BullMarketRun.ca

TSX Venture Exchange And Gold & Silver

It was a rough week for the Venture Exchange as it took the path of least resistance – volume just wasn’t there to push this market through the 1350 area – and slipped 52 points or 3.9% to close at 1293.  While the Index is now below its 20-day moving average (SMA) for the first time in more than two months, the good news is that this market has plenty of support in the 1250 to 1300 range.  The 1250 level was previous resistance in July and August, and it’s also where the rising 100-day SMA is parked at the moment.  So there’s tremendous support there.  The rising 50-day SMA, meanwhile, is just above 1270.  RSI(14) is at support while the Slow Stochastics(14) indicator is at a level not seen since late July.  So for some investors to suggest that this market has broken down, the facts just don’t support that conclusion.  Some near-term indicators obviously turned negative, once the Index fell below the 20-day SMA, but the primary trend remains positive.

There are always a lot of doubting and skeptical investors in the very early stages of a new bull market, which is what we believe we’re in right now, and that’s a good thing.  The climb up the ladder in the early going of a bull run is often gradual and typically features repeated periods of a few steps up followed by a couple of steps back.  Later on, more investors turn bullish which provides fresh waves of upside momentum.  As John has been showing recently, many individual stocks on the Venture have broken out of long-term downtrends in place since early 2011.  In addition, after a 4-year decline, the 1,000-day SMA has reversed to the upside and that’s hugely important.  These are technical developments that cannot be ignored.  Given that the late spring/early summer low of 1154 exhibited so many signatures of a bear market bottom, including extreme negativity and sellers’ exhaustion, we’re very confident in concluding that this market has started an entirely new phase.  The merchants of doom and gloom will want you to believe differently.  Selling fear, just like selling greed, has become a profitable industry.  And sometimes it’s easier to sell fear.  A lot of investors are still hurting from the 50% drop over the past year-and-a-half, and it doesn’t take much at this point to shake any little bit of confidence they may have regained over the past couple of months.

Below is an updated 3-month daily chart that offers some hope for a better week coming up.

Below is an interesting 2-day, 5-minute chart that shows some encouraging patterns at the end of the day Friday, and a divergence between RSI and price beginning late Thursday.

Gold

The last time Gold dropped $20 or more in a week (the week ending August 3), it was a great buying opportunity.  The same could be true now.  Gold fell $27 last week to close at $1,754, $46 shy of resistance at $1,800 and $24 above very strong support at $1,730.  This could be the range we see bullion continue to trade in, however, until the uncertainty regarding the U.S. elections is over in early November.  An Obama victory, and four more years of the same from the White House, would be a more bullish scenario for Gold than a Romney victory.

Gold’s overbought condition on John’s 6-month daily chart below has mostly cleansed itself, which is encouraging, with RSI(14) very close to previous support.  The Bollinger Band Width reversal implies there could be some near-term volatility, so that’s something to watch for.

Views On Gold

Edel Tully, precious metals strategist at UBS, said while speculative buying and ETF inflows have supported Gold to current levels, she is watching physical demand, which generally has been lagging with Gold prices near record levels in most emerging market currencies.

“The future path of (emerging market) currencies versus the dollar will therefore be an important factor for returning Gold demand,” she said.  She noted the recent strengthening of the Indian rupee has helped to revive physical buying there.  “This currency strength is occurring at the right time for Gold, with the wedding season intensifying from late October and followed by Diwali from Nov. 13.  So long as the rupee doesn’t weaken materially, Gold demand should pick up further in the coming weeks, and this will be further helped by low inventory,” she added, “although it’s not likely to make up for the poor sales earlier in the year”.  Tully said Gold prices can appreciate further, but she does offer some factors that could be stumbling blocks this quarter for the yellow metal, including a break in equity prices, weakness in the euro, the U.S. presidential elections, improved U.S. economic data and a resolution to the fiscal cliff.

Global central bank easing continues with Brazil and South Korea both cutting interest rates by 25 basis points last week.  Meanwhile, the repeal of a 7% tax on investment-grade Gold and other precious metals brought into Singapore became effective October 1.  Singapore is hoping to expand its trade in bullion, convince trading houses to store bullion with them and perhaps lure precious metals refineries to their country.  This is all part of bigger push within Asia to store wealth in assets that have maintained their purchasing power over time.

Pimco’s Bill Gross stated that a number of recent studies have concluded that “the U.S. balance sheet, its deficit and its fiscal gap, is in flames and that its fire department is apparently asleep at the station house.”  In a white paper titled, “Gold – The Simple Facts”, posted on Pimco’s website, Pimco analysts Nicholas J. Johnson and Mihir P. Worah also said some interesting things, including, “Our bottom line:  given current valuations and central bank policies, we see Gold as a compelling inflation hedge and store of value that is potentially superior to fiat currencies.”

John will update the short-term and long-term Silver charts Monday morning as usual.  For the week, Silver fell $1.01 an ounce to $33.48.  Copper was down 7 cents to $3.68.  Crude Oil climbed $1.98 a barrel to $91.86 while the U.S. dollar gained one-third of a point to 79.69.

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.  QE3 has arrived, and 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.