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TSX Venture Exchange and Gold

The 860 support level held last week for the Venture and a strong rally Friday, thanks to a rebound in Gold, allowed the Index to close a volatile week down just 15 points at 881.  For the month, the Venture slid 8%.  By comparison, the TSX Gold Index fell 17% while Gold itself was down 11%.  For the second quarter, the Venture was off 19.8%, the TSX Gold Index plunged a whopping 32.5% while bullion was down 23% (the biggest quarterly percentage loss for Gold since 1968, according to Reuters).  The fact that the Venture has been outperforming both Gold and the TSX Gold Index recently, although modestly, suggests to us that Gold’s decline could very well be in its final stages.  If you recall, the Venture led bullion and the Gold Index to the downside in 2011 and 2012.  It’ll be very interesting to see if this current trend grows stronger during the 3rd quarter.

We’re not convinced Gold or even the Venture have each found a bottom yet (see charts below), but to us that doesn’t matter:  The worst of the huge sell-off the last couple of years is over, and the smartest time to be a buyer is when there’s blood in the streets.  We’re seeing that now, and even more blood will likely flow in the coming weeks/months.  But we’re also seeing some tremendous opportunities for both the short-term and the long-term by focusing on special niche situations (discovery opportunities) in the junior resource market that have the potential to perform exceedingly  well even if Gold’s slide continues.  And there’s one area of Canada we particularly like at the moment for exploration, and that’s British Columbia.  One recent blessing we can all be thankful for is that the NDP didn’t gain power there in the May elections.  We’ll be focusing a lot on B.C., especially the northern part of the province, over the summer with at least a couple of site/area visits.

Just one common sense opportunity in northern B.C., as we’ve been mentioning recently, is the Telegraph Creek area.  Since late April, when Colorado Resources (CXO, TSX-V) announced an important Copper-Gold discovery through impressive drill hole NR13-001, investors, prospectors and geologists have been intensely focused on the Iskut-Red Chris region – and for good reason.  Results from just 4 holes have been released, but all information to date points toward the possibility that North ROK could ultimately rival Imperial Metals‘ Red Chris deposit which is slated to go into production next year.  But an advanced exploration property about 60 miles to the west-northwest of North ROK could really ignite the entire region over the summer once Peter Bernier’s Prosper Gold (PGX.H, TSX-V) team goes to work.  Prosper Gold has optioned Firesteel Resources‘ (FTR, TSX-V) Copper Creek Property (as its “qualifying transaction”) which is right on trend with some of the major deposits and mines discovered to the south within B.C.’s prolific “Golden Triangle”.  Bernier’s highly skilled team found the massive Blackwater deposit in central B.C. (Richfield Ventures was bought out by New Gold Inc. for half a billion dollars in 2011), and until just recently they were searching the globe for their next huge hit to vend into Prosper Gold.  They believe they have found it in Copper Creek – hence the deal with Firesteel.   We expect the drills to start turning soon at Copper Creek, a property we’ve researched extensively.  For confirmation regarding its potential, we’ve spoken to not only Bernier but many respected geologists and prospectors in B.C. who have all said essentially the same thing – Copper Creek is “exceedingly good”.  Firesteel simply doesn’t have the technical expertise to take this 7,000-hectare Copper-Gold porphyry prospect to the next level.  Prosper Gold has that expertise, led by award-winning geologist Dirk Tempelman-Kluit.  Three simple words on the Prosper Gold home page brand this company and opportunity perfectly:  Exploration.  Discovery.  Wealth.

One fact that has gone unnoticed by investors and (sleepy) brokers alike is that Garibaldi Resources (GGI, TSX-V), trading below its working capital position at just 6 cents, holds a massive land position (17,000 hectares, 100%-owned) and a geologically very prospective property contiguous to the western and southern borders of Copper Creek.  For various reasons, Prosper Gold will have to deal with Garibaldi.  One of the reasons is that exploration work carried out over the years at GGI’s Grizzly Property strongly suggests that the Copper Creek mineralized system extends well onto the Grizzly.  Over the last year or so, Teck Resources (TCK, TSX) has staked a large area right up to the southern boundary of the Grizzly.  So the Grizzly is sandwiched in between two highly interesting and credible neighbors – Bernier’s Prosper Gold, and Teck.  In the northwest corner of the Grizzly, a large intrusive exists that some geologists believe could actually be the “heat engine” that’s driving the mineralization in this entire area.  Fortunes are born in bear markets.  A valuation re-set of Garibaldi is going to occur very quickly in our opinion, and remember you read it first at BMR.  To make serious money in the markets, you want to be ahead of the crowd.  You need to do your homework and engage in forward-thinking.  We’re ahead of the crowd with our interpretation of the significance of the Grizzly Property, and we’re convinced that interest in it is going to accelerate dramatically over the summer as events unfold at Copper Creek.  We’ve met both the President and CEO of Garibaldi, Steve Regoci, and the CFO, Barrie Di Castri.  Despite their focus on their Mexican properties, they’re well aware of the strategic importance of the Grizzly Property.  Regoci and his team have the ability in our view to execute on this opportunity to drive shareholder value.

Updated Venture Chart

Below is a 9-month daily Venture chart from John following Friday’s 881 close.  The 10-day moving average (SMA, not shown on the chart) is 894 while the 20-day is 920.  Near the end of April and into early May, and again near the end of May into early June, the Venture broke above its 10-day SMA.  Importantly, the Venture’s 20-day SMA has not been able to reverse to the upside since January.  When it finally does, we can have greater confidence that a significant rally has started.  Next major support below 860 is 800.  Significant resistance around 920 as shown on the chart.

Gold

Gold got hammered again last week, falling below $1,200 an ounce ($1,180) for the first time in 3 years.  It’s hard to say if Friday’s reversal will turn out to be significant – it may have been the result of month-end and quarter-end “window dressing”.  But a rally from current levels is certainly possible after the latest $200 drop.  The Venture held important support, and so too did the TSX Gold Index.  Ultimately, we do see strong potential for a 50% Fibonacci retracement of Gold’s gains from the 1999 low of $253 to the 2011 high of $1,924.  This would mean a bottom for Gold just slightly below $1,100.  Almost everyone was bullish on Gold in the summer of 2011.  Now the opposite is true.  That tells us bullion is in the final stages of its decline – be patient and don’t panic.

The SPDR Gold ETF has seen more than $18 billion in outflows this year, losing nearly 30% of its assets under management, according to IndexUniverse.

“Short Gold futures positioning on COMEX is at an all-time high and nearly every broker is now negative Gold,” analysts at ETF Securities said in a report.  “Therefore, while further downside in the short-term is possible, investors with longer-term time-horizons may start to look at the recent sell-off as a longer-term accumulation opportunity.”

MacNeil Curry, technical strategist at Bank of America Merrill Lynch, has issued a “GOLD BEARS BEWARE” warning in a research note, saying proprietary models at his firm suggest a bottom is near.

Silver touched the middle of a strong support band between $17.50 and $19.50 last week, and closed strongly Friday with a gain of $1.15 an ounce to finish the week at $19.66.  We’ll have more on Silver Tuesday including John’s latest charts.  Copper fell a nickel to $3.05 (strong support between $2.90 and $3.00).  Crude Oil jumped $2.87 a barrel to $96.56 while the U.S. Dollar Index climbed three-quarters of a point to 83.18.

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.