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March 22, 2011

BMR Morning Market Musings…

Gold has traded in a range of $1,419 to $1,433 today…as of 8:05 am Pacific, the yellow metal is unchanged at $1,427…Silver fell to $35.80 but is now up 28 cents at $36.38 while the U.S. Dollar Index is quiet at 75.49…Gold could prove to be important to Gadhafi’s ability to wage a “long war” in Libya as the evil dictator promises…the Libyan central bank, which is under Gadhafi’s control, is believed to hold approximately 143.8 tonnes of Gold according to the latest data from the International Monetary Fund…some believe the amount could be higher…those reserves are among the top 25 in the world and are worth more than $6.5 billion at today’s prices…Ghadafi’s Gold is not held at international vaults but within the country…while Libya has been hit with sanctions including a freeze on many of its assets, it may be possible for Ghadafi to sneak Gold into a neighboring country such as Chad or Niger and swap it for food, arms or cash…Ghadafi unfortunately still has a few friends in the world and he should not be underestimated…U.S. officials also believe he is sitting on many billions of dollars in cash…the situation in Libya is very complex and is just one of many geopolitical concerns and uncertainties the market is facing right now…Morgan Stanley’s tracking estimate for U.S. growth in the first quarter has slipped in the last month to 2.9% from 4.5%, and that was before the troubles in Japan…the U.S. economic recovery has certainly been showing signs of gathering momentum but unemployment continues to be a major concern along with the housing crisis which doesn’t appear to have bottomed out yet…municipal, state and federal debt levels also present a significant threat to the American economy…when one adds in the troubles in Japan, the ongoing European sovereign debt problem, international tensions and the possibility of an “oil shock”, the global economy is facing difficult headwinds…on the positive side, this will likely force the Fed to maintain an accommodating monetary policy for an extended period…the United States is on a fiscal path towards insolvency and policymakers are at a “tipping point,” a Federal Reserve official said today…“If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when,” Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt…”The short-term negotiations are very important, I look at this as a tipping point”…but Fisher added he was confident in the Americans’ ability to take the right decisions and said the country would avoid insolvency…”I think we are at the beginning of the process and it’s going to be very painful,” he added…inflation (CPI) in Britain has surged more than expected to a 28-month high (4.4%)…the news comes as the country’s finance minister puts the final touches to his 2011 budget which is due tomorrow…Britain’s retail price inflation, which is based on a longer-running index and is used as a starting point for many wage negotiations, rose to 5.5% from 5.1%, its highest since July, 1991…Canadian Finance Minister Jim Flaherty delivers the Conservatives’ budget later today with intense speculation that an election is just around the corner…the CDNX got as high as 2292 this morning but has since pulled back slightly…the 11% advance since last Tuesday’s intra-day low of 2054 has come on relatively low volume which has made us very suspicious…liquidity across the board just isn’t there today…the CDNX is facing major resistance around 2300 and the balance of this trading week is critical…as of 8:05 am Pacific, the Venture is unchanged at 2285…Vantax Resources (VAX, TSX-V) released encouraging results this morning from its promising Galloway Project west of Rouyn-Noranda…many sections grading more than 0.50 g/t Au over 100 metres were intersected…the company believes it can connect the three major zones identified so far (Galloway-Pitchvein, Moriss and Hendrick) which it’s now calling the “Golden Triangle”…VAX is currently off 1 penny at 32.5 cents…Visible Gold Mines (VGD, TSX-V) starts drilling near the Moriss Zone Discovery very soon as part of its deal with Cadillac Mining (CQX, TSX-V)…Gold Bullion Development (GBB, TSX-V) enjoyed a strong day yesterday and is currently off half a penny at 44.5 cents after hitting a high of 46.5 cents this morning…Gold Canyon Resources (GCU, TSX-V), which we’re keeping an eye on, has dipped 19 cents to $3.23…

