Gold has traded between $1,093 and $1,110 so far today…as of 9:30 am Pacific, bullion is up $11 an ounce at $1,105…Silver, which has posted back-to-back weekly advances (see updated charts at bottom of today’s Morning Musings), has surged 49 cents to $15.31…Copper, bouncing off critical support, is 6 cents higher at $2.40…Crude Oil has gained 74 cents to $44.60 while the U.S. Dollar Index, which gave some bearish signals Friday, is off another one-third of a point to 97.37…
There have been an assortment of clues suggesting a rally in Gold was much more likely over the immediate to near-term than a plunge straight down to $1,000 an ounce, as we’ve been emphasizing lately…John’s 2.5-year weekly Gold chart, showing bullion consolidating within a downsloping flag for more than 2 years, has been highly reliable…consistently, bullion has tested the top of that flag (resistance) and the bottom of it (support)…recently, during Gold’s drop that continued for 7 straight weeks (the longest weekly losing skid since 1999), the metal again touched the bottom of that flag while RSI(14) has also landed at previous support going back to 2014…the odds have therefore increased that the latest slide has run its course…there will be some resistance at $1,100 and just slightly above, but a push through about $1,110 should allow Gold to take a run at the $1,150 level (next major resistance)…critical support is in the mid $1,060’s…
The “smart money” commercial traders, meanwhile, dramatically reduced their net short positions recently to extreme levels…if you want to bet against the commercial traders, go right ahead – typically, you’ll lose…
The mainstream media have also been bashing Gold lately, and that’s one of the most encouraging signs of all…one headline even referred to Gold as no more than a “pet rock”…
Meanwhile, Frank Holmes, CEO and Chief Investment Officer for U.S. Global Investors and one of our favorite commentators, made this important point over the weekend in his regular Investor Weekly (www.usfunds.com):
“While the dislocation between demand for physical Gold and the price of paper Gold has made headlines recently, something happened at the CME recently that may be the most important development yet,” explained Holmes.
“Back in 2013 the Gold held in the newest Comex vault plunged by nearly 2 million ounces in 6 months. This sent the Gold coverage ratio soaring from under 20 to 112. This means that the paper claims on physical Gold available for delivery was 112 times greater than the physical Gold that could be delivered at any given moment by the exchange.
The latest Comex Gold vault depository update, covered by ZeroHedge, revealed that the Gold coverage ratio reached a whopping 124, an all-time record high. After this story broke, J.P. Morgan moved Gold from its available account into the registered category, boosting registered ounces by 78%.”
Baron’s Comes Out For Commodities
Interesting contrarian view from Baron’s over the weekend – amid all the doom and gloom from most analysts, a cover article announcing “It’s time to consider commodities.”
The CRB Index, heavily weighted by Crude Oil, is struggling to hold important support around 200…while a further drop to the next major support at 180 can’t be ruled out over the near to short-term, particularly due to a slowing Chinese economy, Baron’s has a point that when an asset class is so much out of favor with a very broad spectrum of investors, that’s usually a wise time to part ways with the crowd…
This is certainly a refreshing headline amid all the negativity that exists at the moment…
If you think your portfolio has been stung hard by the dive in commodities, the Wall Street Journal pointed out last week that private equity firm Carlyle Group saw the holdings of a commodities fund it owns plummet from $2 billion to $50 million, due to bullish bets on a host of commodities…as Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family was credited with saying, “The time to buy is when there’s blood in the streets.”
