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Gold extended Friday’s losses into early trading today, but has bounced back after touching an overnight low of $1,218…as of 7:00 am Pacific, bullion is up $8 an ounce at $1,232…Silver is 18 cents higher at $19.08…Copper is up 2 pennies to $3.08 despite new concerns regarding China…Crude Oil has pulled back 68 cents to $102.54 while the U.S. Dollar Index has retreated one-fifth of a point to 84.26…

HSBC expects China’s Gold imports to remain “elevated” in the near-term…the bank cites data from the Hong Kong Census and Statistics Department showing China’s Gold imports from Hong Kong increased to 127 metric tons in May from 76 in the same month last year and up slightly from 126 this April…“Physical buyers in China have reacted positively to lower Gold prices for the bulk of this year,” HSBC stated…“Most notably, Gold’s price break below $1,600/oz U.S. during Lunar New Year in mid-February resonated well with Gold buyers in China as imports from Hong Kong hit the record high of 224t in the following month of March…we think Gold imports may remain at elevated levels in the near-term with
prices currently trading closer to $1,200/oz…an indicator of good demand from China is bullion’s premium on the Shanghai Gold Exchange, which more recently stood at $34/oz, significantly higher than the $10-25/oz range seen in May”…

Analysts at Stifel Nicolaus note that China has already imported about 20 million ounces of Gold in 2013, compared to 26.7 million in all of 2012 and 13.8 million in all of 2011…if these import numbers hold up through the year, they would equal about 50% of global mine production…or as Paolo Lostritto of National Bank Financial puts it, the Chinese buying exceeds the total GLD ETF liquidation (source: www.usfunds.com, Weekly Investor Alert)…this is phenomenal and should, in our view, put a floor on Gold around the 50% Fib. retracement level ($1,088) from the low of $253 in 1999 to the high of $1,924 in 2011…that’s a very normal pullback in the context of a long-term bull market that remains fully intact…

Updated Silver Charts

So what’s happening in Silver?…below is John’s updated 11-year monthly chart, and it reveals a couple of interesting facts…first, Silver continues to trade within a strong support band between $17.50 and $19.50…it has not yet hit the bottom of that range but certainly could…what’s important to highlight, however, is the very extreme RSI(2) reading which is now below 1 at 0.87…this is the opposite of what was seen in late 2010/early 2011 when the monthly RSI(2) climbed as a high of 99.40…Silver was overbought then and due for a major correction…it’s oversold now and due for a major reversal – exact timing is uncertain, but probably beginning during this 3rd quarter…with that in mind, it makes sense to start doing some serious “window shopping” for beaten-down Silver stocks that should have a serious bounce to the upside at some point, at least, during the second half of this year…could come sooner than later, who knows…

Long-Term Silver Chart

3-Year Weekly Silver Chart

The short-term Silver chart also shows very oversold conditions, though there are no obvious signs of an imminent reversal…RSI(2) on this 3-year weekly chart is at 2.95 – could still drop a little more…the support band is holding and sell pressure has been declining slightly…

Encouraging Signs In Venture-Gold-TSX Gold Index Comparative Charts

The Venture Exchange has proven to be a very reliable leading indicator of Gold prices…for example, it led Gold to the upside throughout 2009 and 2010, and then strongly diverged from Gold (and the TSX Gold Index) during the 2nd and 3rd quarters of 2011…the Venture declined about 40% during that 6-month period while Gold surged to an all-time high of $1,924…what the Venture was saying was that Gold was about to top out, along with the producers, and indeed that’s what occurred…

The Venture led Gold to the downside in 2011 and 2012…if Gold’s drop is now nearing an end, we would expect to see evidence of that in the Venture with the CDNX beginning to outperform bullion in a new trend that should accelerate…and that’s exactly what appears to be underway, despite this morning’s activity, and we have a couple of fascinating charts to illustrate that…

First, let’s take a look at the “Big Picture”- the Venture, Gold and the TSX Gold Index in a comparative monthly chart from April 1, 2011, through June 30, 2013…the black line is the Venture Exchange…notice what has happened during the last 3 months – the set-up for a reversal in the 2-year+ trend is clearly in place…