19 Comments

  1. Hi Jon, I’ve been thinking about your call for a 20% market correction over the last week and I’m not convinced you guys are right. Technical analysis is important, and no one explains it better than John, but I think precious metal market fundamentals are so strong right now that we will soon see $1500 Gold and $40 Silver. Main reason for this is the incredible demand for physical gold and especially silver across the world…an example being at its current purchase rate China will account for 50% of global gold production this year and the situation with silver demand is even tighter. Also we have the situation at the Comex where the big banks are short huge quantities of precious metals…amounts so large that they cannot get their hands on the physical metal to settle their positions. This is especially the case with silver where JP Morgan is short an obsene amount and are facing a serious short squeeze every month over delivery. All these fundamental supply issues combined with the inevitable arrival of more QE worldwide will raise the price of precious metals in all currencies. The FED have no choice but to continue purchasing treasury bonds because if they stop there won’t be enough buyers to finance their huge debts and they will never allow a default. This rise in precious metal prices that I predict should lead to more demand for the shares of the junior miners even if the overall market is wobbly. This is all just my opinion and I could be wrong but I think I am right.

    Comment by Patrick — March 22, 2011 @ 7:41 am

  2. Patrick, thank you…you raise some very good points and I also am extremely bullish regarding Gold, especially over the long haul, for the reasons you have mentioned…keep in mind, though, that it’s quite possible we could have a situation where Gold does move higher over the near term and yet the CDNX goes in the opposite direction…..we have seen that happen at other times including the spring of last year during the CDNX May-June correction…what I’m saying, one has to be careful with the assumption that just because Gold could go higher, that the CDNX will immediately follow suit…given all the indicators we look at, we believe the “caution flag” has been raised on the CDNX and it’s best to stick to the sidelines and see how things play out in the coming days…the overall bull market remains intact but the short-term risks have increased substantially…one always has to be conscious of the risk factor…I don’t like the lack of liquidity in this market right now, either…volume patterns are definitely short-term bearish…

    Comment by Jon - BMR — March 22, 2011 @ 7:58 am

  3. Simply put, in a market corrections small cap stock usually bare the brunt of the correction because they are high risk investments. As such, most investor liquidate their risky investment in times of high volatility in order to control certainty in their portfolio’s. The physical gold and silver will continue to rise as they did last year in times of uncertainty but the stocks normally get sold off. That’s why some suggest to hold physical bullion and silver in combination with gold/silver stocks.

    Jon is suggesting you should build a cash base in choppy markets such as now. I don’t think Jon is saying to liquidate all your investments, but rather start building a cash in the event of a market drop which seems likely as a result of prior trends in the CDNX. If the market doesn’t drop then at least you are still invested. This is called hedging risk. And if your savvy then you can hedge yourself with downside protection by shorting the market using put options.

    Comment by Andrew M — March 22, 2011 @ 8:08 am

  4. Is there anywhere I can find a chart on the CDNX volume (weekly,monthly,yearly)? Been looking around on TMX.com and others but can’t find any. Thanks in advance.

    Comment by J.C. — March 22, 2011 @ 9:22 am

  5. Hello J.C, try this link http://tmx.quotemedia.com/charting.php?qm_symbol=%5EJX and you can select time, comparisons and indicators – build the chart/s that you want.

    Comment by Andrew — March 22, 2011 @ 9:36 am

  6. Gold and silver are not going to go straight up. Over time they will but not in a straight line. I think it is the prudent thing to do (raise cash). I’m selling some shares into this strength to take advantage of the strength in metals. Isn’t it funny how we are seeing tiny volume in all markets but once the market trend declines watch how fast the selling will pick up.

    Comment by Seamus — March 22, 2011 @ 9:41 am

  7. Thanks Andrew, exactly what I was looking for.

    Comment by J.C. — March 22, 2011 @ 9:49 am

  8. what a crasy day for SFF i dont get it,is this just a game from the MM please help me to anderstand.Thank you

    Comment by claudette — March 22, 2011 @ 12:12 pm

  9. Just curious what you think of the venture up to that critical 2300 range at close jon. If it manages to break that resistance this week does it change your bearish stance short term on the CDNX??

