Gold has traded between $1,582 and $1,604 so far today…as of 6:50 am Pacific, the yellow metal is down $6 an ounce at $1,590…Silver is off 9 cents at $28.89…Copper has lost a penny at $3.55…Crude Oil is relatively flat at $92.85 while the U.S. Dollar Index has gained one-fifth of a point to 81.67…
Gold is set for the biggest monthly drop since May and the longest streak of monthly declines since 1997, as improving economies curbed demand for bullion as a haven asset…assets in the SPDR Gold Trust, the biggest exchange-traded product backed by the precious metal, slid 12 metric tons yesterday to 1,258.4 tons, the lowest since August, according to figures on the fund’s website…investors cut ETP holdings by more than 100 tons this month on concern a 12-year bull run is coming to an end, data compiled by Bloomberg show…however, as John’s charts have pointed out, a drop to $1,500 in Gold – or even slightly lower – would be a very normal retracement in an ongoing bull market…currently, Gold is down just 17% from its all-time high…commercial traders have trimmed their short positions to the lowest levels in more than a year…public sentiment regarding Gold is very negative right now and that’s a bullish contrarian sign…
BNP Paribas has revised its 2013 Gold forecast lower to $1,670 an ounce from $1,790 previously…the bank says it looks for a price rebound in the second half of the year, currently listing a fourth-quarter average forecast of $1,740…”Our mildly positive Gold price forecast for H2’13 is based on the assumption that QE (quantitative easing) in the U.S. will eventually weigh on the U.S. dollar and prop up inflation expectations,” the bank says…BNP Paribas economists currently look for the Federal Reserve to continue to expand its balance sheet into the second half of 2014…however, BNP Paribas looks for a “more entrenched correction” for Gold prices in 2014 – currently forecasting an average of $1,595 an ounce…just one more opinion…
Gold Weak – Dow Strong
The Dow is rapidly closing in on an all-time high, boosted by upbeat earnings and economic reports and as Fed Chairman Ben Bernanke reaffirmed his support of the central bank’s stimulus policy…U.S. unemployment probably reach the 6% level until 2015, Bernanke told Congress yesterday as he finished his two days of testimony on monetary policy and the economy…Bernanke continued to defend the central bank’s easy monetary policy and warned Congress against letting looming spending cuts take place…”There still seems to be quite a bit of unused resources, people that could be working, capital that could be used and is not being used,” Bernanke said of the economy…”We believe the monetary policies that we’ve conducted have helped get stronger recovery and more jobs than we otherwise would have had”…Bernanke said that based on Fed estimates, “we’ve helped create many private sector jobs, government jobs to support the economy quite significantly”…with the jobless rate in January at 7.9%, Bernanke said his “reasonable guess” would be that it will take three more years before the unemployment rate reaches 6%…late last year, the Federal Reserve said it would keep interest rates low until unemployment reached about 6.5%…Bernanke also sees little risk of a spike in interest rates in the near term but did warn of the potential economic damage from the automatic spending cuts that go into effect on Friday…
Today’s Markets
Asian markets posted strong gains overnight with Japan’s Nikkei average soaring 2.7%…a successful bond auction in Italy helped along with the nomination of Asian Development Bank President Haruhiko Kuroda, an advocate of aggressive monetary easing, as Japan’s next central bank chief…China’s Shanghai Composite soared 52 points to 2366…European markets are slightly higher while the Dow in the first 20 minutes of trading has added 30 points to 14105…the Venture is off a point at 1130…
Tracking The Canadian Dollar
Some recent weakness in the Canadian economy (one of several contributing factors is the oil price differential) has negatively impacted the loonie recently which is now trading at its lowest levels since last June…we’ve noted before how the Venture Exchange often moves in tandem with the Canadian dollar, and February has certainly been no exception as the loonie has suffered its worth month since last May and the Venture has hit a new three-year low…so what’s the outlook for the dollar from a technical perspective at the moment?…below are three charts from John that try to answer that question…it appears a reversal could be underway with the dollar clearly in oversold conditions…
