintenance” – that’s going to accelerate if Gold and Silver prices do not recover soon…a vast portion of the Gold industry is struggling to make any money at the current price, according to analysts…while precious metal prices are plunging, costs are not falling nearly as fast…as Peter Koven reported in the Financial Post this morning, that leaves many companies vulnerable to mine closures…the ones in the toughest positions are small miners with high costs, high debt and limited liquidity – San Gold Corp. (SGR, TSX), Claude Resources Inc. (CRJ, TSX), and Wesdome Gold Mines Ltd. (WDO, TSX) all fit that description…the average cash per ounce of Gold sold at Richmont Mines‘ (RIC, TSX) Beaufor and Island Gold Mines increased to $1,305 CDN in the first quarter of 2013 from $964 in the year-ago period, primarily as a result of lower head grades at both mines and a higher cost per tonne at the Island Gold mine…so Richmont faces issues as well, though they have discovered a promising new higher-grade resource at depth at the Island Mine…

Dynasty Gold Corp. (DYG, TSX-V)

That’s why really solid exploration plays and potential new “discovery” situations continue to be our focus at BMR, with northern British Columbia being a very keen area of interest…we’ll be reporting a lot more on the Iskut-Telegraph Creek areas in the days and weeks ahead…south of that region, in the prolific Stewart area, is a company that will be drilling some exceptionally promising targets this summer – Dynasty Gold (DYG, TSX-V) which is trading at just a penny-and-a-half…Dynasty has $1.2 million in cash and a very strong board that includes New Gold Inc. (NGD, TSX-V) President and CEO Bob Gallagher…Dynasty held its AGM Tuesday, which we attended, and the company’s preparation for its drill program at the Strike Property has been impressive to say the least…they are targeting Eskay Creek, VHMS-style mineralization in favorable felsic stratigraphy in an under-explored area in close proximity to some major past producers (see the company’s June 12 news release)…Dynasty should firm up as the drill program, expected to commence in August, draws closer…though there are never any guarantees in this risky exploration business, they do have some exceptional targets that could very conceivably result in a discovery…so the potential leverage in this stock at current levels is phenomenal…British Columbia is hot right now and we’re convinced more discoveries will be made in the coming months…

The northern part of Dynasty’s property, where drilling this summer will be focused, is particularly intriguing…geophysical anomalies extend through much of the northern part…of those anomalies, a 700-metre-long northwest-trending deep EM conductor, identified in 1990, is the most persistent…a reinterpretation of historical data suggests the potential for an Eskay Creek-style system at depth…rock and soil sampling last fall returned encouraging results including rock sample S-12-AR-01, taken from the north portion of the deep EM conductor axis, which returned 7.2 g/t Au and 4,395 g/t in Silver as well as significant Zinc…

Below is a 4-year monthly chart from John, showing all DYG needs at this point is a catalyst…

Probe Mines Ltd. (PRB, TSX-V)

Probe Mines (PRB, TSX-V), which Agnico Eagle recently acquired a 9.9% position in, is unquestionably one of the best exploration stories in the country at the moment as the company continues to work on a high-grade zone Gold discovery trending to the southeast at the rapidly evolving Borden Lake deposit in northeastern Ontario…the most recent results were successful in identifying high-grade mineralization up to 700 metres along strike from the initial discovery on Section 1200m SE…four drill rigs were mobilized to that area for expansion and infill drilling…the footprint of near-surface mineralization to the northwest is also being expanded…the company is now reclassifying the deposit as a more traditional high-grade, Archean lode Gold system, amenable to underground recovery, which is also bounded by significant ancillary lower-grade mineralization, the latter ideally suited to potential open-pit mining techniques…expect significant changes to the last resource estimate which was in January (3,686,000 indicated ounces of Gold averaging 1.02 g/t Au and an additional inferred resource of 625,000 ounces averaging 1.08 g/t Au, at a 0.5-g/t cut-off)…below is a 2.5-year weekly PRB chart, showing strong near-term support at $1.55…PRB is up 8 cents to $1.63 through the first hour of trading this morning…

Today’s Markets

Japan’s Nikkei average roared closed nearly 3% higher overnight while the Shanghai Composite stabilized on signs of improvement in China’ strained money markets, and as fears of a U.S. stimulus withdrawal eased…the Nikkei finished 380 points higher at 13214 while the Shanghai closed essentially unchanged…European markets are up significantly in late trading overseas, while the Dow has posted 162-point gain as of 7:35 am Pacific…the number of Americans filing new claims for unemployment benefits fell slightly last week, in line with the recent moderate pace of jobs growth…meanwhile, the Commerce Department said consumer spending increased 0.3% last month, after a revised 0.3 percent drop in April…consumer spending in April was previously reported to have declined 0.2%…the TSX is 67 points higher at 12019 while the Venture found support at 860 yesterday and is up 4 points as of 7:35 am Pacific at 865…

Shanghai Chart Update

China’s Shanghai Composite has struggled recently, but there are signs there is more trouble on the way when one examines the 11-year monthly chart…RSI(14), currently at 39%, is moving down from a bearish “M formation…there is critical support around current levels (1950), and if that fails then a 10% drop to the next major support (1700) is a distinct possibility before a recovery sets in…interestingly, trading patterns between the Shanghai and the Venture have been strikingly similar in recent years…the Shanghai is down nearly 70% from its 2007 peak while the Venture is off almost 75% since then…