Oil Update
Saudi Arabia’s strategy of trying to squeeze out North American shale production appears to be backfiring – by their own admission…
“It is becoming apparent that non-OPEC producers are not as responsive to low Oil prices as had been though, at least in the short run,” the Saudi central bank has admitted in its latest stability report…
The problem for the Saudis is that U.S. shale frackers are not high cost, and many of them through this drop in Oil prices have found ways to drive down drilling costs through various techniques – everything from launching 5 to 10 wells from the same site, to smart drill-bits with computer chips that can seek out cracks in the rock…
The North American rig count, while it has increased slightly for 3 weeks in a row, has dropped into the 600’s from 1,608 in October, but U.S. output rose to a 43-year high of 9.6 million b/d in June…production is just beginning to roll over, very gently. “The freight train of North American tight oil has just kept on coming,” said Rex Tillerson, head of Exxon Mobil…marginal producers who are squeezed out will simply be taken over by the stronger players…the Saudis have underestimated American flexibility, ingenuity and entrepreneurship…
The Saudis have a much bigger problem than North American shale producers…the country, which has been rapidly expanding its military capabilities to strengthen the Sunni cause and counter a resurgent Iran, relies on Oil for 90% of its budget revenues…citizens pay no tax on income, interest or stock dividends…subsidized Oil costs 12 cents a liter…the International Monetary Fund estimates that Saudi Arabia’s budget deficit will reach 20% cent of GDP this year, or roughly $140 billion (U.S.)…its “fiscal break-even price” for Oil is $106…the Saudis still have financial strength (at the beginning of this year they had the world’s 3rd largest foreign reserves, mostly U.S. dollars), but they’re now burning cash faster than rabbits can breed…so it’s no surprise that last month, Saudi Arabia’s monetary agency reported the first sovereign issuance of bonds in the Kingdom since 2007…
Today’s Markets
Asia
More troubling data out of China over the weekend – Chinese exports tumbled 8.3% in July, their biggest drop in 4 months and far worse than expected..meanwhile, according to data released by the National Statistics Bureau yesterday, China’s producer prices fell 5.4% in July from a year earlier, compared with an expected 5% drop…that was the worst reading since October 2009 and the 40th straight month of price declines…consumer inflation remained muted at 1.6% despite surging pork prices, in line with forecasts and slightly higher than June’s 1.4%…
What this all means is that Beijing will likely accelerate its stimulus efforts, and Chinese authorities will also do everything they can to prevent a stock market collapse beyond what has already been witnessed (key Shanghai support is 3400)…
Despite the bad news on the economic front over the weekend, the Shanghai Composite was manipulated 5% higher overnight by the “rescue team” as it gained 185 points to close at 3929…
Europe
European markets were up moderately today…
North America
After 7 straight daily declines, its longest losing streak in 4 years, the Dow has rebounded sharply today on M&A activity…it’s up 221 points as of 9:30 am Pacific…
The performance of the largest stocks in the S&P 500 (the likes of Apple, Google, Amazon) have allowed that index to remain upright in the wake of considerable deterioration in sectors such as energy, other commodities and now media (from an aggregate market cap of about $135 billion at the March 2009 bottom, the index soared by 520% to nearly $700 billion before last week’s $50 billion or 8% loss)…
Numerous stocks are trading in correction territory (down 10% from their highs) or in bear market territory (down 20% from their highs), so there has been some technical deterioration in the S&P 500 that’s not so evident when you simply look at the daily index value…
What has us concerned here – something that’s worth tracking closely in the weeks ahead – is the declining number of S&P 500 stocks trading above their 200-day moving averages (SMA’s) while the index itself has continued to push higher…
S&P 500 Chart – Increasing # Of Stocks Trading Below 200-Day SMA’s
In Toronto, the TSX has jumped 131 points as of 9:30 am Pacific while the Venture, trying to hold key support in the upper 570‘s, is up 3 points at 580…
HXD (TSX Double Short ETF) Updated Chart
Another important “awareness” chart that we’re watching closely…the alarm bells haven’t gone off yet, but the double-short HXD ETF for the S&P/TSX 60 Index is attempting to break out from a 3-year downsloping channel…if such an event were to occur, this would certainly be a bearish new development for Canadian markets…
Venture “Awareness” Chart
What we’re looking for in terms of technical evidence that the Venture may start to rally is a move above the EMA(8), currently 587, followed by a push through the EMA(20), currently 605…that would pull the Index out of its downward spiral, at least temporarily, and then hopefully the Index can begin to stabilize, build a base, and recover more…
RSI(14) conditions have been extreme since early July…sell pressure has been slowing abating recently which is a positive sign…how the Index behaves this week will be quite critical…
Pure Energy Minerals (PE, TSX-V) Update
Pure Energy (PE, TSX-V) has been HIGH energy recently, climbing as much as 74% over just 10 trading sessions after hitting a multi-year high of 47 cents (nearest Fib. resistance, John’s chart was bang-on with the Fib. level) last Tuesday…strong support exists in the mid-30’s where PE gapped up from August 4…gaps are often filled, of course, and that’s what appears to be occurring here…