Now, let’s take a look at the last 3 months – the April-June quarter – another interesting picture…

The Venture has outperformed the TSX Gold Index in each of the last 3 quarters, and also slightly outperformed Gold during the second quarter (Gold fell 23%, the Venture declined 19.8%)…the Venture appears to be saying that Gold’s decline is in its final stages – the downside from here is quite limited…for confirmation of this, it’ll be very important to closely monitor the Venture–Gold relationship in the coming weeks…while the Venture fared a little better than bullion during the 2nd quarter, over the last 3 quarters they have closely paralleled each other – the Venture is down 34% since the end of September last year, Gold is off 31% while the TSX Gold Index has plunged 51%…if a serious turnaround is coming in Gold before the end of this year, we would expect to see the Venture’s recent outperformance vs. Gold to rapidly accelerate at some point during this 3rd quarter…

Venture Long-Term Chart

A long-term chart shows that the down wave in the Venture has quite possibly played itself out with a low of 859 June 27…this corresponds to the strong support at 860 that we’ve referred to the last few months…the next major support is at 800…picking a bottom or a top in any market is fraught with difficulty, but it’s probably safe to say – given all the technical and fundamental evidence – that the Venture is currently within 10% of its low…that means there are some historic buying opportunities at the moment for patient and disciplined investors…yes, there could be another scary little dip to the downside, but the worst is certainly over and the conditions are ripe for a recovery…but be very selective…the next rising tide will not lift all boats…some will sink in the months ahead, though that will actually be a good thing…

Today’s Markets
The Dow is off to a strong start to begin the new week, up 103 points at 15239 after the first 30 minutes of trading…a rise in 10-year Treasury yields above 2.7% on Friday for the first time since August, 2011, is just the start of a long-term upward trend, according to Goldman Sachs, with the investment bank forecasting yields will now enter 2014 at 2.75 – 3% and will climb to 4% by 2016…”Factors driving yields higher include the improving outlook for growth in the U.S. (and partly also in Europe), a decline in systemic risks stemming from the euro area, and the reduction in the pace of Fed purchases,” Francesco Garzarelli, head of market research for Europe at Goldman Sachs said in a research note on Sunday…”In this regard, our U.S. Economics team now calls for the Fed to announce its intention to taper its monthly purchases of Treasuries and Agency MBS (mortgage backed securities) in September”…the TSX is 63 points higher as of 7:00 am Pacific, while the Venture has slipped 5 points to 879 in light trading…

Asian markets were lower overnight, led by China’s Shanghai Composite which sank 49 points or 2.4% to 1958…the 1950 area is key technical support…news that Beijing will no longer extend credit to sectors that struggle with overcapacity spooked mainland investors and led to steep declines in property stocks and banks…Chinese authorities are clearly trying to address some structural issues in the economy, and that could certainly have a negative impact on growth in the 2nd half of the year…it’ll be interesting to see how things play out there…

Japam’s Nikkei average slipped 200 points overnight to close at 14109…the Nikkei is about 2500 points below a long-term down trendline as seen in this 20-year monthly chart from John…what’s also interesting is that about every 3 years, the TSX Gold Index hits an important bottom relative to the Nikkei – the last time was late 2010…

Probe Mines Ltd. (PRB, TSX-V) Updated Chart

Probe Mines (PRB, TSX-V) continues to be one of our favorite Venture plays – solid as a rock with its strong cash position, superior management team, and a growing and evolving deposit in northern Ontario (Borden Lake) where 4 rigs are currently drilling an expanding high-grade zone…Agnico Eagle Mines Ltd. (AEM, TSX) took a 9.9% equity position in Probe in May, so the way things are going it’s probably safe to speculate that by this time next year they may own the remaining 90.1%…Probe closed Friday at $1.60 and has the potential to run much higher by the end of the year, depending of course on how Gold behaves and if impressive results continue to flow from Borden Lake…it’s a great-looking deposit and one of the best exploration stories in the country right now…below is a 2.5-year weekly chart…

Note: John, Jon and Terry do not hold share positions in PRB.