Gold is getting hammered again today as it marches toward its biggest quarterly loss since at least 1920…as of 7:25 am Pacific, bullion is off its worst levels of the day but still down $37 an ounce at $1,241…it hit a new 34-month low of $1,223 this morning after yesterday’s encouraging U.S. economic data (increases in home prices and durable goods orders), but a weaker-than-expected revised U.S. first quarter GDP figure (1.8%) this morning has given Gold some support…with 2 more full trading days left in Q2, bullion’s quarterly loss is currently 23%…Silver is down 70 cents at $18.94, within a support band between $17.50 and $19.50…the Gold-Silver ratio (65.5) is the highest in nearly 3 years…Silver is 34% lower this quarter, set for the biggest such drop since the start of 1980…it’s also the worst performer this year on the S&P GSCI gauge of 24 commodities…Copper is up slightly at $3.05…Crude Oil is 17 cents lower at $95.15 while the U.S. Dollar Index is now relatively flat at 82.73 after almost touching 83 this morning…

Assets in the SPDR Gold Trust fell 16.2 metric tons to 969.5 tons yesterday, the lowest since February 2009, according to its website…Bloomberg data show that global holdings are at their lowest since June 2010…

So where to from here for Gold?…chart support at $1,250 is certainly in danger of being breached today on a closing basis…no one has a crystal ball, and there could be some wild gyrations in the coming days and through the balance of this year, but one can make a very strong case from technical and fundamental perspectives that the floor for Gold is likely around $1,000 an ounce…John has an interesting chart this morning that shows the next 2 long-term Fibonacci support levels at $1,088 and $891…

Keep in mind that the average “all-in sustaining costs” for most major producers for 2013 are around $1,100 an ounce (Yamana is believed to be on the low end around $800 while Newmont and Kinross could be as high as $1,200)…Brian Christie, VP Investor Relations at Agnico Eagle, gave a talk at the Denver Gold Group Luncheon in Toronto May 6 where he defined all-in sustaining costs (AISC) as:  Total Costs (net of by-product credits) + Sustaining Capital + Corporate, General and Administrative expense (net of stock option expenses) + Exploration expense…for 2013, he stated Agnico-Eagle’s AISC would be $1,110 an ounce, slowly declining to just over $1,000 an ounce by 2015…

Long-Term Gold Chart

This 20-year monthly chart puts the “Big Picture” for Gold into clear perspective…a very normal Fibonacci 50% retracement of the move between the low of $253 in 1999 and the high of $1,924 in 2011 would take bullion down to $1,088…with Gold breaking below the first long-term Fib. level of $1,286, $1,088 seems highly probable – as we speculated in April – but precise timing of course is uncertain…even a drop to $1,088 would keep the long-term bull market intact…

TSX Gold Index Chart Update

The TSX Gold Index has almost reached its 2008 Crash low (152) which turned out to be the buying opportunity of a lifetime…the question is, will that support hold this time around?…the Index, which has fallen almost in half already this year, closed at 164 yesterday…below is a 5-year weekly chart from John that shows a support band between 150 and 160…after that, the next support (not shown on the chart) is 137…it’s reasonable to believe to conclude that we’ll see an immediate test of the 150-160 support, perhaps followed by a rally and then a re-test of the support…as of 7:25 am Pacific, the Index is off 7 points at 157…

U.S. Q1 GDP More Tepid Than Previously Estimated

U.S. economic growth was slower than previously estimated in the first quarter, held back by a moderate pace of consumer spending, weak business investment and declining exports…gross domestic product expanded at a 1.8% annual rate, the Commerce Department said in its final estimate this morning…output was previously reported to have risen at a 2.4% pace after a 0.4% stall speed in the fourth quarter…

Today’s Markets

Asian markets were mixed overnight with Japan’s Nikkei average down 135 points, closing at 12834…China’s Shanghai Composite recovered from a 2% intra-day decline to finish down just 8 points at 1951…the People’s Bank of China (PBOC) released a statement, saying that it would provide cash to institutions that needed it…but analysts said that the move was not enough to quell market fears and that there was still plenty of uncertainty in the banking system…European markets are rallying strongly in late trading overseas…in Germany, research firm GfK released its forward-looking consumer sentiment indicator which showed morale was at its highest level in nearly 6 years…July’s figure came in at 6.8, above expectations of 6.5 and better than the 6.5 figure for June…the Dow is racing higher this morning, up 122 points to 14882…the TSX has retreated 27 points while the Venture is 7 points lower at 876…an important support level on the Venture, as we’ve pointed out, is 860…

In its most recent Junior Mining Weekly report, Canaccord Genuity stated:  “The drop in the TSX Venture harkens back to the 1995-2000 period where it fell (70-75%) from peak to trough over a plus 40-month time frame”…so far, Canaccord noted, the Venture has dropped about 65% in 29 months since the current downturn started in March 2011…a similar percentage drop would take the Venture down to between 615 and 740, in the immediate vicinity of the 2008 Crash low which was about an 80% haircut from the 2007 all-time high…

Zenyatta Ventures Ltd. (ZEN, TSX-V)

