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Gold was as high as $1,617 overnight but has gently pulled back…as of 6:45 am Pacific, bullion is down $7 an ounce at $1,608…Silver has retreated 44 cents to $28.74…Copper is up 2 pennies to $3.45…Crude Oil has gained 69 cents to $93.14 while the U.S. Dollar Index has fallen nearly one-fifth of a point to 82.63…

Crucial 72 Hours For Cyprus

Pressure is mounting on Cyprus…the country’s lawmakers are gearing up to vote on a series of bills put forward in a renewed effort to strike a bailout deal with European partners after talks with Russia collapsed…the country announced plans yesterday Thursday to overhaul its banking industry and force losses on big depositors as the European Central Bank threatened to withdraw crucial funding if the island’s government failed to agree on a bailout by Monday…the proposals, if they take effect, would allow authorities to restrict non-cash transactions, curtail check cashing, limit withdrawals and even convert checking accounts into fixed-term deposits when banks reopen…they have been closed since March 16…Cyprus has been promised $13 billion in aid from the euro zone if it can come up with $7.5 billion on its own, but that could be easier said than done as lawmakers debate about who should pay to dig the country out of its financial hole…for the first time in the euro’s 14-year history, citizens of a country that use the currency are facing an extended period blocked off from their money – an unsettling image for depositors around Europe…stock markets, however, are showing impressive resilience – up to this point at least…

Barclays – Any Equity Correction To Be Contained, Base Metal Outlook Weak

“The main risk is that equity markets have come too far too fast and that investor sentiment may have become too optimistic,” Barclays Capital stated in a research note according to an article in the Financial Times this morning…“However, we expect any correction to be contained given persistent fundamental support for equities: continued policy support, the low risk of a cyclical downturn and attractive valuations relative to fixed income”…Barclays also stated that any rallies in base metals are likely to be unsustainable and are selling opportunities as fundamentals are weak…Global supplies are ample, as seen in growing inventories, and forward prices are in contango, the firm said, meaning that nearby prices are lower than deferred prices…“Copper supply has been outperforming our expectations, while a lack of production discipline in nickel and aluminum is keeping those markets heavily oversupplied,” Barclays said…

Copper vs. S&P 500

We’re not quite sure what to make of this, but the current divergence between Copper and the broad equity markets is a concern – especially when one considers the fact that Copper is viewed as a reliable leading indicator of the overall health of the global economy…it also led the equity markets higher out of the 2008 Crash and that out-performance continued until early last year…below is a multi-year monthly chart from John that shows how pronounced the divergence is that started at the beginning of this year…

Today’s Markets

Asian markets were mostly lower overnight, though China’s Shanghai Composite bucked the trend with a slight gain to close at 2,328…after a powerful 25% rally from 1950 to nearly 2450 between early December and early February, the Shanghai corrected 200 points or 8% to unwind overbought conditions…Japan’s Nikkei average lost 297 points or 2.3% overnight to close at 12339…European shares are flat…the influential Ifo survey on German business confidence came in lower than expected…it declined to 106.7 in March from 107.4 in February…the slump was the first decline in five months and was below economists’ forecasts of 107.6…meanwhile, investors are keeping an eye on Italy where an imminent decision is expected from President Giorgio Napolitano  on the next steps toward  forming a new Italian government following two days of consultations with the country’s main political leaders…Beppe Grillo, head of the radical “Five Star Movement” which won 25% of the vote in February’s elections, asked Napolitano to give his party a mandate to govern…in North America, the Dow is up 51 points to 14472 through the first 15 minutes of trading…the TSX has gained 23 points while the Venture is off 2 points at 1101…

TSX Gold Index Updated Chart

The TSX Gold Index continues to slowly recover out of oversold conditions not seen since the 2008 Crash…while it still has a lot of overhead resistance to battle through, it’s possible the Index may have found a bottom recently (March 6) at 243…it climbed 6 points yesterday to close at 260, its highest level in 17 sessions…below is a 2-year weekly chart from John…important near-term resistance is between 270 and 280…as of 6:45 am Pacific, the Gold Index is down a point at 259…

Those Red-Hot Lumber Plays…

Lumber has been a red-hot commodity, especially since last year when a recovery in the U.S. housing market really started to take hold…this has translated into major gains in many forestry stocks…a “super-cycle” could be developing in lumber with the peak still two or three years away given tight supplies and strong demand…U.S. housing starts are expected to more than triple off their 2009 lows between now and 2017 when some analysts say they will hit 1.5 million starts a year…starts are expected to reach 925,000 to 950,000 this year…

Below are “awareness” charts from John on Canfor Corp. (CFP, TSX) and Ainsworth Lumber (ANS, TSX) that demonstrate how technically overbought this sector currently is on a short-term basis…an attractive buying opportunity may emerge during the second quarter on an expected pullback to unwind these overbought conditions…this could easily be followed by new highs later in the year…

Canfor Corp. (CFP, TSX)

Ainsworth Lumber (ANS, TSX)

Note: John, Jon and Terry do not hold share positions in CFP or ANS.