Gold has traded between $1,280 and $1,308 so far today…as of 8:30 am Pacific, bullion is up $12 an ounce at $1,305…Silver is 26 cents higher at $18.37…Copper has fallen 6 cents to $2.57…Crude Oil has lost $1.27 a barrel to $46.51 on rising U.S. Crude inventories, while the U.S. Dollar Index has exploded by more than a full point following the ECB’s monetary gymnastics…it’s now at 93.81, overcoming resistance at 93…
SPDR Gold Trust, the world’s top Gold-backed ETF, saw outflows of 0.24% to 740.45 tonnes yesterday…meanwhile, though physical demand continues to be firm in China, Indian Gold importers were offering discounts of up to $16 an ounce versus London prices, the widest in 17 months, on weak demand and expectations of a duty cut according to a report from Reuters…
Gold surged above $1,300 yesterday for the first time in 5 months before backing off to close at $1,293, snapping the metal’s 7-session winning streak…that was a combination of healthy profit taking, given Gold’s $100 advance already in 2015, and some nervousness surrounding today’s ECB decision and Mario Draghi’s news conference. As UBS commented, “A scenario where the ECB delivers a substantially larger package versus current expectations, and especially versus the UBS estimate of [€1 trillion], could potentially encourage Gold to overlook the euro impact and focus more on the ECB’s balance sheet expansion.”
Another view: “There has been a perception that central banks have been losing control (our emphasis, bullish for Gold), with several changing policy unexpectedly, thus fueling demand for Gold,” Matthew Turner, a precious metals analyst at Macquarie Group Ltd., stated in an interview with Bloomberg. “The ECB can restore calm today if its policy is seen as effective and commanding broad support.”
ECB Acts But Draghi Will Need A Bigger Torpedo
The ECB officially announced this morning that it will purchase euro zone countries’ government bonds, a landmark decision aimed at combating stagnation and stave off deflation in a region that has emerged as a top risk to the global economic recovery…how effective this program will be remains to be seen, and how many bullets does the ECB have left if this doesn’t work?…what the ECB is now finally doing could be too little, too late (in retrospect, it should have acted in 2008 when the Fed did)…
ECB President Mario Draghi said the ECB will buy a total of €60 billion ($69 billion) a month in assets including government bonds, debt securities issued by European institutions and private-sector bonds…the purchases of government bonds and those issued by European institutions will start in March and run through September 2016, Draghi said…
“The ECB decision is very important for my country, but decisive and crucial for the European economy,” Italian Prime Minister Matteo Renzi said in an interview with The Wall Street Journal, adding that it is “absolutely important in the future to give more power to the ECB.”
Loonie Tunes
If there was any doubt in some investors’ minds about how potentially serious and drawn-out the collapse in Oil prices could be, the Bank of Canada spoke loud and clear yesterday when it became the first central bank in the Group of 7 to cut interest rates in response to plummeting Oil prices, saying the shock will weigh on everything from inflation to business spending…
The decision by the central bank to cut rates for the first time since April 2009 caused the loonie to tumble to a new multi-year low, and John’s technical check-up on the loonie suggests it could ultimately hit the low 70’s before it finally hits bottom and reverses (we’ll be posting a fresh loonie chart tomorrow)…
“The Oil price shock increases both downside risks to the inflation profile and financial stability risks,” the central bank said in its statement, adding the cut is “intended to provide insurance against these risks” and support the adjustments needed to return the economy to full output…Governor Poloz said in a later news conference that the bank would take out more “insurance” if economic conditions warranted…
The central bank also reduced its growth forecast for the first half of this year to a 1.5% annualized pace, from an October estimate of 2.4%…inflation will slow to 0.3% in the second quarter, outside the central bank’s target range of 1% to 3%, the bank projected…
Optimistic Price Forecasts?
The central bank’s latest forecasts assume average benchmark Crude prices this year at $60 a barrel, down from an October assumption of $85 per barrel…but is even $60 a barrel an unrealistic expectation?…
Investment
Oil and gas investment will probably drop by about 30% this year and be little changed in 2016, the bank said, adding growth in Canadian energy exports will slow to 1% from 6% in 2014…current Crude prices mean “many projects” in Canada are now unprofitable, the central bank said…
Home sales in Calgary, the nation’s Oil hub, plummeted 24.6% in December from the previous month, the Canadian Real Estate Association said last week…that was the worst drop since the 2008 financial crisis…
The Bright Side
On the brighter side, the central bank said the lower Oil price will boost global growth, in particular in the U.S., Canada’s largest trading partner…that should raise Canada’s 2016 growth rate to 2.4%, higher than the October forecast of 2.3%, the bank said…in other words, some short-term pain will have some long-term benefits…the negative immediate impact of lower Oil prices will gradually be mitigated by a stronger U.S. economy, a weaker Canadian dollar, and the bank’s monetary policy response…
Today’s Equity Markets
Asia
China’s Shanghai Composite climbed another 21 points overnight to close at 3334..
