BullMarketRun.ca

TSX Venture Exchange and Gold/Silver

It finally happened – sellers’ exhaustion peaked and the Venture Exchange took the path of least resistance and broke out to the upside last week, convincingly moving past its EMA-20 for the first time since the downtrend started in March.  For the week, the Venture gained 42 points or 3.4%, far outpacing the gains of the broader markets (Gold and Silver were even down slightly).  This isn’t necessarily the end of a long bear market but it’s definitely the start of a major rally in our view that could result in at least a 20% move off the late June low of 1154 (a lot of money can be made on that kind of advance in the Index).  If history is any indication, expect occasional minor pullbacks to the 10-day moving average (currently just above new support at 1200) as this market continues to trend higher in the coming weeks.

A rising tide at this point will not lift all boats, so it’s still very important to be selective in this market and focus on the companies that are very active on the ground right now and have reasonable chances for success.  Many companies in recent months have given up on the market, just like a lot of investors, and the problem with that is that when the market does turn – just like now – these companies are caught with their pants down and are simply not positioned to take immediate advantage of the new bullish sentiment.  So money will flow first into the plays that have been the most exciting in recent weeks and months, and still are, and of course we’re also watching closely for fresh discoveries – this is a great time of the year for that.

Friday, we posted an updated 4-month daily CDNX chart.  Today, John examines the “big picture” again with a 13-year monthly chart.  Notice how the RSI(14) is now turning upward – this gives us great confidence that we’re now at the beginning of a firm uptrend.  Look also at the CMF (Chaikin Money Flow).  It has likely bottomed out at a level very close to the one reached in late 2008.  In addition, the bearish -DI is weakening.  These are all excellent indications that we’ve seen the low for 2012 and that the final four-and-a-half months of the year could be very different from the last four-and-half months.  The correction from the February high to the late June low was 32% – by historical standards, a very normal major CDNX correction though longer in duration than most.  Overall, this market fell a whopping 53% or 1311 points from the early March, 2011, high to the low six weeks ago.

Gold and Silver

Gold bounced around last week but there was buying on the dips which was very encouraging.  For the week, the yellow metal was down $5 an ounce to $1616.  With the downtrend line broken, we believe it’s only a matter of time before Gold blasts through two key resistance areas – $1,620 and $1,640 – as shown on John’s chart.

Gold jewelery, coin and bar demand was down in both China and India during the second quarter, according to the latest figures from the World Gold Council, but central bank purchases hit a record high since the official sector became Gold buyers three years ago.  According to Marcus Grubb, the WGC’s Managing Director of Investment, if this central bank trend continues through the remainder of 2012, they will be entering a “new territory” of Gold buying that has not been seen since the early 1960’s and since the end of the Bretton Woods System in 1971.

Central banks from developing markets led the buying trend once again. The WGC says Kazakhstan indicated that it is “targeting an allocation to Gold of 15% of its foreign exchange reserves” and one way it plans to build up its allocation is to purchase “the country’s entire domestic production over the next two to three years”.

Other emerging countries with central banks increasing their Gold holdings include Mexico, the Philippines, Russia, Turkey and Ukraine. According to Grubb, central banks have been motivated to add Gold mainly as a currency hedge. Central banks want to increase their weightings in reserve asset portfolios and move away from their dependence on U.S. dollars – and possibly the euro. There’s also a belief that sovereign debt is no longer considered to be a “risk-free” asset, says the WGC.

Silver was off slightly last week, just 4 pennies, to close at $28.09 (John will have an updated long-term Silver chart as part of tomorrow’s Morning Musings).  Copper gained 3 cents to $3.41.  Crude Oil continues to climb, adding another $3.14 a barrel to close at $96.01, while the U.S. Dollar Index was essentially unchanged at 82.55.

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.