Zenyatta (ZEN, TSX-V) continues to climb, aided by a strong chart (breakout yesterday) and the news yesterday that the company had raised nearly $13 million through the exercise of warrants…President and CEO Aubrey Eveleigh stated, “Some of the proceeds will be used to fund continuing drilling, resource estimate, metallurgical studies, graphite characterization and a preliminary economic assessment…the budget for this program is approximately $7.5-million…the company is now in a great position to carry out the exploration and development program on our graphite deposit for the foreseeable future without a need for a capital raise”…as of 7:25 am Pacific, ZEN is 13 cents higher at $2.83…

Huldra Silver Puts Treasure Mountain Mine & Merritt Mill On Care & Maintenance

Another casualty of low Silver prices…the news yesterday from Huldra Silver (HDA, TSX-V) was rather ominous, and this morning the company confirmed that it has put its mine and mill on care and maintenance to minimize cash obligations…Huldra says it will continue to pursue financing options in order to recommence operations, but the fact of the matter is that at current Silver prices Treasure Mountain is simply unprofitable despite the high-grade ore…there is value in Huldra’s assets – they exceed the company’s liabilities – so it’ll be interesting to see if some group or another company decides to swoop in…HDA is down another 3.5 cents in early trading to 10.5 cents, putting the company’s market cap at approximately $6 million…HDA raised millions during the last year over $1 per share, so unfortunately a lot of wealth has evaporated in this deal…

U.S. Overtakes China, Canada Shoots Up In Survey Rating Favorable Places For Foreign Direct Investment

For the first time since 2001, the U.S. knocked China out of first place in the annual Kearney survey of executives rating favorable places for foreign direct investment…and Canada has shot up from 20th to 4th on the list…the U.S. narrowly outscored China in the survey by consulting firm A.T. Kearney of executives from 302 companies world-wide, as reported by the Wall Street Journal yesterday…China slipped to second place and Brazil came in third, followed by Canada…India dropped to No. 5 from No. 2 last year…the release of the survey comes amid several indications of foreign interest in U.S. manufacturing…confidence in the U.S. has grown with the surge in U.S. oil and gas production, which promises lower energy costs and export opportunities in petrochemicals and other products…though foreign companies are wary of the U.S. federal budget deficit and gridlock in Washington, the U.S. is benefiting as some companies bring back production previously outsourced to Asia…China’s allure has been dimmed slightly by rising wages and a rapidly aging population, but the country is likely to remain a huge magnet for foreign investors…Brazil is benefiting from investments related to the country hosting next year’s World Cup and the 2016 Olympics…the survey was taken last October and November…executives were questioned about the likelihood of investing in various countries over the next three years…Kearney uses the responses to create an index ranking 25 countries on a scale of 0 to 3 in terms of attraction…rhe U.S. scored 2.09 in the latest survey and China, 2.02…about two-thirds of the companies surveyed had annual sales of more than $1 billion and the sales for all were above $500 million…

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

Gold has traded in a range between $1,273 and $1,291 so far today…as of 7:15 am Pacific, bullion is down $6 an ounce at $1,277…Silver, so far holding support at $19.50, is off 2 cents at $19.67…Copper has gained 3 pennies to $3.06…Crude Oil is down 19 cents at $94.99 while the U.S. Dollar Index has climbed one-third of a point to 82.65…the 10-year Treasury yield hit an intra-day high of 2.66% yesterday before easing off an obvious coordinated communications effort by some Federal Reserve officials to calm markets…an increase of nearly 1 percentage point in 2 months is highly unusual in the fixed-income market and that is what has occurred in the bellwether 10-year Treasury, a move that accelerated after Bernanke signaled last week that the Fed would start scaling back QE3 later in the year…bond yields and prices of course move in opposite directions, so the rise in yields has led to huge losses in bonds and makes Gold and stocks less attractive…retail investors have sold a record $48 billion worth of shares in bond mutual funds so far in June, according to the data company TrimTabs…but hedge funds and other big institutional investors have also been closing out positions or stepping back from the bond market…the flight out of fixed income investments has probably been overdone for now – the Fed clearly jumped in yesterday with a communications strategy – and markets should begin to stabilize…keep in mind that the volatility we’ve witnessed in markets in recent sessions has been exacerbated by month-end and quarter-end re-balancing of portfolios…

Gold remains on track for its biggest quarterly loss in more than 30 years…the SPDR Gold Trust reported another 4.2 tonne outflow yesterday…a raft of banks, including Goldman Sachs, Morgan Stanley, Credit Suisse, Deutsche Bank and HSBC have cut their Gold forecasts this week after its slide…keep in mind, though, that these same firms were all jumping on the Gold bandwagon throughout 2011 and around the time Gold peaked at just over $1,900 an ounce in September of that year…Credit Suisse has cut its Gold price forecast for 2013 to $1,400 an ounce from $1,580 an ounce, while HSBC has cut its price view this year to $1,396 an ounce from $1,542…Morgan Stanley has reduced its 2013 forecast to $1,313 from $1,409…”With investor demand for safe-haven assets waning against the backdrop of a strengthening U.S. dollar and rising U.S. bond yields, market conditions for Gold and Silver have become markedly less favourable,” Morgan Stanley said in a report…”Our price profile for these two metals now acknowledges that the annual average peak in the price for these two metals was achieved in 2012 with minimal prospect for recovery”…