What’s startling about this updated Shanghai chart from John is that the Chinese market still appears to have much higher to go, despite last year’s 53% climb…this implies the likelihood of lower commodity prices in general (Gold will probably be an exception) as the CRB has been moving determinedly in the opposite direction of the Shanghai since last summer…
Overbought RSI(14) conditions have unwound on this 3-month daily chart, and next measured Fib. resistance is 4021 – 21% above today’s close…
Europe
European equities were up significantly today (more than 1%) in response to the ECB decision and Draghi’s comments…
North America
The Dow has climbed 135 points through the first 2 hours of trading today…the TSX has shot up 150 points while the Venture, trying to gain traction above key resistance at 680, has added 3 points to 682…
Financing Window Opens For Gold Producers
It’s worth noting that the financing “freeze” for Gold companies is beginning to thaw…no less than 6 companies have announced bought deal offerings in the last couple of days: Romarco Minerals (R, TSX), Detour Gold (DGC, TSX), Osisko Gold Royalties (OR, TSX), Primero Mining (P, TSX), Asanko Gold (AKG, TSX), and Richmont Mines (RIC, TSX)…combined, these companies are raising a whopping $789.8 million…last week, Yamana Gold (YRI, TSX) unveiled a $260.2 million equity deal of its own, while Lydian International (LYD, TSX) tapped the market for $16.5 million…
The flood of financings coincides with a significant jump in the Gold price that has reignited investor enthusiasm for the sector…bullion is up almost 10% this month…
How long this financing window remains open is hard to say – hopefully long enough for some juniors with good projects to attract some interest as well…
Oil, Loonie Weakness Changes Dynamics For Certain Producers & Near Producers
Multi-year lows in Oil prices and the loonie (Gold is really taking off in Canadian dollar terms) are going to have positive and potentially transformational effects on certain producers and near-producers, especially those with open-pit operations where fuel costs are a major factor in cost structures…
This is why we see a major change in fortunes for Gold Bullion Development (GBB, TSX-V) which is just 1 permit away from approval to commence a high-grade “rolling start” at its Granada Project near Rouyn-Noranda, Quebec…GBB, 1 of our old favorites, is now uniquely positioned for a dramatic recovery given the Oil-loonie dynamics and the potential for additional discoveries in the LONG Bars Zone…
The numbers speak for themselves…GBB could become a cash cow with fuel costs now 30% below estimates and a Gold price now nearly $200 CDN above the base case for the company’s high-grade (4+ grams) rolling production start at the open-pit Granada Project…prior to the collapse in both Oil and the Canadian dollar, GBB’s 3-year rolling start already featured robust economics with a pre-tax payback period of just 6 months and an IRR of 169.4% (Preliminary Feasibility Study, based on proven and probable reserves)…those are just some of the reasons we’ve turned so bullish on GBB, and other near-term producers…
Fairmont Resources Corp. (FMR, TSX-V) Update
Another company that stands to benefit from low fuel costs is Fairmont Resources (FMR, TSX-V) which recently received its Certification of Authorization to extract up to 300,000 tonnes annually of titano-magnetite aggregate from its Buttercup Property near Chicoutimi, Quebec…Fairmont is getting aggressive in terms of building a portfolio of potential producing properties, so we see plenty of upside potential here given a very modest current market cap of $2.8 million…
Technically, FMR is in the “sweet spot”, resting just above its rising 300-day moving average (SMA) after a healthy retracement from last September’s high of 30 cents…
FMR is up a penny at 17 cents as of 8:30 am Pacific…
Discovery Ventures Inc. (DVN, TSX-V) Update
Discovery Ventures (DVN, TSX-V) has a high-grade Gold-Copper resource (Willa-Max in southeastern B.C.) with a robust Preliminary Economic Assessment (May 2014) giving an after-tax NPV of $55 million and an after-tax IRR of 412%…
This 3-year updated weekly chart is timely in the sense that DVN has formed a very strong base in the high teens in advance of what could be another powerful move to the upside, similar to patterns in 2012, 2013 and 2014…
DVN is off a penny at 19 cents as of 8:30 am Pacific…
Pure Gold Mining Inc. (PGM, TSX-V) Update
Pure Gold Mining (PGM, TSX-V) is very active in the prolific Red Lake district with its 100%-owned Madsen Gold Project…in fact, the company holds 1 of the largest land packages in the Red Lake region including 2 past-producing mines, existing mine infrastructure, current mineral resources, and multiple highly prospective exploration targets in a geological setting analogous to other modern high-grade discoveries in the area…
The company’s winter drill program will be commencing by the end of this month as announced in PGM’s most recent news, January 8…
Technically, as shown in this weekly chart, the trend is encouraging which points to the possibility of an eventual sustained breakout above Fib. measured resistance at 34 cents…the 50-day SMA, currently at 29 cents, reversed to the upside this month…
Note: John, Terry and Jon both hold share positions in GBB. Jon also holds a share position in FMR.
Near term, I don’t see GBB going anywhere. Not with that million plus sell at .06. Almost 300 mil shares out. I hear ya JON, I just think its going to be a while before any GBB breakout.
