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TSX Venture Exchange and Gold

It was a quiet week for the Venture as it traded between a low of 1109 and a high of 1122 on light volume.  For the first time since late January, the Index is trading above its 10-day moving average (SMA) and appears to have stabilized after its worst February ever.  An important discovery and/or a major Gold rally are the catalysts needed to lift this market out of its doldrums.  The Venture continues to closely track Gold.  For the year, Gold is down just over 6% while the Venture is off 8.5% (the TSX Gold Index, by comparison, has lost 17% so far this year).  Over the last 5.5 months, Gold has fallen 11% while the Venture is off 17%.  So a recovery by bullion can only help the Venture.

Below is a 5-year weekly CDNX chart from John.  There is strong Fibonacci support around 1100, but failure of that support would likely mean a test of the 1027 level which was the bottom of the summer 2009 correction.  On an encouraging note, RSI(14) has so far held above its lows from last year despite the fact the Index recently plunged to a new 52-week (and 3.5-year) low.  Only time will tell, but that’s a potentially important divergence.  And a positive contrarian sign, of course, is that sentiment levels regarding junior resource stocks and Gold are at such extreme lows.  A turnaround is coming – when is the big question.  The strong will survive and thrive; the weak will perish.

Gold

Gold has been basing within a support band between $1,550 and $1,600 for the last several weeks and appears ready to stage a breakout above $1,600.  It’s interesting that despite all the negative sentiment toward Gold at the moment, including record high short positions held by large speculators (short squeeze coming?), bullion is holding up as well as it is.  Physical buying out of Asia has reportedly been strong, and that’s an important sign.  Many North American investors simply don’t put Gold into a global context, or don’t fully appreciate the extent to which China and other emerging markets are positioning themselves with bullion.  Hence, we continue to hear the ridiculous argument that Gold has been in a “bubble” and that the bubble has burst.  To the contrary, Gold for the past year-and-a-half has been in a very normal consolidation phase and the base is being built for the next massive wave up.

Gold gained $14 last week to close at $1,593.  RSI(14) is now beginning to climb, as shown in John’s 2.5-year weekly chart below, and selling pressure is in decline.

Silver fell 23 cents last week to close at $28.77 (John will have his usual updated Silver charts Monday morning).  Copper was relatively unchanged at $3.52.  Crude Oil gained $1.81 a barrel to $93.45 while the U.S. Dollar Index lost half a point and closed at 82.13.

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), a Fed balance sheet now in excess of $3 trillion and expanding at $85 billion a month, 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.