“Minimal prospect for recovery” – sounds like Morgan Stanley has thrown in the towel for Gold and Silver…

Reuters reported yesterday that India’s largest jewelers’ association – the All India Gems and Jewelry Trade Federation, representing about 90% of jewelers, asked members to stop selling Gold bars and coins, adding to the government’s efforts to cut Gold imports and stem a growing current account deficit…

Today’s Markets

China’s Shanghai Composite plunged another 5% during trading overnight, hitting a low of 1850, before rebounding to close essentially unchanged at 1964…after the market closed, the People’s Bank of China (PBOC) attempted to ease concerns of a cash squeeze by saying that “seasonal factors” leading to tight liquidity would fade…officials also added that the central bank would guide interbank rates…what the Chinese are attempting to do is reign in the “shadow banking” system, part of their attempts at necessary structural reforms…Japan’s Nikkei average lost 94 points to close at 12969…European shares are rallying in late trading overseas…the Dow has gained 81 points through the first 45 minutes of trading…U.S. home prices took a major leap in April, setting a new monthly record for gains…from March to April, home price gained 2.6% and 2.5% for the top ten and top 20 U.S. markets, respectively, according to the latest S&P/Case-Shiller Home Price Indices…average prices rose 11.6% and 12.1% in April from a year ago…the TSX is up 84 points while the Venture has added 2 points to 882 as of 7:15 am Pacific…

The TSX found support at its November low yesterday around 11750 and then rebounded somewhat to close at 11834…if support around 11750 cannot hold, then a test of the 11250 – 11500 area is likely as John shows in the 2.5-year weekly TSX chart below…as far as the Venture is concerned, we’ve already pointed out the important nearest support levels which are 860 and 800…what’s necessary with the Venture is a disciplined focus on value, discovery plays and special situations…

Alpha Minerals (AMW, TSX-V)

Alpha Minerals (AMW, TSX-V) got hit hard very late in Friday’s trading session – the final 15 minutes – by an aggressive seller (perhaps a fund that needed to raise cash?) but rebounded yesterday on some interesting news…Alpha and joint-venture partner Fission Uranium (FCU, TSX-V) reported significant Gold-bearing intercepts in all 3 zones at the Patterson Lake South (PLS) uranium discovery…the best result was 63.5 metres grading 1.58 g/t Au from the easternmost hole drilled on the R390E zone…future work to establish patterns of Gold distribution is required, particularly to determine if and how Gold-enriched domains can enhance the potential of the project…Gold has been found elsewhere in the Western Athabasca basin uranium deposits, notably at nearby Cluff Lake (greater than 60 million pounds of U3O8 produced) and Shea Creek…AMW is up 3 pennies in early trading at $3.71…below is a 6-month daily chart from John…

Huldra Silver (HDA, TSX-V) Update

For those investors who think it’s safer to invest in companies that are in production and have cash flow, Huldra Silver (HDA, TSX-V) is one of many examples that debunks that theory…in fact, the onset of actual mining is usually when the problems just begin…

After a masterful job of quickly putting its high-grade Treasure Mountain Silver Property into production, it has been a tough year for B.C. miner Huldra Silver (HDA, TSX-V) which has lost about 80% of its market value due to some production hiccups, the slump in Silver prices, and heavy institutional selling…about 85% of Huldra shares were held by institutions last year and that percentage has plummeted in 2013, which shows how important it is for companies to build a loyal following of retail investors…Huldra does have some important debt issues it needs to address but they aren’t hugely overwhelming, especially when viewed in the context of its considerable assets…yesterday, the company reported that it is significantly increasing the throughput capacity of its Merritt mill to 300 tonnes per day from the current maximum of 250 tonnes per day…they’ve temporarily suspended milling operations to make the necessary adjustments and perform other maintenance work that will improve mill efficiency…the logistics of transporting ore from Treasure Mountain have also been improved…

Meanwhile, Huldra is gearing up to drill two highly prospective targets that are a significant distance from the current mine workings…if they hit on one or both of these targets, the scope of the Treasure Mountain Project will be greatly enhanced…the M.B. zone in particular is very interesting and could lead to a major reinterpretation of the Treasure Mountain mineralized system…

Huldra’s recent decision to lower its non-flow-through private placement price from 30 cents to 25 cents reflected current overall market conditions but was unfortunate as it put the financing below important technical support for the stock (28 to 30 cents)…as a result, traders pushed HDA all the way down to 21 cents last week before it recovered slightly to close at 24 cents yesterday….there are clearly risks for Huldra, especially if Silver were to collapse below a critical support band which is from $19.50 to $17.50…nonetheless, John’s 4-month daily chart through yesterday showed that the HDA storm appeared to be subsiding – until this morning’s news…if the 21-cent level can’t hold on a closing basis, then HDA will almost surely test long-term support at 15 cents…as always, perform your own due diligence…HDA is highly leveraged to the Silver price, so a sudden reversal to the upside in the metal would likely translate into a big move in the share price…that’s the optimistic view…