Canadian Dollar Chart #1
Canadian Dollar Chart #2
The dollar strongly outperformed commodities throughout 2009 and 2010, a period when the Venture was in the midst of a powerful bull market…the recent consolidation in the dollar has brought it very close to long-term support as shown in chart #2…
Canadian Dollar Chart #3
Below is a three-year weekly chart that shows RSI(14) in a strong support zone…
One potential risk with the Canadian dollar would be a decision by the Obama administration to block the construction of the Keystone XL pipeline…as the Globe and Mail’s John Ibbitson argued in an interesting article yesterday, “relations between Canada and the United States will enter a deep freeze the likes of which have never been seen” if Obama were to say no to Keystone in an effort to pander to his environmental base…
The Leverage Of Discoveries
As bad as the Venture market is right now, there are still enormous opportunities with discoveries…this was demonstrated by GoldQuest Mining (GQC, TSX-V) in May of last year, when many investors were asleep at the switch, and again just recently when TomaGold Corporation (LOT, TSX-V) and Quinto Real Capital (QIT, TSX-V) announced a discovery at their Monster Lake Project near Chibougamau…the news came out last Wednesday when investors were running for the exits with Gold falling $40 an ounce and the Venture dipping below important support…sometimes that’s when the best opportunities arise…LOT doubled since last Wednesday’s close of 17 cents while QIT has skyrocketed from 23 cents to as high as 97 cents yesterday…keep in mind these “discovery plays” tend to be very volatile…
Gold Canyon Resources (GCU, TSX-V) Chart Update
Gold Canyon Resources (GCU, TSX-V) continues to slide closer to John’s support zone between 30 and 43 cents…yesterday, GCU fell another 14 cents on high volume to close at 51 cents…Gold Canyon has been working on an excellent project in northern Ontario (Springpole) with over 5 million ounces of Gold outlined to date and a PEA expected in the near future…with about 135 million shares outstanding, GCU’s current market cap puts a value of $14 on each ounce of Gold in the ground (the Springpole indicated resource is currently 128.2 million metric tonnes at an average grade of 1.07 g/t Au and 5.7 g/t Ag for 4.41 million ounces of Gold and 23.8 million ounces of Silver, with an inferred mineral resource of 25.7 million metric tonnes at an average grade of 0.83 g/t Au and 3.2 g/t Ag for 690,000 ounces of Gold and 2.7 million ounces of Silver at a cut-off grade of 0.40 g/t Au)…
In a February 6 news release, when GCU was trading around 70 cents, the company came out with a news release to explain the reasons for its sagging share price:
- Market participants have indicated that, due to investor fatigue with the mining sector, both retail and institutional, and prolonged mining sector weakness, resource money managers are experiencing higher than normal redemption challenges in their funds and managed accounts, causing them to sell shares to raise the cash needed to make redemption payments. With respect to Gold Canyon’s shares in particular, the continued recent demand has resulted in bids to buy at reasonable valuation levels, providing the sellers with better liquidity than is the case with many other mining issuers, and indeed than had historically been the case with Gold Canyon until very recently;
- Gold Canyon had historically issued a large number of flow-through common shares, which, because of the associated tax treatment in Canada for qualified flow-through mining expenditures undertaken by the company, carry a much lower cost base than regular shares. The lower cost base allows resource money managers to sell these shares at prices that, despite declining market prices generally, are still profitable, providing more attractive optics than selling at a loss.
Of course we can’t say for sure where exactly the bottom might be for GCU, but John’s 4-year chart (as indicated earlier) is showing a support band between 30 and 43 cents…this is not a price target but just what the chart is showing as a strong support area…capitulation may not have occurred yet with GCU…we’ll have to wait and see…as always, perform your own due diligence…GCU is up 3 pennies in early trading at 54 cents…
Note: John, Jon and Terry do not hold positions in LOT, QIT or GCU.