    Thanks

    Comment by Jeff — March 22, 2011 @ 1:06 pm

  10. Up again today, in fact, the only exchange up. As we keep moving up, we are getting
    closer to stiff resistance, so states BMR. Of interest is we closed at the high for the
    day & other indicators are also looking up. I realize my chart, only gives me an idea of what
    may happen tomorrow, beyond that, nothing is guaranteed in this world we live in, so your guess
    is as good as mine, but today, i feel just fine. R !

    Comment by Bert — March 22, 2011 @ 1:11 pm

  11. John BMR any plans to do another interview with Fisher of GQC?

    Have the pans to interview Audet of EVR been put on hold? They have no P.R. person at this time and not sure if that puts a damper on doing things that are not required by law.

    Comment by george wohanka — March 22, 2011 @ 1:29 pm

  12. Seems both TSX and TSX-V had trouble today to push through their resistance/support levels. So tomorrow could be interesting. Gl to you all(!)

    Comment by J.C. — March 22, 2011 @ 1:53 pm

  13. Jeff, the big problem right now is VOLUME which is such a critical indicator. Volume is key and this up-move cannot be sustained, as John pointed out, without a substantial increase in volume. So we have a volume problem right now, in addition to major resistance at 2300. What would impress me is if we get a powerful move through 2300 on a sharp increase in volume – that’s what we need to see. That’s what we need to watch for – I really believe that’s unlikely but the possibility can’t be ruled out.

    Comment by Jon - BMR — March 22, 2011 @ 1:57 pm

  14. I think when results come out from Escandalosa, we’ll look at doing a follow-up interview with Fisher but not until then. Everton is definitely a situation we continue to watch closely and I’m certain we’ll be interviewing Andre again in the next month or so.

    Comment by Jon - BMR — March 22, 2011 @ 2:00 pm

  15. CDNX should hit 1900.

    Comment by david — March 22, 2011 @ 7:01 pm

  16. Very interesting the tug of war in gold between the fundamenatls and the technicals, alot of experts think that if not for the Middle East problems gold would have already corrected big time as it was starting to do so back in January, you would think that with all of the un certainity in the middle east and with the price of oil going up gold would be blowing off to new highs, but the technicals are holding it back so you seem to have this tug of war between the 2, wonder who will win, if BMR is correct with their leading indicator being the CDNX, it looks like BMR will be correct, and with the lack of volume it appears even more so, unless we have another so called black swan event in the middle east. Very interesting times to say the least.

    Comment by GREG H — March 22, 2011 @ 9:12 pm

  17. This comment has nothing to do with the correction discussion we all seem to be having but rather the strange trading going on with GBB. House 079 which is CIBC has been putting immense selling presssure on this stock all with 500 or 1000 share blocks which keeps it from advancing if anyone has level 2 and has been watching this they will agree. Some days its seems its only 079 on the buy and 079 on the sell just plauying back and forth. I’ve seen this happen before with other stocks and other houses but not with this fury as its happening with GBB in the past 3 weeks…anyone care to comment or offer some insight as to whats going on maybe BMR can help with this.

    Thanks

    Comment by Bruno — March 23, 2011 @ 6:08 am

  18. It’s good to see gold and silver breakout to the upside…TSX over 14,000 pts!

    Comment by STEVE — March 23, 2011 @ 6:49 am

  19. Hi Bruno, thanks for the post. I haven’t noticed this myself as I haven’t been paying that close of attention to the individual trades. Perhaps John has and could comment. There are always some games going on…perhaps someone has recent GBB house position numbers to put things into perspective for the total volume of CIBC selling…I would not describe 500 or 1000 share blocks as immense selling pressure…keep in mind that GBB’s technicals are simply not favorable at the moment and until that turns around, paper is going to be thrown into the market….

    Comment by Jon - BMR — March 23, 2011 @ 7:11 am

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