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TSX Venture Exchange and Gold-Silver

It was another stellar week for the Venture Exchange which busted through resistance at 1250 and climbed another 2.9% or 36 points to close Friday at 1277.  Since August 1, the Venture is up nearly 8% vs. a 5.6% gain for the TSX and a 2.2% advance in the Dow.  This kind of out-performance by the Venture is encouraging and points to the beginning of a rekindling of the speculative fever that is so important to this market.  With an apparent easing of the euro zone crisis, and QE3 now seemingly guaranteed to be on its way as early as next week when the Fed meets Wednesday and Thursday, we have what could be the “Perfect Storm” for the Venture to stage a powerful advance through the remainder of the year with the rising 10 and 20-day moving averages providing strong support. There is a lot of cash still sitting on the sidelines and of course Gold and Silver, and commodities in general, are looking extremely bullish.  The Venture’s 300 and 1,000-day SMA’s are each parked at 1500 which seems like a reasonable target for the Index (a 17% climb from current levels) over the next couple of months.  Fresh discoveries would certainly add fuel to the fire, and a lot of drill results will be coming out between now and the end of October.

Keep in mind the Venture often goes against the trend of the U.S. Dollar, and Friday was a critical day in the currency markets as the Dollar Index broke below key support at 81.  With QE3 on the way, along with the likelihood in our view of an Obama victory in November due to the Republicans’ inability to sell the conservative message, the greenback is in SERIOUS trouble.  That’s Venture bullish and commodity bullish.

John’s updated 4-month daily chart for the Venture shows a couple of near-term resistance areas that will be interesting to watch – 1280 and 1310.  Volume is beginning to pick up, and buying pressure has risen significantly.  The 1250 area is now strong support.

The ECB acted Thursday to address liquidity and confidence issues in the marketplace with an unlimited bond buying program, China is injecting some fiscal stimulus into its economy, while the Fed appears likely to act next Thursday on an additional round of quantitative easing given Friday’s weaker than expected employment numbers out of the United States.  Non-farm payrolls grew a meager 96,000 and payrolls for the prior two months were revised down by 41,000. This was a poor report and well below analysts’ estimates.  It’s also a condemnation of current American fiscal and regulatory policy.   Both Democrats and Republicans have to accept responsibility for that.

Gold

Gold reversed violently to the upside yesterday as soon as the weak U.S. jobs number was released as traders and investors came to the realization that QE3 became virtually a done deal.  Bullion closed up $34 for the day and $43 for the week at $1,735.  At some point in the very near future, Gold is going to have to take a short breather to at least partially unwind overbought conditions.  Given all the technical and fundamental factors, however, a powerful move to a new all-time high by year-end cannot be ruled out.  In fact, a number of analysts have just raised their year-end forecasts for Gold prices. A quick survey: J.P. Morgan is calling for Gold to close the year at $1,800; Goldman Sachs says $1,840; Bank of America Merrill Lynch is suggesting $2,000 in the event of QE3, and one Citigroup analyst is calling for Gold to reach $2,500 by the end of the first quarter of next year, and even higher in the event of geopolitical conflict.

Below is a 6-month daily Gold chart from John that shows how important the move above the neckline and downtrend line was near the end of July, as we pointed out at the time.

Silver continues to race along at an even faster pace than Gold, smashing through important resistance at $32.50.  As we’ve been mentioning for a number of weeks now, Silver is in the early stages of a Wave 5 move that ultimately should take it well beyond its previous all-time high around $50 an ounce.  Silver gained $1.94 for the week, closing Friday at $33.68.  Copper made an impressive move, posting its biggest weekly gain in 10 weeks, as it surged 15 cents to close at $3.58.  Crude Oil was off slightly while the U.S. Dollar Index fell below its 200-day SMA, as well as critical support at 81, by dropping sharply on Friday and closing at 80.16.  It was off by more than a point for the week.

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 is now taking place 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.