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TSX Venture Exchange and Gold

Not much changed with the Venture over the past week, a shortened 4-day trading period due to the Monday holiday, other than the fact the Index slowly continues to gather internal strength.  The Bollinger Band squeeze, as shown in John’s chart, suggests that a significant move will likely occur within the very near future.  Our belief, based on the technicals and the bullish chart patterns in Gold and Silver, is that the Venture will stage a breakout to the upside after “crawling along a bottom” for the past couple of months.  Helping this cause would be continued good exploration results.  We’ve seen several companies report excellent holes recently as well as other promising data, including of course GoldQuest Mining (GQC, TSX-V) with its Romero discovery in the Dominican Republic.

The Venture was up a very modest 4 points for the week, closing Friday at 1191 which puts it 2 points above the EMA-20 resistance.  RSI(14) is also now at resistance, so the market has to decide rather quickly which direction it wants to go.  A convincing move through the 1200 level is the sign we’re looking for to confirm that a new uptrend has started.

ECB, Fed Action

The Venture will respond well to strong action from the ECB and the Fed, and both central banks are expected to make a lot more noise in September.  Since July of last year, the ISI (International Statistic Institute) has reported that 228 stimulative monetary and fiscal policy moves have been initiated around the globe but what we’ve witnessed so far has perhaps only been the warm-up act.  Historically, we’ve also arrived at Gold’s peak performance period of the year. Based on 10 years of data, Gold bullion has historically increased 2% in August and 4% in September while Gold stocks have often fared much better.  So the “backdrop” looks promising for the Venture, and we already know that a lot of cash is sitting on the sidelines waiting to pile in.  A rising tide will not lift all boats initially, so it’s important to focus on the best quality situations.

Gold

It was a good week for Gold as the yellow metal gained $17 an ounce to close at $1,621.  Gold’s ability recently to hold the $1,600 level has been encouraging, and the key resistance it needs to overcome is between $1,620 and $1,640.  We’re convinced a breakout will occur but exact timing is anyone’s guess – likely, it would seem, by early September. Below is John’s updated Gold chart which offers a lot of encouragement – the recent break above the “neckline”, and a subsequent successful test of support at that level, was highly significant.  This is a great-looking chart:

Silver is also looking strong.  It gained 34 cents last week to close at $28.13 (resistance at $29).  In our Morning Musings tomorrow, John will once again update his long-term Silver chart.  Copper added a penny to $3.38.  Crude Oil gained another $1.47 a barrel to $92.87 while the U.S. Dollar Index added one-quarter of a point to close Friday at 82.55 (Gold lately has been ignoring strength in the greenback which is very bullish).

The “Big Picture” View Of Gold

As Frank Holmes so effectively illustrates at www.usfunds.com, Gold is being driven by both the Fear Trade and the Love Trade.  The transfer of wealth from west to east, and the accumulation of wealth particularly in China and India, is having a huge impact on Gold.

The fundamental case for Gold remains incredibly strong – currency instability and an overall lack of confidence in fiat currencies, governments and world leaders in general, an environment of historically low interest rates and negative real interest rates that won’t end anytime soon (inflation is greater than the nominal interest rate even in parts of the world where rates are increasing), money supply growth, massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand, investment demand, emerging market growth, geopolitical unrest and conflicts, and inflation concerns…the list goes on.  Massive central bank intervention appears increasingly likely to prevent a breakup of the euro zone and to kick-start the global economy.  It’s hard to imagine Gold not performing well in this environment.