Huldra announced this morning that it has completed the first tranche ($1.43 million) of its planned $5 million financing (FT and non-FT at 30 cents and 25 cents, respectively)…however, the company also announced that, “Given currently depressed Silver prices, it will be required to complete its previously announced financing of up to $5 million in order to continue its operations in the normal course and may require additional debt or equity in the future“…HDA has come to an agreement in principle with Waterton Global Value Fund, L.P. to eliminate all monthly payment obligations and delay the payment of all obligations under the credit facility until October 31, 2013…Huldra will be required, however, to pay a lump sum of $7,241,210 on October 31, 2013… the company has agreed to issue an additional 2.55 million warrants at market price and can repurchase such warrants on terms to be agreed upon…HDA is clearly hoping for a better second half of 2013 – the Silver price could be the deciding factor…things aren’t looking good this morning, though, as HDA has fallen another 4.5 cents in early trading to 19.5 cents…we’ve met President and CEO Ryan Sharp, and he’s a class act and a smart guy who has done has a fantastic job in developing this project…he and his family hold a large share position…unfortunately, Silver took a wrong turn…

HDA 4-Month Daily Chart- Through Yesterday

Note: John, Jon and Terry do not hold share positions in AMW or HDA.

Concerns Over High-Frequency Trading Provides Impetus For New Canadian Exchange

From this morning’s Globe and Mail in an article by Boyd Berman…

Canada is getting a new stock exchange.

A group including Royal Bank of Canada and five other large investment firms is launching a competitor to the Toronto Stock Exchange, which handles the most trading in Canada.

The new market is designed to attract investors who are upset with what they see as unfair competition from high-frequency traders, who use ultrafast computers to exploit market quirks or to try to get ahead of other investors. The success of the new exchange may hinge on how much discontent there is with high-frequency trading (HFT) activity.

The project is dubbed Aequitas, from the Latin for fairness. The plan is the product of months of work by RBC and a group of supporters including mutual fund giants IGM Financial Inc. and CI Financial Corp., Canadian pension fund PSP Investments and international brokerages ITG and Barclays. The official announcement is expected Tuesday, with a planned start date in late 2014, after a lengthy regulatory approval process.

Gold is trading lower to start the final week of the second quarter after last week’s nearly $100 drop…as of 5:10 am Pacific, the yellow metal is off $15 an ounce at $1,284…next major support is around $1,250 as our updated chart showed yesterday…Silver is 44 cents lower at $19.66 as it again tests the top of a support band between $19.50 and $17.50 (see updated charts at bottom of today’s Morning Musings)…Copper is off 7 pennies at $3.03…Crude Oil is down 13 cents at $93.56 while the U.S. Dollar Index, after surging nearly 2 points last week, is up another one-quarter of a point at 82.68…

Gold…And Other Unloved Commodities

If you’re a contrarian, you’ll see plenty of hope with regard to Gold in our report this morning…by the way, according to Bank of America Merrill Lynch’s June global fund manager survey, investors’ allocation to commodities in general has fallen to the lowest level on record, with 32% underweight…”One way or another, the U.S. is getting toward the end of its liquidity cycle…and that is supporting U.S. yields and it’s supporting the U.S. dollar, and that’s going to be a headwind for the Gold price and all commodity prices going forward,” claimed Erik Wytenus, head of foreign exchange and commodities at JP Morgan Private Bank, in an interview with CNBC…

India’s Gold demand has slowed lately, but Société Générale expects the market to “carry on as normal” in the long-term…the government has sought to restrict imports to deal with a current-account deficit, including another recent hike in the import levy…“We are expecting this to cause some dislocation in the market in the short-term as jewelers and importers adjust their trading and pricing mechanisms,” SocGen stated…“In the longer-term, however, especially given the religious significance of Gold in India, we would expect the market to readjust and carry on as normal…we are looking for a substantial rebound in overall jewelry demand in India this year; the first 4 months have been extremely strong, although the market is now slowing, not only because of the government changes, but also due to rising rupee Gold price and to the time of year…the festival season is over and the monsoon season is starting…the Indian government is currently expecting a ‘normal’ monsoon season, with rains perhaps 98% of the long-term average, which would be positive for Gold demand later in the year”…

Perfect Set-Up For The Next Bull Run

As we mentioned in yesterday’s Week In Review And A Look Ahead, bullion is now at a price that makes extracting it almost unprofitable for some companies…this is certainly bullish for the long-term…producers are clearly accelerating their recent efforts to become “lean and mean” during this lower Gold price environment, a healthy process similar to what much of corporate America went through immediately following the 2008 financial crisis…most miners’ capital spending has peaked and operating expenses are starting to fall after the large increases in labor costs and capital budgets during the rapid growth in the mining industry over the past number of years…the pain in the Gold stock space right now is also going to have an impact on future supply (much less exploration, mine projects delayed or some mines shutting down) – another long-term bullish dynamic…so the current weakness in Gold is actually setting up the next bull phase in both Gold and Gold stocks, one that ultimately could produce one of the most spectacular bull runs ever…those who are saying that Gold’s long-term bull market is over are way off the mark for the reasons just stated, plus the fact that after climbing each year for more than a decade, Gold has simply experienced a very normal major correction…it has lost about one-third of its value since the September 2011 high – really, a very normal pullback within a long-term bull market in any commodity or stock index…even lower prices are possible and likely, but our guess is that the bottom has to be somewhere between $1,250 and $1,000…it’s interesting to note that premiums for Gold physical delivery in Shanghai jumped to a staggering $34.82 per ounce overnight Thursday, according to Scotiabank analysts…China is likely buying the dip and buying it big…