This morning, Pure Energy announced that it has scheduled an investor conference call for a week from tomorrow (Tuesday, Aug. 18 at 9:00 am Pacific)…CEO Robert Mintak, COO Dr. Andy Robinson and Vice-President, Business Development, Alexi Zawadzki will provide commentary on the company’s recently published NI-43-101 inferred resource report and other matters in the context of the company’s business plan…
The Lithium space is attractive to many investors at the moment, and another factor in PE’s favor is that it has a tech angle to it…as announced last week, a wholly-owned subsidiary of the company is now collaborating with SRI International, a research and innovation centre, to develop novel cost-effective methods for Lithium extraction from geothermal brines…funded by the U.S. Department of Energy (DOE), SRI is teaming with Pure Energy’s subsidiary to develop and validate a new generation of highly selective ion exchange resins to separate metals from geothermal fluids more efficiently and at lower cost than current processes…
On July 28, Pure Energy announced a maiden resource estimate for its Clayton Valley South Lithium Brine Project…Clayton Valley is strategically located halfway between Reno and Las Vegas in one of the oldest mining areas in Nevada…
The inferred resource estimate for the project outlines 816,000 metric tonnes of Lithium Carbonate Equivalent (LCE), present as “easily-extractible brine in 2 aquifers (Main Ash Aquifer and Lower Aquifer System),” the company stated…its 8,000 acres of claims comprise 3 contiguous blocks and overlie a deep basin structure…significantly, the zones that host the brines appear to extend much deeper into the basin and extend laterally throughout the entire claim area…
The next stages of drilling will test the depth and potential extension of the deposit as well as new zones recently discovered from Pure Energy’s seismic reflection survey…
We initially introduced Pure Energy to our readers last month when it was trading in the mid-20‘s, based on favorable chart patterns and our bullishness on the Lithium sector…2 very strong areas of support – in the mid-to-upper 30’s, which would fill the recent gap, and the Fib. 30-cent level…PE has all the ingredients to attract a wide following through the balance of the summer…
PE is off 3 cents at 39.5 cents as of 9:30 am Pacific after falling as low as 37.5 cents…
Deveron (DVR, TSX-V) Update
A bullish chart and common sense both tell us that something quite dramatic could be brewing with Deveron (DVR, TSX-V)…the steady accumulation since the beginning of April, though not on high volume yet due to the very small float and no news, has been impressive given overall market conditions…
One of the biggest problems facing the Venture is the vast number of companies who have obliterated their share structures over the last few with extremely dilutive financings just to survive…
Deveron is not part of that crowd…in fact, ask yourself this – how many Venture companies are actually trading ABOVE where they were in late 2012, and also haven’t diluted at all?…the answer is probably a mere handful, and DVR is 1 of them…
It has also been a top-performing stock over the last few months despite no news…Deveron only has 11.8 million shares outstanding, and out of that the public float is only around 3 million shares…so this is a “tight” deal trading above its late 2012 IPO price (25 cents) with strong financial backing given the individuals involved and DVR’s largest shareholder, a company sitting on more than $4 million in cash…
Quite simply, Deveron is a highly attractive vehicle, we’re speculating, for a smart entrepreneur to make something happen either within or outside of the resource sector…
The chart tells us there are expectations for some developments here…DVR’s 2-year weekly shows a confirmed breakout above 25 cents with 2 measured Fib. resistance levels…this obviously isn’t a big volume play given the small float, but the share structure gives it very explosive upside potential in the event there is the right news to drive it…
DVR closed last week at 29.5 cents, just a couple pennies below its more than 2-year high set May 21…
Silver Short-Term Chart
Silver has posted back-to-back weekly gains, albeit last week’s advance was a very modest 2 pennies…the metal’s strong advance this morning has taken it above a downtrend line – will this prove to be a false breakout or a real breakout?…if Silver can hold above that downtrend line, or at least the $15 level through the end of the week, that would be a positive sign…interestingly, through the recent turmoil, the metal was able to hold slightly above its low late last year…
RSI(14) is showing increasing up momentum while what we’re also seeing at the moment is a +DI/-DI bullish cross…so there are some positives here that lead us to believe that a sustainable rally could develop…
Silver Long-Term Chart
An explosive push higher (eventually) – is this actually a scenario that could unfold in Silver over the next couple of years?…quite possibly, given the look of this 34-year monthly chart, though at the moment it’s hard to understand all the factors that could come into play to generate the kind of “Wave 5” move that could develop…
It seems possible that the bottom of “Wave 4” came late last year when Silver briefly plunged to just above $14 an ounce, though that could be challenged again shortly with the possibility of a new low…RSI(14) has so far managed to hold support which goes back to 2001…
Sell pressure continues to remain very strong, however, as shown by the CMF – amazingly, at levels not seen in nearly 25 years since the low of $3.51…this intense sell pressure at the moment, which started modestly in early 2013, could continue for a while yet…this should be viewed in a larger context as a bullish contrarian indicator given historical patterns…it doesn’t necessarily mean, however, that Silver has found a bottom just yet…
Note: John and Jon hold share positions in DVR.
