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Gold is trying to stabilize today after a brutal $40 sell-off yesterday that took the yellow metal to a 7-month low…as of 7:15 am Pacific, bullion is up $15 an ounce at $1,580…it had dropped as low as $1,559 overnight…Silver is 26 cents higher at $28.82…Copper is off another 6 cents to $3.54…Crude Oil has fallen $2.38 a barrel to $92.84 while the U.S. Dollar Index has climbed one-fifth of a point to 81.29…there is important resistance at 81.50…

What really rattled the markets yesterday was the perception the U.S. Federal Reserve is cooling on open-ended asset purchases as officials grow nervous about the dangers of a bigger balance sheet…according to the minutes of its January meeting, released two hours before the markets closed yesterday, “many” officials are concerned aut the costs and risks of further asset purchases, as the Fed buys securities at a pace of $85 billion per month…the minutes suggest that QE3 – as the Fed’s third round of quantitative easing is known – could end earlier than previously thought and is no longer a truly open-ended program…the Fed’s balance sheet has reached $3.078 trillion and could exceed $4 trillion if QE3 continues for the rest of the year…launching QE3 last September, the rate-setting Federal Open Market Committee said it would keep buying assets until there was substantial improvement in the labour market…the goal, of course, of the asset purchases is to boost the economy by driving down long-term interest rates…but according to the minutes, “a number of participants stated that an ongoing evaluation of the efficacy, costs and risks of asset purchases might well lead the committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labour market had occurred”…that could reduce the support that QE3 provides to the economy because markets can no longer be certain that the Fed will keep buying assets until the labour market recovers…markets don’t like uncertainty and the Fed has done a good job of creating uncertainty recently, not unlike politicians in Washington…

Gold. TSX Gold Index & Venture Exchange

There are important “awareness” issues that we’re going to cover this morning concerning Gold, the TSX Gold Index and the Venture Exchange…

Gold

First, it’s important to keep in mind that Gold’s correction from its all-time high of just over $1,900 an ounce in late 2011 has been a very normal retracement so far of just under 20%…in 2008, Gold corrected 30% and fear was running rampant when it was briefly trading around $700 an ounce…that, of course, turned out to be an incredible buying opportunity…below is a long-term Gold chart from John going back to the beginning of the bull market…a drop to $1,500 an ounce, or even a little lower, would not derail the long-term bull market…interestingly, RSI(14) on this weekly chart is at its lowest level in 13 years…ask yourself this question – if RSI(14) were at its HIGHEST level in 13 years, like it was in the late summer/fall of 2011, would that be a favorable time to be a buyer? In September, 2011, we warned that Gold was extremely overbought and a correction was imminent…oversold extremes are now beginning to appear though we may not see the bottom in Gold until $1.500, plus or minus about $50…interestingly, the Fibonacci 61.8% retracement works out to $1,454…a drop to that level would be enough to shake all the loose apples off the tree, and perhaps that’s what needs to happen in order to set the stage for the next powerful wave higher that could take Gold beyond the $2,000 level…

Bottom line:  Gold prices are still in a 12-year-old uptrend on the longer-term chart…

Gold vs. Dow

Gold has been moving in the opposite direction of major equity markets in recent months…both the Dow and the S&P 500 are very close to new all-time highs but their short-term signals are turning bearish…the correlation coefficient between Gold and the Dow is reaching previous inverse highs, and Gold relative to the Dow is at a 4-year low…again, this provides evidence that Gold is nearing an important bottom…

TSX Gold Index

So how are the Gold stocks looking?…the TSX Gold Index has tumbled nearly 30% from its September high, and on the daily chart the RSI(14) has fallen to its lowest level since 2000 – before the bull market began…below is a 12-year monthly chart from John that shows a strong support band between 225 and 240…the Index closed yesterday at 251, so more weakness is certainly possible but it’s fair to argue that the Index is likely within 5-10% of an important bottom…the 240 level provided strong resistance from 2003 until 2006…240 has been breached only once since then, and that was for a brief period during the 2008 financial crisis…

It’s noteworthy that on the 10-year daily chart for the TSX Gold Index, RSI(14) hit an all-time high in September and is now at an all-time low…again, ask yourself the question, was the TSX Gold Index a good buy last September with RSI(14) at an all-time high?…it’s now at an all-time low but some investors are throwing their Gold stocks overboard…makes no sense…you make money in this business by going AGAINST the crowd, not by following the crowd…

Venture Exchange

The Venture Exchange (clearly in oversold conditions based on RSI, Stochastics and the CMF) has fallen to a new 52-week low (its lowest level since 2009) and quite frankly we’re surprised it was not able to hold strong support at and above 1154 as it did in December amid tax-loss selling, weakness in Gold, and all the media fear-mongering surrounding the so-called “fiscal cliff”…if this is a capitulation moment, then that’s what maybe this market needs…John’s 13-year weekly chart below shows support at 1120 and a strong support band between 1000 and 1075…there are some stocks that simply don’t deserve to be trading when they are…in late 2010/early 2011, at the height of the bull market, that was also the case but greed was rampant…fear is now the dominant emotion in this market and that’s when great opportunities open up for patient and astute investors…

TomaGold Corp. (LOT, TSX-V)

It’s nice to see a company report a high-grade Gold discovery, and TomaGold (LOT, TSX-V) and Quinto Real Capital Corp. (QIT, TSX-V) did that yesterday on the release of the first three holes drilled at their Monster Lake Property near Chibougamau…QIT has only 10 million shares outstanding and climbed 20 cents yesterday to 24 cents, but they’ll need to spend $6 million over the next four years to earn a 50% interest in the property (they also have an opportunity to earn up to a 70% interest)…they acquired an option on Monster Lake through their recent qualifying transaction…previously, Monster Lake had never been drilled to a depth of more than 125 metres…hole M-13-95 cut an impressive 7.20 g/t Au over 42 metres with true width of the mineralized zone estimated to be between 70 to 75%…as of 7:30 am Pacific, LOT is off half a penny at 17 cents while QIT is up a penny-and-a-half at 24 cents…

Below is a 14-month weekly LOT chart from John for some technical guidance…

Seafield Resources (SFF, TSX-V)

Seafield Resources (SFF, TSX-V) is trading again after the company issued another news release this morning, stating it has arranged a $16.5 million loan facility with RMB Australia Holdings Ltd with the proceeds to be used to fully finance the bankable feasibility study (BFS) for Seafield’s Miraflores deposit and general corporate purposes…Seafield was halted last Friday and a few hours later put out news regarding a stellar infill drill hole at Miraflores (238.15 m grading 2.06 g/t Au) and positive preliminary metallurgical results…the stock is up a couple of pennies in early trading this morning…

Note: John, Jon and Terry do not hold positions in LOT, QIT or SFF.