Speaking of China and Gold, it’s estimated that an average of approximately 30,000 brides per day (5 million in total) are set to receive Gold at their weddings through the rest of this year, and July is going to be particularly busy with 14 auspicious days for Chinese couples…”Some 10 million weddings take place every year in China,” stated Manoj Khota, a bullion trader who caters to several Chinese citizens who live in Kolkata and Mumbai…the China Gold Association has said total demand in 2013 could be near 900 to 1,000 tonnes in China, surpassing demand from India…Chinese people appear to be buying up Gold bars by the dozen, since they are easy to trade (source: www.MineWeb.com)…

Frank Holmes’ Weekly Investor Alert at www.usfunds.com over the weekend included some interesting comments regarding Gold and a fascinating updated chart – the year-over-year percent change oscillator for bullion…”Based on our oscillator data, the yellow metal is now in extremely oversold territory…on an annual basis, bullion is down 2.6 standard deviations, which is the worst reading over the past 10 years…this is the opposite reading that Gold buyers had in the summer of 2011, when it was up 2 standard deviations, or at the $1,900 level…before this market event occurred (last week’s drop), I said that Gold could fall another 10%, but that there could be a 30% upside over the next 18 months…you can see the upside potential in the chart, as Gold appears due for a reversal toward the mean”…

Today’s Markets

As we mentioned over the weekend, there are growing concerns about China and those were certainly reflected in trading today as the Shanghai Composite took a 5% haircut, falling 110 points to close at 1963…that’s a fresh 2013 low…in an effort to soothe fears of a credit crunch in China’s banking system, the central bank stated today that bank liquidity remains reasonable and that it has asked commercial lenders to strengthen cash management…Japan’s Nikkei average slipped 167 points to 13063…European shares are in decidedly negative territory in late trading…Germany’s Ifo Business Climate Index for June was in line with expectations…the Bank for International Settlements (BIS) said over the weekend that it was time for central banks to exit their bond buying programs and that they should stop trying to spur a global economic recovery…in its annual report, the BIS said that central bank money had only bought time for policymakers…U.S. stock index futures are pointing to a 1% drop at the open in York York…investors will be paying close attention to 10-year Treasury yields this week which have been rising rapidly recently…major reports this week week include durable goods, consumer confidence and new home sales tomorrow, gross domestic product on Wednesday, then weekly jobless claims and personal income and spending Thursday…Friday will bring the Chicago Purchasing Managers’ Index and University of Michigan/Thomson Reuters consumer-sentiment index…the Dow closed at 14799 Friday…below is an updated chart from John showing a likely near-term drop to test a support band between 14500 and 14600…

China Watch

Goldman Sachs became the latest bank to downgrade China’s economic growth, saying this morning that tighter financial conditions and reforms are downside risks for the world’s second largest economy…the bank cut China’s gross domestic product (GDP) growth forecast for the second quarter to 7.5% on the year from 7.8% previously…it also revised full-year growth estimates to 7.4% for 2013 and 7.7% for 2014, from 7.8% and 8.4% respectively…the official growth target for the year is 7.5%…Goldman has joined a slew of banks and international agencies that have downgraded China’s economic growth forecast in recent weeks, citing the government’s tolerance for slower growth amid implementing structural reforms…Nomura is going as far as to predict that GDP growth may fall below 7% in the second half of the year…China’s economy grew at its slowest pace for 13 years in 2012…

For some time now, China watchers have argued that Beijing needs to do more to clamp down on the credit growth among local lenders as well as tolerate a slower level of growth to allow the economy to rebalance itself away from a dependence on manufacturing and investment towards consumption…the Wall Street Journal reported over the weekend that China’s government signaled little respite from the cash crunch that has afflicted its financial system since the beginning of June, suggesting tight conditions could continue to strain markets in the week ahead…a commentary published yesterday by the official Xinhua news agency said there was no shortage of funds in China’s financial system…rather, it said, a combination of speculation and non-bank forms of lending (often called shadow finance) were contributing to the surge in short-term lending rates…”It’s not that there’s no money, it’s that the money is not in the right places,” the commentary said…China’s interbank market – where banks lend each other money to meet their daily needs – has seen a surge in borrowing costs over the past 2 weeks…the benchmark 7-day repo rate closed at 11.6% Thursday before edging down on Friday…surging rates have raised concerns about an overstretched financial sector and a growing mismatch between short-term liabilities and long-term assets in the banks…reporter Tom Orklin wrote, “The People’s Bank of China has ample means at its disposal to ease funding conditions…its failure to do so has been interpreted by economists and market watchers as an attempt to shore up long-term financial stability by imposing market discipline on reckless lenders, even if that comes at the expense of short-term pain for the banks…David Mann, the head of regional research for Asia at Standard Chartered Bank in Singapore, stated, “The reluctance to intervene in the money markets, the tolerance of a lower rate of growth, it’s all part of the same story of China trying to secure a better long-term outlook for the economy”…

