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TSX Venture Exchange and Gold

This is a time to be positive, everyone, because the incredibly strong support that has been building underneath the Venture in recent months is going to provide the foundation and the springboard upon which this market will finally take off through critical resistance in the 970’s in the coming weeks.  The technical evidence in our view is as clear as the light of day, and we’ll walk readers through this in an important chart we’ll be posting Monday morning.

Despite the worst November for Gold in 35 years (yes, since 1978), the Venture managed to maintain support at and slightly above a long-term downtrend line that it finally broke above in late October.  Supported now also by a rising 100-day moving average (SMA), expect the Index to handle the choppy seas that can often occur during the first half of December, and then accelerate to the upside during the last half of the month in a move that will push the Index through its 200-day SMA and stubborn resistance in the 970’s.  That may seem like a bold prediction, but this is a classic set-up for a bullish advance.  This is like late 2010 in reverse.  At that time, so many investors were so bullish there simply weren’t enough new buyers to sustain the amazing energy the Venture had amassed.  In this instance, the sellers have run out of ammunition.

Individual company success stories will be immensely helpful in restoring investors’ confidence in this market.  That is what has brought the Venture out of the doldrums before, and history has a habit of repeating itself.  A stabilization or rise in the Gold price would also be a very welcome development, of course.  Keep in mind, the Venture tends to be a reliable leading indicator of Gold – just like in 2011 when it topped out six months before bullion did.  The fact that Gold has fallen nearly $200 an ounce since mid-August, yet the Venture has held its ground, should be construed as very positive.

Below is a 3-month daily CDNX chart from John.  The 925 support was tested on a few occasions last week and held, and the Index climbed 8 points Friday to finish at 935 for a 2-point weekly gain.  RSI(14) bottomed during the week of November 18 and is now at 45% and pointing up.  The chart that says so much more, and paints the big picture, is the 3-year weekly which we’ll be posting Monday morning.

The Seeds Have Been Planted (And Continue To Be Planted) For The Next Big Run In Gold Stocks

There’s no better cure for low prices than low prices.  The great benefit of the collapse in Gold prices this year is that it forced producers (at least most of them) to start to become much more lean and mean in terms of their cost structures. Producers, big and small, have started to make hard decisions in terms of costs, projects, and rationalizing their operating structures.  Exploration budgets among both producers and juniors have also been cut sharply.  In addition, government policies across much of the globe are making it more difficult (sometimes impossible) for mining companies to put Gold (or other) deposits into production, thanks to the ignorance of many politicians and the impact of radical and vocal environmentalists.  Ultimately, all these factors are going to create a supply problem – think about it, where are the next major Gold deposits going to come from? On top of that, grades have fallen significantly just over the past decade.

It doesn’t take a rocket scientist to figure out that the next huge bull market in Gold stocks is just around the corner due to demand-supply dynamics, much leaner producers who will suddenly become earnings machines, and a junior market that will be healthier simply because a lot of the “lifestyle” companies sucking money out of investors will simply disappear or get taken over by individuals or groups who are actually competent and serious about building shareholder value.   A healthy “cleansing” in the market has been taking place.  As this continues, more and more seeds are being planted for an incredible future move in well-managed Gold producers and explorers that could make the dotcom bubble look like a tea party.  As for the juniors, focus on the small universe of companies that have the ability to execute both on the ground and in the market.

Gold

After a shaky start to the week Monday morning when it dropped as low as $1,226, Gold recovered and was actually able to finish the week on a positive note as it closed at $1,251 – a $7 gain from the previous Friday.  Coming into the week, as we pointed out last Sunday, Gold analysts surveyed by Bloomberg were the most bearish since late June – a bullish contrarian sign.

Below is a 9-month daily chart from John, and what we find particularly interesting – from a short-term perspective at least – is that Gold has broken above an RSI(14) downtrend line.  This could bode well for December.  The downsloping wedge shows clear support and resistance.  Below $1,240, there is additional strong support between $1,200 and $1,215.  Gold has had a rough year, and it wouldn’t be surprising to see bargain-hunters step up to the plate as 2014 draws to a close.  As we pointed out at the top, Gold just went through its worst November in 35 years.  November 1978 was followed by three very positive months plus a rip-roaring finish to 1979.

Silver gained 11 cents last week to close at $19.93 (John will have updated Silver charts as usual Monday morning).  Copper was off a penny to $3.19.  Crude Oil slipped $2.12 a barrel to $94.84 while the U.S. Dollar Index was essentially unchanged at 80.64.

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 this year’s drop, 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 $3.5 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 (especially from China), emerging market growth, geopolitical unrest and conflicts…the list goes on.  However, deflationary concerns around the globe and the prospect of Fed tapering by the end of the year (not likely now) had a lot to do with Gold’s plunge during the spring below the technically and psychologically important $1,500 level, along with the strong performance of equities which drew money away from bullion.  June’s low of $1,179 may have been the bottom for bullion – time will tell.  We do, however, expect new all-time highs as the decade progresses.  There are many reasons to believe that Gold’s long-term bull market is still intact despite this major correction from the 2011 all-time high of just above $1,900 an ounce.