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After a 4.5% drop last week that took bullion to its lowest level ($1,304) since early August, Gold will attempt to get back on track this week but its fate is clearly in the hands of the Federal Reserve which begins a much anticipated 2-day meeting tomorrow…the FMOC gathering culminates in a fresh policy statement and a Ben Bernanke news conference late in Wednesday’s trading session…Gold staged an encouraging intra-day reversal Friday, dropped lower this morning as it re-tested a Fib. support level ($1,307), but has bounced back to $1,319 as of 6:45 am Pacific…that’s a loss of $9 for the day…Silver fell below $21.70 overnight but is now down just 17 cents at $22.09…Copper is up 3 pennies to $3.21…Crude Oil has slipped $1.27 a barrel to $106.94 as tensions over Syria have ended for now…the U.S. Dollar Index, meanwhile, is off one-tenth of a point at 81.04…

The Fed meeting will likely be a game-changer for Gold, one way or the other…

Most economists and traders expect the FOMC to announce a scaling back of QE3 by anywhere from $5 to $20 billion a month…as a result, many observers are also expecting Gold to weaken but the logic behind that argument is suspect…expectations of Fed tapering by this month have been 1 of the driving forces in pushing Gold down since the spring, so a “sell on rumor, buy on news” scenario is quite possibly in the cards…one must also keep in mind that while being hawkish in one way (reducing monthly bond purchases and starting the process of weaning the baby off the bottle), the Fed could be quite dovish in another in terms of its language, and could even adjust its goalposts regarding future moves…

U.S. labor growth is still far from robust…a slew of economic data released last week was also tepid at best – disappointing numbers for consumer sentiment, retail sales and business inventories…the Fed also can’t ignore the upcoming U.S. budget battle, and the potential impact of a stimulus withdrawal on emerging market economies, some of which are already feeling the pain (capital outflows) stemming from higher long-term U.S. interest rates…and higher interest rates in the U.S. also present a potential serious threat to government finances given current debt levels (at the end of fiscal year 2000, the national debt totaled $5.67 trillion and the federal government paid $361.9 billion in interest that year…the debt stood at $16.6 trillion at the end of last year and the government paid $359.7 billion in interest because of much lower rates, 2.6% vs. 6.6%)…so Bernanke has quite a balancing act to perform, and his post-meeting news conference will be fascinating to watch…

There’s also the possibility, of course, that the Fed will surprise the pundits and not proceed with tapering just yet – Gold may then pop significantly to the upside along with other commodities…no matter if the Fed tapers or not, we like the odds of Gold pushing higher in a “sell on rumor, buy on news” scenario…a scaling back by the Fed of at least $10 billion has already been baked into the Gold price…

Summers Withdraws Name For Fed Chairmanship

He was rumored to be President Obama’s preferred choice for the next Fed Chairman, but Larry Summers – who may have taken the Fed on a more hawkish monetary course – has pulled out of the contest to replace Ben Bernanke, and equity markets are cheering that news this morning…it became increasingly obvious at the end of last week that Summers, viewed in many circles as a confrontational figure, would get a rough ride in the Senate where his nomination likely wouldn’t have the votes to get pushed through…the leading candidate now is Janet Yellen, the Fed’s current vice chairwoman, who has garnered substantial support among Democrats in Congress and among economists…but according to The Wall Street Journal, administration insiders say the public lobbying on her behalf appears to have annoyed the President and may lead him to look elsewhere…

The Movement Of Physical Gold From West To East

Frank Holmes’ www.usfunds.com reported the following over the weekend:  “Paolo Lostritto, Director at National Bank, shared his most recent physical Gold research with our team. According to Paolo, notwithstanding all the taper talk, physical Gold continues to migrate east.  Year-to-date net physical imports by China equate to approximately 37% of global mine supply. This in addition to the reports from GFMS suggesting that China is the world’s largest Gold producer, with an estimated 400-plus tonnes annually, or roughly 14% of global mine supply. This suggests that China on its own is amassing nearly half of the world’s annual Gold supply within its borders.”