Colorado Resources (CXO, TSX-V) Raises $4 Million

Colorado Resources (CXO, TSX-V) announced Friday that it has arranged a non-brokered flow-through private placement of up to 5 million shares at 80 cents per share for gross proceeds of $4 million…half of the shares have been allocated to 1 unidentified “institutional investor”…while we would have liked to have seen a higher price for a flow-through deal, no warrants are attached and these could be “strategic” investors Colorado has assembled…this financing is being done with CXO’s market cap sitting at approximately $30 million…for comparison purposes, GoldQuest Mining’s (GQC, TSX-V) first financing last year was at 45 cents when the company’s market cap was about $50 million with the CDNX 30% higher than it is today…GoldQuest then completed another financing at $1.25 when its market cap had more than tripled…CXO started 2013 with $8 million in its treasury, and the company has just commenced a $2 million drill program (5,000 metres) at North ROK…

Companies Maneuvering For Ground In Iskut-Telegraph Creek Regions

This should come as no surprise…BMR research is showing there’s a lot of “positioning” happening right now in the Iskut and Telegraph Creek regions, a flurry of negotiations among companies and between companies and prospectors for strategic ground…so it’ll be very interesting to see how the landscape looks over the next couple of months…cash is “King” at the moment, and companies with money in the till are in an excellent position to gain a foothold in the area or add to their existing land packages…VVN closed Friday at 11.5 cents…

Victory Ventures (VVN, TSX-V)

One of our early favorites in the Iskut region – Victory Ventures (VVN, TSX-V) – continues to be a strong performer, and it was also the first company besides Colorado to launch a drill program in the North ROK-Red Chris area…Victory is also one of those companies in a relatively strong financial position that has the ability to pull the trigger on a deal and expand its footprint in the area if it so chooses…VVN has been keeping its cards close to its chest recently – no news since the beginning of the month when drilling commenced at its Copau Property east of North ROK and north of Red Chris, but we expect VVN to be making plenty of noise during the upcoming third quarter (July, August and September) which will be critical in terms of exploration in the area…

Technically, Victory continues to have one of the best charts of any company in this exciting early-stage area play…below is an updated 4-month daily VVN chart from John…note the upsloping channel and the strong support…all the major moving averages are in bullish alignment…

Garibaldi Resources (GGI, TSX-V)

We’ll be sending out a BMR eAlert in the next couple of days regarding Garibaldi Resources (GGI, TSX-V) which holds a hugely strategic 17,000-hectare land package immediately below the Copper Creek Property that Pete Bernier’s Prosper Gold (PGX.H, TSX-V) has optioned from Firesteel Resources (FTR, TSX-V) as its qualifying transaction…most investors haven’t caught on to the importance of this yet as we’ll explain further in our eAlert…GGI closed Friday at 5.5 cents…it also holds an attractive package of properties in Mexico…the company’s latest financials (Jan. 31) showed it had working capital of 12 cents per share ($7 million)…

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Puma Exploration Inc. (PUM, TSX-V)

To make money in this difficult junior resource market at the moment, one theme investors must focus on is discovery situations (as we’ve seen with the Iskut River play and some other select opportunities)…Puma Exploration (PUM, TSX-V) has been getting some interesting results from its Nicholas-Denys Property in New Brunswick, 20 km north of Bathurst, where it’s currently drilling a deep hole targeting a major magnetic anomaly from surface to a depth of 1,000 metres…Puma believes it’s on the trail of a “major world class porphyry system”…that could be interpreted as being a little over-promotional at this stage, but there’s no question this property holds significant potential with different types of mineralization that could be representative of a major system: skarn Copper, skarn Iron-Copper, skarn Zinc, polymetallic lenses, Gold-Silver veins and Molybdenum porphyry…at Friday’s close of 26.5 cents, the stock has doubled over the last 19 trading sessions since May 28, a day before the company released assay results from hole FM12-02 that intersected continuous low-grade Cu and Mo mineralization over the entire length of the hole (722 metres)…

We don’t suggest chasing this one at the moment but definitely put it on your radar screen…the smartest strategy, we believe, is to wait for more news as the stock is currently in overbought territory and up against resistance…closest strong support is at 20 cents…

Mega Precious Metals Inc. (MGP, TSX-V) Updated Chart

Last week, we introduced Mega Precious Metals (MGP, TSX-V) at 13 cents and it continued to climb to finish the week at 17 cents, slightly above its 100-day moving average (SMA) and immediately below the first Fibonacci resistance level at 18 cents…the 50-day SMA, currently at 12.5 cents, has reversed to the upside and this is where strong support can be expected…MGP is making progress with its Monument Bay Project in Manitoba…

Giyani Gold Corp. (WDG, TSX-V) Updated Chart

Giyani Gold (WDG, TSX-V) has been on fire since the end of March, more than doubling in price despite the sell-off in Gold and weakness on the Venture…a big test will be if it can break above resistance at $1.10 on strong volume…

Updated Silver Charts

Below is a 3-year weekly chart from John showing the support band for Silver between $17.50 and $19.50…sell pressure remains strong…

Long-Term Chart

At 1.22%, RSI(2) can’t fall much further on this 11-year monthly chart…

Note: John and Jon both hold share positions in VVN.  Jon also holds share positions in CXO and GGI.

