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TSX Venture Exchange and Gold

Despite a breakout by Gold above $1,350, the Venture’s 5-week winning streak came to an end as the Index gave up a very modest 9 points to close at 1034.  Broader equity markets were under pressure last week with the Dow down each trading day, losing nearly 400 points or 2.4% (RSI-2 on the daily chart for the Dow is at an extreme low not seen since the end of January).  The Nasdaq was off 2%.  The TSX fared better, shedding only one-half of a percent to close at 14228.

Where to from here for the Venture?  The next major resistance (1150) is still more than 100 points to the upside.  Based on chart patterns and some exploration excitement in various areas, the question in our view is not if the Index will test 1150 but when.  On the 5-year weekly chart below from John, you can see that buy pressure (CMF) and the bullish trend (ADX) both remain strong, while RSI(14) at 65% certainly has room to move higher.  The 10 and 20-day moving averages (SMA’s), not shown on this particular chart, provide immediate support between 1025 (20-day) and 1035 (10-day).  Below that the Index has built superb support between the 970’s and 1000.  It’s important to understand the key near/short-term resistance and support levels.

The 5-year weekly chart gives us great confidence that this new Venture bull market will power the Index significantly higher as the year progresses, so that by the third quarter the Venture conceivably could be trading anywhere between 1350 and 1650 (check the Fib. and chart resistance levels).  The third quarter is also when the Venture’s 300-day SMA can be expected to reverse to the upside (we’ve already seen the 200-day reverse higher).  Get excited NOW – don’t wait until the masses get excited and start jumping on the bandwagon in a few months.  The reversal in this market really occurred last October when it broke above a long-term downtrend line.  Smart money has been accumulating since then.  Most investors are “followers” and they’re late in recognizing the start of a new bear market or the beginning of a new bull market.  The Venture chart tells us unequivocally that a new bull cycle, albeit selective at the moment, has started.  The trend is your friend.  The overall trend is clearly pointing higher and any pullbacks along the way should be viewed as accumulation opportunities (the opposite was the case during the bear market – rallies were selling opportunities).

Venture 5-Year Weekly Chart

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 in 2013 is that it forced producers (at least most of them) to start to become much more lean in terms of their cost structures. Producers, big and small, have started to make hard decisions in terms of costs, projects, and rationalizing their their overall operations.  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 (technology has made it easier for groups opposing mining projects to organize and disseminate information, even in remote areas around the globe).   Ultimately, all of  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.  Companies that are strong financially, have superior exploration prospects, competent management and clean share structures.

Gold

Impressive move by Gold last week even though Asian demand recently has been somewhat subdued.  Bullion rocketed through resistance around $1,350 and closed up $43 for the week at $1,384.  Several factors are helping Gold, ranging from geopolitical to a drying up of ETF selling that was so instrumental in the metal’s collapse last year.

This 1-year weekly chart from John is interesting in that it shows that Gold appears to be constructing a cup-with-handle pattern.  Strong resistance exists between $1,400 and $1,425.  If this interpretation is correct, and John’s Gold charts have consistently been very accurate, then expect the top of the right side of the cup to form around $1,425 (perhaps a little lower).  At that point, an unwinding of temporarily overbought conditions can be expected which would result in the formation of a handle which should not close lower than $1,270 for the pattern to remain valid.  This would then be followed by another move higher.

RSI(14) has formed a bullish “W” which suggests the near-term bias is indeed to the upside, adding credence to the view that Gold before month-end could indeed be trading in the $1,400 to $1,425 range.  This would also probably coincide with a test of critical support at 79 on the U.S. Dollar Index.

Silver climbed 57 cents last week to close at $21.46 (we’ll have updated Silver charts Monday morning as usual).  Copper got hammered, losing another 15 cents (China-related factors) to finish at $2.94 (very oversold conditions have emerged).  Crude Oil fell $3.69 a barrel to $$98.59 while the struggling U.S. Dollar Index finished down one-quarter of a point to 79.41 – a test of the important 79 level definitely appears to be in the cards as we’ve been suggesting for months since a breakdown of the Dollar Index last September.

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 Gold’s largest annual drop in three decades in 2013, the fundamental long-term case for the metal remains solidly intact – 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 at $4 trillion and still expanding, 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 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 “momentum traders” away from bullion.  June’s low of $1,179 was likely the bottom for Gold.  Extreme levels of bearishness emerged in the metal last year.  With the long-term bull market remaining intact, we expect new all-time highs in Gold as the decade progresses.  Inflationary pressures should eventually kick in around the globe after years of ultra-loose monetary policy.