TSX Venture Exchange and Gold
The Venture gained a modest 2 points for the week, closing at 967, while volume remained light. However, trading action Thursday and Friday was highly encouraging as the Index held up extremely well in the face of a $50+ drop in the price of Gold. Also, for the first time in nearly 4 months, the Venture has climbed above its 20-day moving average (SMA). It also found support at the 20-day SMA during Friday’s session when it fell as low as 958 and rebounded to close down just 3 points at 967 despite the weakness in Gold. With the 20-day poised to reverse to the upside as early as Monday, a modest recovery that began in mid-April after Gold’s record sell-off could begin to accelerate to the upside in the coming week. As John’s charts have shown, key resistance is at 970. On a close above 970, the bulls have the immediate advantage. RSI(14) on the 1-year weekly chart below is at 38%, leaving plenty of room for a move higher. Buying pressure has been consistent so far this month, another positive sign. What appears to be shaping up is a rally that lifts the Index into a resistance band between 1000 and 1075. This could translate into substantial gains for a select number of stocks. Given this scenario, keep a close on market leaders and that of course includes Colorado Resources (CXO, TSX-V) with its northern B.C. discovery – and other players in that Iskut River area.
Gold
Bullion went on a roller coaster ride Wednesday through Friday – first, it climbed more than $20 an ounce Wednesday, and then it plunged more than $50 an ounce beginning late Thursday and continuing into Friday as the U.S. Dollar Index took off to the upside. After hitting an intra-day low of $1,419 an ounce on Friday, however, Gold then shot back up nearly $30 to close the week at $1,448. Through all of this, what’s interesting is that buying pressure is now showing up on the 6-month chart for the first time since the mid-April record sell-off. In addition, it’s important to point out that after weeks of outflows, Gold-backed exchange-traded funds on Thursday registered their first day of inflows since the end of March (2.5 metric tons according to data from Bloomberg). The action we’re currently seeing in both the Venture and the TSX Gold Index suggests Gold has a good chance of pushing through resistance in the $1,480’s in the coming few weeks. We do believe, however, that the primary trend for the remainder of the year is bearish. At the very least we do expect a re-test of the April low later this year.
Silver made a nice intra-day reversal Friday and actually finished higher for the day at $23.87. For the week, though, Silver lost 26 cents. Copper gained 6 cents last week to close at $3.35. Crude Oil was up 43 cents to $96.04 while the U.S. Dollar Index jumped a full point to 83.10.
The “Big Picture” View Of Gold
As Frank Holmes so effectively illustrates at www.usfunds.com, the long-term bull market in Gold has been 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, has had a huge impact on bullion. Despite its current weakness, the fundamental long-term 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, a Fed balance sheet now in excess of $3 trillion and expanding at $85 billion a month, money supply growth around the globe, massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand, emerging market growth, geopolitical unrest and conflicts…the list goes on. However, deflation is prevailing over inflation in the world economy and this had a lot to do with Gold’s recent plunge below the technically and psychologically important $1,500 level, along with the strong performance of equities which are drawing money away from bullion. Where and when Gold bottoms out in this cyclical correction is anyone’s guess, but we do expect new all-time highs later in the decade. There are many reasons to believe that Gold’s long-term bull market is still intact despite a major correction from the 2011 all-time high of just above $1,900 an ounce.