Comment by dave — January 22, 2015 @ 9:28 am
I’m focused on the changing fundamentals with this one, Dave, and it’s only a matter of time before this heads much higher because a $15 million market cap is peanuts based on the rolling start numbers, the Crude and loonie declines, and the potential for the LONG Bars Zone to host 5+ million ounces. I remember back in early 2010, people said this was going nowhere when there was a wall of millions of shares at .11. Look what happened. The sellers ran out of paper, good news came, and kaboom. History may repeat itself here.
Comment by Jon - BMR — January 22, 2015 @ 9:36 am
Left message with Steve, GGI, hopefully returns call like Jon says. If he does and says it find to post I will!
Comment by Bob — January 22, 2015 @ 10:30 am
Jon, your right. Point well taken. I wasn’t thinking of the low market cap.
Comment by dave — January 22, 2015 @ 11:02 am
Dave, yes, GBB’s market cap is low and most investors are behind the curve on the changing dynamics here with Oil and the dollar, and how things will play out on the ground at Granada. The supply at the moment is coming mostly from last year’s flow-thru buyers (National Bank being one of them) and it’s going to start drying up in relatively short order. You don’t want to start chasing this after it has broken out and supply has tightened. We have followed Granada closely since late 2009, we knew the right time to get in and when the tide had turned in 2011. The chart says it’s time to get back in, and the fundamentals are in agreement with that given the expected near-term receipt of the CA, the drop in both Oil and the Canadian dollar which have changed the economics of the project, and the jump in Gold. Doesn’t take a rocket scientist to figure out the math here. Plus, I personally believe the LONG Bars Zone has a lot more gold in it than has been proven up so far. So there’s exploration upside plus very robust numbers on the rolling start with fuel costs down at least 30%, the dollar plunging, and the price of Gold in Canadian dollars at $1,600 vs. $1,400 in the PFS. Those are the facts, everyone can judge for themselves. I don’t believe this is a temporary drop in Oil and the loonie. This is a fundamental shift on a global scale, and the possibility of Gold going thru the roof later in 2015 can’t be ruled out. Then you’ll want to own every Gold stock there is.
Comment by Jon - BMR — January 22, 2015 @ 12:18 pm
Jon, I agree with you on all of this. I just have to be careful cause I trade from the U.S. side and I get hurt with the loonie dropping. THIS is the reason you hear me bark on this board about being a trader and not long term investor. Many – if not most Canadian stocks that trade on the U.S. too don’t have the volume for the kind of buying that I do. So I have to trade thru the Canadian side to get the kind of shares I want.
Comment by dave — January 22, 2015 @ 12:34 pm
By the way Jon, I jumped in CMM at .40 a few ago. There is a program I use that is extremely accurate on Resistance-support. It showed heavy support at .39 – Just looking at the chart I figured it was a no brainer.
Comment by dave — January 22, 2015 @ 12:41 pm
Yes, good pick-up at support on that one, Dave. Strange trading the last couple days in CMM but the volume is there which is good. Support at .40, as you say, and resistance at the 200-day SMA. Great recovery at the end of the day.
Comment by Jon - BMR — January 22, 2015 @ 12:52 pm
BMR folks, and posters- I continue to enjoy this site, the comments, the hot picks and the analysis- could anyone make some suggestions as to any educational material around charts and technical analysis, etc. – also I still wouldn’t mind some comments about Ivanhoe (IVN) which holds 3 amazing properties holding, in total, 50 billion pounds copper, 75 million ounces precious metals, and has had zinc intercepts of over 40% zinc over 300+ metres, and has present market cap of about $600 million.
Comment by terry — January 22, 2015 @ 4:21 pm
Poster Terry
If i may, i would like to give my 2 cents worth. IVN is oversold & it
wouldn’t surprise me, if it had another down period, but i would expect
it to turn around at approximately 0.83..
Comment by Bert — January 22, 2015 @ 5:27 pm
BMR, it has been a week since your site visit. When is the big reveal?
Comment by Dan — January 22, 2015 @ 6:31 pm
Hi Terry
I suggest you start with “Technical Analysis for Dummies” book to get a general idea of what TA is all about.
Best of luck…I think you will enjoy it.
Comment by John BMR — January 22, 2015 @ 6:34 pm
Thanks Bert and John.
Comment by terry — January 23, 2015 @ 6:04 am
Terry, John said it all. Get the book. I have studied charts for 25 years and consider myself a very good chart reader. It takes time and experience, also the TA involved. As for IVN, its a triple bottom at .82 – a very strong indicator of a bounce coming off that price level.
Comment by dave — January 23, 2015 @ 6:04 am
Dan
Good chance of getting a good deal on a pair of snowshoes, now that Jon
has finished his site trip.
Comment by Bert — January 23, 2015 @ 6:58 am
I say this jokingly, because i don’t want to offend
anyone, but because we feel something is just not right,
when we have to wait an extended period of time for
results (GGI), the same thing may apply, when we have
to wait an extended period of time, for Jon to report on
his site trip.
Comment by Bert — January 23, 2015 @ 8:31 am