CDNX and Gold
The CDNX finished the week on a powerful note, reversing course intra-day Friday and closing 15 points higher at 2124 despite some continued softness in Gold. The incredible strength and resiliency of the CDNX right now was clearly on display this past week as the market held up extremely well in the face of a 4.3% drop in the price of Gold from a new all-time high of just over $1,430 to a low of $1,370. The CDNX reversed with Gold intra-day Tuesday after reaching 2150 but the “mini-correction” was very mild and short-lived with the Venture bottoming out at its 10-day SMA of 2084 a day later.
On repeated occasions over the last several months the CDNX has found strong support at the 10-day moving average. Eager buyers are stepping in on any pullbacks, anticipating another major up-leg in this market beginning in earnest right after Christmas. The 8% November correction unwound overbought conditions with the CDNX and the tables appear to be set for a powerful year-end move with a very robust start to 2011. A weak band of resistance between 2150 and 2250 that John outlined in his chart last Monday should be obliterated by the end of the month. January could be downright spectacular for the CDNX.
It’s extremely bullish when the CDNX, the most reliable leading indicator there is of the precious metals markets, is out-performing Gold as it did this past week (Gold was off 2% for the week while the CDNX was essentially unchanged). What this tells us is that Gold is going to remain strong and will likely be back at new highs in the near future – perhaps not until late this month or early January, but Gold’s uptrend remains firmly intact. There are many fundamental factors supporting Gold at the moment – problems in the Eurozone, central bank and investment buying, debt levels, fiat currencies, supply issues – you name it. Bargain hunters can be expected to step in with force on any significant pullbacks.
Gold has strong technical support at $1,370 as it demonstrated again Friday, bouncing off that level to close the week at $1,386. The yellow metal was quickly pushed back from a new all-time high Tuesday of $1,432.50 when the volume and momentum players just weren’t there.
China’s three-day Central Economic and Work Conference kicked off Friday and concludes Sunday. Market players of course will be watching this event closely. China will be releasing a slew of economic data over the weekend and additional tightening of the country’s monetary policy is expected in 2011. We’ll keep our eyes focused on the “big picture” in China which is bullish for Gold – continued strong economic growth, inflationary pressures, and the strong appetite of the Chinese people and their government for owning Gold. It’s a similar story in other emerging markets which is going to help fuel this amazing bull run in precious metals and commodities in general for some time to come.
Americans, meanwhile, are about to put the pedal to the metal. It appears the Bush-era tax cuts are about to be extended for all income groups for two more years. The new Congress in January is expected to be focused on jump-starting the economy while Ben Bernanke’s Magic Money Printing Machine will be busier than ever.
It’s such a wonderful time to be a Gold bug and to be invested in quality junior mining stocks.
Any info on what you think may happen to our junior commodities if china raises interest rates?
Comment by Mike Lee — December 11, 2010 @ 7:12 am
Hi Mike, good question and we made reference to that at the bottom of Part 1 in our Week in Review. Traders who focus on day-to-day numbers may have a knee-jerk reaction to further tightening in China but the big picture will remain very bullish for Gold and commodities in general. China is having to tighten because its economy is red-hot. Inflation is on the rise and probably considerably higher than what is actually being reported. Interest rates in China are still below the reported inflation rate of over 4% and probably well below the true inflation rate there. That’s bullish for Gold and great for people holding it. The Chinese economy is not going to come to a grinding halt – every single time traders have sold off Gold and commodities in general because of a fear that economic growth is going to “slow down” in China due to monetary tightening, they’ve been wrong. The Chinese people are aggressively buying Gold and so is the Chinese government. The other emerging markets (India, Brazil, Russia, etc.) are also contributing significantly to this ongoing bull market in Gold. There are so many fundamental and technical factors in favor of Gold right now, and you’ve got a Federal Reserve that wants to prime the pump and rekindle inflation in the U.S. The Fed also wants a lower Dollar. Keep focused on what the CDNX is saying – that is the leading indicator. We’re firmly in a bull market of historic proportions. Don’t get caught up in day-to-day numbers and what traders are saying. Stay fixated on the big picture. There will probably be a panic of some sort next year and a 20 to 30% correction in the market, which will be healthy, but that won’t happen until we see some more massive gains.
Comment by Jon - BMR — December 11, 2010 @ 9:20 am
Jon,
Thanks so much for the quick response.
I hope you holiday season is filled with much family time and love…
all the best,
Mike
Comment by Mike — December 11, 2010 @ 11:11 am
Any comments on Manitou Gold? Saw a lot of swings last week, but seems to have encountered lack-lustre tarding volumes now.
Comment by Sally — December 11, 2010 @ 3:44 pm
Thanks for mentioning this, I haven’t looked at Manitou (MTU, TSX-V) for a while. For those who don’t know, they have some interesting properties south of Dryden in the Kenora Mining Division, very close to Seafield’s Elora Property. It’s an under-explored area and Manitou has been very aggressive in its exploration so far. They’re getting some encouraging results but no major breakthroughs to this point yet. The company listed on the Venture earlier this year. Current market cap is about $11 million. I don’t hold any personally but I do see potential for this. Definitely worth watching. They have about $3 million in the bank at the moment. Thin trader – that’s the major drawback. The company needs to do a better job of creating more interest and liquidity in this play. Volume means a lot!
Comment by Jon - BMR — December 11, 2010 @ 4:22 pm