TSX Venture Exchange and Gold

It was a rough week for the Venture, down 38 points or 4%, but it wasn’t hit as hard as the TSX Gold Index which plunged another 10% to close at 171 as the price of Gold sliced through a support level ($1,320 – $1,350) like a knife through butter.  Commodities and equity markets suffered alike as the Federal Reserve clearly signaled its intention to initiate a “tapering” program in the near or more intermediate future.  Whether that is justified given the underlying performance of the U.S. economy (job growth is still not robust, and inflation is well below the Fed’s target rate) is what many market participants are questioning.

Expect more market volatility in the days ahead as portfolios are shuffled ahead of the quarter’s end.  One particular concern at the moment is how the benchmark U.S. 10-year Treasury, which influences mortgages and other rates, has risen so rapidly recently – it climbed above the psychologically key 2.50% level Friday for the first time since August, 2011.  A 90-basis point move in 4 weeks in the 10-year yields is a very rare move and one that has investors concerned, judging by last week’s 2.1% drop in the S&P 500 and a 1.8% loss in the Dow.

The Fed did release an improved outlook for U.S. unemployment, with its range of estimates falling below 7% in 2014 and to 5.8% to 6.2% in 2015.  The Fed forecasts also showed that more members see an early 2015 move to raise the target Fed funds rate, slightly ahead of what the markets had been expecting.

In China, meanwhile, concerns continue to mount regarding a slowdown in growth in that country.  In addition, a credit squeeze among China’s lenders took a turn for the worse late last week after overnight lending rates surged. The 7-day repo rate, which is seen as gauge of confidence to lend in the interbank market, rose to a record high above 10% Thursday, before easing back to around 8% Friday.

So what does all this uncertainty and volatility mean for the Venture?  The Index has already tumbled another 27% this year 64% since its early March, 2011, high of 2465.  The charts show clearly defined resistance at 970 and support at 860.  Investor participation and psychology at the moment are at the opposite extreme to what they were in late 2010/early 2011, so in general we view this period as one of historic proportions in terms of opportunities for selective investors.  A small universe of stocks has performed extremely well in recent weeks, and that’s the universe we’re going to continue to focus on – discovery plays, as well as special situations outside of the Gold-Silver space.  Fortunes are born at times like this when the average person on the street has zero interest in junior resource stocks or even producers. Great opportunities are going unnoticed.  Be greedy when most investors are fearful; be fearful when most investors are greedy.

Below is a 9-month daily Venture chart update from John.  One piece of encouragement is the current divergence between price and RSI(14).  The CMF (Chaiken Money Flow) indicator, meanwhile, shows continued buying pressure, though it has tapered off just recently.  It will be interesting to see how the Venture performs in the coming week, especially given the usual month-end and quarter-end dynamics.

Gold

Gold got banged down by nearly $100 last week, closing at $1,299 as the unloved yellow metal once again got thrown overboard.  It fell through important technical support once Ben Bernanke declared the Fed’s intention of scaling back its bond buying program during the second half of the year.  The crash in Gold in recent months has also been moving in tandem with the decline in inflation expectations in the U.S., China and elsewhere.  Deflation around the globe has to be more of a concern for policymakers at the moment than inflation.  For some producers, bullion is now at a price that makes extracting it almost unprofitable.  This is certainly bullish for the long-term – producers are going to have to become “lean and mean”, just like much of corporate America did immediately following the 2008 financial crisis.  The pain in the Gold stock space right now is also going to have an impact on future supply (much less exploration, mines will be shutting down) – another long-term bullish dynamic.  So the current weakness in Gold is actually setting up the next bull phase, one that ultimately could carry bullion beyond its 2011 high.

Keep in mind that after climbing each year for more than a decade, Gold has so far corrected only 33% from its high – really, a very normal pullback within a long-term bull market in any commodity or stock index.  Even lower prices are possible and likely, but our guess is that the bottom is probably somewhere between $1,250 and $1,000.  Below is a 2.5-year weekly chart from John. It’s interesting to note that premiums for Gold physical delivery in Shanghai jumped to a staggering $34.82 per ounce overnight Thursday, according to Scotiabank analysts.  China is likely buying the dip and buying it big.

India’s Gold demand has slowed lately, but Société Générale expects the market to “carry on as normal” in the long term. The government has sought to restrict imports to deal with a current-account deficit, including another recent hike in the import levy. “We are expecting this to cause some dislocation in the market in the short term as jewelers and importers adjust their trading and pricing mechanisms,” SocGen says. “In the longer term, however, especially given the religious significance of Gold in India, we would expect the market to readjust and carry on as normal. We are looking for a substantial rebound in overall jewelry demand in India this year; the first 4 months have been extremely strong, although the market is now slowing, not only because of the government changes, but also due to rising rupee Gold price and to the time of year. The festival season is over and the monsoon season is starting. The Indian government is currently expecting a ‘normal’ monsoon season, with rains perhaps 98% of the long-term average, which would be positive for Gold demand later in the year.”

Silver got clobbered last week, closing nearly $2 lower at $20.12.  It tested and held support at $19.50, and John will have his usual updated Silver charts as part of Monday’s Morning Musings.  Copper fell a dime to $3.10.  Crude Oil lost $4.16 a barrel to finish at $93.69 while the U.S. Dollar Index found support at 80.50 and then surged nearly 2 points to close the week 82.41.

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, along with the strong performance of equities which are drawing money away from bullion.  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.