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Note: Canadian markets are closed Monday due to Family Day in Ontario and other provinces while U.S. markets are closed due to President’s Day.   Morning Musings returns Tuesday.

TSX Venture Exchange and Gold

It was another rough week for the Venture Exchange which fell 20 more points to close at 1186, thanks in large part to a $57 weekly drop in the price of Gold and a 7% tumble in Silver prices.  The Venture has declined in 13 out of the last 17 sessions.  While this has clearly frustrated many investors, it’s important to point out that the Venture remains in a strong support band between 1166, the December low, and 1200 as John’s 3-month daily chart points out.  RSI(14) is at 33% and also approaching previous support.  Historically, February has typically been a strong month for the Venture but that pattern is so far not holding up in 2013.  The Index is off 43 points of 3.5% for the month.  By comparison, the TSX Gold Index is down 4.3% for February, the TSX is flat (up 2 points), the Dow has gained almost 1% while the Nasdaq is up 1.6%.  Lower Gold and Silver prices have clearly had a negative affect on the Venture.  It’s hard to imagine, however, that Gold and Silver will drop much more, and we’ll explain why in more detail in this piece and in Tuesday’s Morning Musings.

Venture Down Trendline Now Support?

In late December we alerted our readers to an important technical development with the Venture as it finally broke above a 2-year down trendline.  What was previous resistance becomes new support, and it’s interesting to see that the Venture is now indeed testing that support.  It’ll be interesting to watch how this plays out over the coming week and possibly beyond – if the Venture’s current weakness is simply a normal “throwback” to the trendline.

Seafield Resources (SFF, TSX-V) was halted late Friday and then reported a spectacular hole from its Miraflores deposit in Colombia – 238.15 metres at 2.06 g/t Au, collared to the east outside of the Miraflores breccia pipe.  Seafield, which was the very first company BMR started to cover when it was trading around a nickel in 2009 (it hit nearly 80 cents in late 2010 on massive volume), will be interesting to watch Tuesday and could help give the Venture a lift.  It was trading at 10 cents when it was halted Friday.

Gold

The week-long holiday in China and some other Asian countries was one of the contributing factors in Gold’s drop last week as the yellow metal fell through support in the mid-$1620’s and slipped slightly below $1,600 intra-day Friday before closing at $1,610.  It’ll be important to see if bargain-hunters step up to the plate with all Asian markets back in action tomorrow.

The spin from the G-7 and G-20 meetings was that no “currency war” exists or will exist, rhetoric that also helped to push Gold lower.    At the G-20 in Moscow, finance ministers and central bankers pledged to refrain from competitive devaluations and said monetary policy would be directed only at spurring price stability and growth, wording very close to a statement by the G-7 earlier in the week.  As the year progresses, we’ll see if that pledge is worth the paper it was written on (likely not).  By letting Japan off the hook and urging action to address the weak global economy, G-20 policymakers also signaled that further monetary easing and fiscal easing could lie ahead.

Another factor that led to Gold’s decline was the mainstream media’s focus on hedge fund selling, in particular the fact that George Soros sold half his holdings in the SPDR Gold Trust ETF (GLD) in the fourth quarter last year, according to quarterly filings.  Bloomberg attributed the sell as a move that may “bolster speculation that Gold’s 12-year bull-run is coming to the end.”   However, Frank Holmes at www.usfunds.com wisely pointed out that “Soros may have liquidated his Gold holdings because he identified a significant short-term opportunity in the currency markets” – the Japanese yen.  The Wall Street Journal reported that Soros gained “almost $1 billion on the trade (yen) since November,” during a time the yen declined nearly 20% in four months.

Meanwhile, the World Gold Council said in a report that while global central banks built up stocks of Gold last year to their highest levels since 1964, global demand for bullion actually fell by 4%.  Bears cited the lack of buying from emerging market powerhouses India and China.

Below is an updated 2-year weekly chart from John that shows more selling pressure in Gold at the moment than at anytime over the last two years.  This does increase the possibility that Gold could drop into the $1,500’s in the coming weeks, but that still won’t change the long-term bullish picture.

Silver fell $2.13 for the week to close at $29.30 (John will have updated short-term and long-term Silver charts Tuesday morning).  Copper was off 2 pennies at $3.72.  Crude Oil gained 14 cents to $95.72 while the U.S. Dollar Index gained one-quarter of a point to 80.48.

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 keep the euro zone intact and to kick-start the global economy.  It’s hard to imagine Gold not performing well in this environment.