CDNX and Gold
It was another banner week for the CDNX which added 53 more points to close at 2110. At the risk of sounding like a broken record, a bull market run of historic proportions continues in the junior mining sector and is showing fresh signs of intensifying as Gold once again nears an all-time high. The Perfect Storm is here and for those who have not yet caught on to what’s unfolding, you need to open your eyes in a hurry. In 30 years of following the junior resource market in Canada, including the old Vancouver Stock Exchange in the Murray Pezim days, I have not seen a market with such powerful underlying technical and fundamental strength as the one we’re in now with the CDNX. This is why our team at BMR believes this Index is headed much, much higher in 2011. Since we are entering a seasonally strong period (late December and the first quarter of the New Year), now is the time to ensure that you are invested in the best opportunities the CDNX has to offer. We present some of them here at BMR with Seafield Resources (SFF, TSX-V) – the best stock in Canada yesterday – being the latest example. Focus on companies that have superior properties, strong management and the ability to get their story out in a crowded marketplace.
We checked with our technical analyst this morning who likes all the signs he’s seeing right now with the CDNX. “Daily indicators are not overly high,” stated John, with the next area of resistance being 2200. All that means is that the CDNX could pause for a short period of time around 2200 to catch its breath. Investors should embrace any minor pullbacks over the next two or three weeks – this market could really begin to accelerate just before Christmas and should finish the year at a new 52-week and two-year high.
The fact the CDNX is moving in step with Gold, and even leading Gold at times, is extremely bullish. The CDNX has proven to be an incredibly accurate leading indicator for the precious and base metals markets and even the economy in general.
Gold powered higher Friday on a disappointing U.S. jobs report. The yellow metal surged $30 an ounce to close at its high of the day, $1,415.50, and just $10 below the November 9 all-time high. For the week Gold was ahead $51.50.
The U.S. Dollar Index plummeted Friday to 79.15, a drop of more than a point. The Dollar had climbed above 81 on the Index during the week (John stated there was major resistance at 82) before bears knocked it back down. In our view the Federal Reserve is determined to keep a lid on the Dollar and wants to see the Dollar move lower in order to rekindle inflation in the United States. A cheaper Dollar also benefits U.S. exporters and devaluing the currency reduces the real value of the multi-trillion dollar debt the U.S. government owes to foreigners. A lower greenback is very bullish of course for Gold and commodities in general. But if you were paying attention last week if you would have noticed that Gold was holding up very well in the face of a stronger U.S. Dollar and at times was even moving higher in tandem with the Dollar. This shows that Gold is going to go higher, no matter what.
New data from the World Gold Council (WGC) shows that Russia has been a strong buyer of Gold in recent months, so it’s not just China and India who are aggressively accumulating the yellow metal. Russia has added 65 tonnes for its official foreign exchange reserves since July (it now holds 775 tonnes) and has overtaken Japan for eighth place in the league table of national Gold holders. All told, central banks worldwide continued buying Gold totaling 91.5 tonnes between July and November. Sovereign states turned net buyers in 2009, led by Asian and other emerging-economy banks, after 20 years of net selling.
Silver jumped 84 cents Friday to close at $29.38, very close to its November 30-year high. It’s a great time to be invested in quality silver stocks such as Great Panther Silver (GPR, TSX) which we mentioned last month when it was below $1.50. GPR closed Friday at $2.50. While we’re more focused on Gold at BMR, a couple of our companies have interesting exposure to silver – Goldquest Mining (GQC, TSX-V) and Gold Bullion Development (GBB, TSX-V). With all the attention focused on Granada, some investors have forgotten that GBB holds the past producing and high grade Castle Silver Mine in Ontario (formerly operated by Agnico-Eagle in the 1980’s). We see the possibility of Gold Bullion “spinning out” this asset as a separate silver-focused company and a dividend to current GBB shareholders.
I am excited with the possibility of Gold Bullion development spinning out the Castle mine as a dividend. This is always the best way to unlock value in a resource play. It also helps in that it turns multiple project companies into “pure plays” adding additional value. The market seems to love single project resource plays because it keeps things simple.
Comment by Frank — December 5, 2010 @ 5:43 am