A Sign Of The Times Regarding Exploration

Major Drilling (MTI, TSX), an important player in the industry, has reported that usage of its rigs is currently sitting at 33%, a far cry from the 75% utilization rate just 12 months ago…the company has taken up to a 20% cut on pricing for jobs, and admits that it is only a break-even business in this market…the order book is wide open in case anyone wants to book a drill…reserve replacement is going to become a problem which ultimately is bullish for Gold prices…

Updated Silver Charts

6-Month Daily Chart

Silver, which typically follows Gold’s price movements to a disproportionate extent, got hit hard last week as it fell $1.57 an ounce or 6.6% vs. the 4.5% pullback in Gold…importantly, however, Silver held support at $22 on a closing basis for the week, thanks to Friday’s “hammer” reversal after it briefly fell below $21.50 intra-day…John’s 6-month daily chart shows how Silver has nicely unwound an overbought condition that emerged last month when it shot up 20%…RSI(14) bounced up from previous support Friday…it would certainly be encouraging if the $22 level holds…this will be a critical week for Silver as it will be for Gold…

Long-Term Silver Chart

Silver’s major challenge over the coming months will be to overcome very strong resistance at 2 critical levels – $26, and a down trendline above that (currently just under $30 an ounce)…if and when both of those events occur, things could get really interesting in the Silver market…RSI(2) has backed off to 51%…following the 2 previous periods when RSI(2) slipped into extreme oversold conditions (2008 and 2012), it quickly shot up to the overbought zone and stayed there for a while…this time we’re seeing a somewhat different pattern…it would be interesting if RSI(2) were to find support around current levels…as we mentioned, this is indeed an important week for Silver…

Today’s Markets

Japan’s Nikkei average posted a slight gain of 17 points overnight to close at 14405…China’s Shanghai Composite, which enjoyed a powerful run last week, fell a few points on profit-taking to close at 2231…

European shares hit 5-year highs today in a broad-based rally on the back of news that Summers had withdrawn his name from the race to succeed Bernanke as the next Fed Chairman…

The Dow is up 128 points to 15504 through the first 15 minutes of trading…in freshly released economic news this morning, the pace of growth in New York state’s manufacturing sector unexpectedly slowed in September, according to a report from the New York Federal Reserve…the New York Fed’s “Empire State” general business conditions index slipped to 6.29 from 8.24 in August, shy of economists’ forecast of 9.20…

The TSX is 97 points higher at 12820 while the Venture is flat at 942 as of 6:45 am Pacific…the Venture continues to find strong support at its EMA(20) which is bullish…

True Gold Mining (TGM, TSX-V) Updated Chart

Mark O’Dea’s True Gold Mining (TGM, TSX-V) has certainly bucked the trend of companies in this sector struggling to raise money…in May, TGM closed a $10 million financing with Teck Resources (TCK, TSX) at 33 cents and then recently completed the second and final tranche of a $23.5 million strategic investment with Liberty Metals & Mining Holdings LLC, a subsidiary of Boston-based Mutual Insurance…this included a 33-cent financing and the sale of a 2% net smelter return royalty on the company’s interest in the Karma Gold Project…

True Gold is developing 2 key projects in Burkina Faso, West Africa, where mining contributes 12% of GDP…8 Gold mines have been permitted there over the last 7 years…TGM’s 856 sq. km Karma Project includes 5 closely spaced deposits – Rambo, Nami, Kao, Goulagou I and Goulagou II – with a proposed central processing facility…the Karma project is currently undergoing a feasibility study, which entails the development of a fully engineered construction and operating plan for a proposed low-cap-ex, open-pit, heap leach mine…

We initially brought True Gold to our readers’ attention after the announcement of its financing with Teck…below is an updated 2.5-year weekly chart from John and it shows a lot of technical support in the low ’30’s which appears to be a very attractive entry point (certainly Teck and Liberty think so)…TGM closed Friday at 34.5 cents…if and when TGM clears important resistance at 40 cents, it could really accelerate to the upside…as always, perform your own due diligence…

Ashburton Ventures Inc. (ABR, TSX-V)

Mike England has enjoyed success recently with his Caribou King Resources (CKR, TSX-V), and speculative investors may wish to more seriously consider his Ashburton Ventures (ABR, TSX-V) as a result…England has been criticized by some for always playing the “closeology” game, but so many Venture companies aren’t doing ANYTHING these days – at least England is trying to generate some activity and excitement…we give him credit for that…Ashburton was quick to pounce on the Colorado Resources‘ (CXO, TSX-V) discovery last spring, acquiring ground in the Iskut area, and ABR also positioned itself in the Sheslay River Valley with the acquisition of the Hackett Property…it has scooped up some graphite claims in Ontario, and is also making some noise in the early going with its Sienna West uranium project in the Athabasca basin, approximately 40 km southwest of the Patterson Lake South discovery…an update on Sienna West came out this morning…so the company is basically in all the hot areas…ABR has 25 million shares outstanding and closed Friday at 6.5 cents…

Technically, we see some things we like in ABR – the 2-year chart is quite bullish, actually, and shows how an important bottom was likely formed in the stock between December and May…as always, perform your own due diligence…ABR will need to raise more money, of course, but it’s always easier for a company to do that when its stock is in an uptrend and there’s activity on the ground…

Note: John, Jon and Terry do not hold share positions in TGM or ABR.