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TSX Venture Exchange and Gold

As mentioned last weekend, technical evidence was suggesting a good possibility of some immediate weakness in the Venture, a minor pullback to a strong zone of support and that’s what occurred as the Index reversed intra-day Monday and fell 45 points or 4.3% for the week to close at 990.  Interestingly, the Index bounced off RSI(14) support Friday on the 9-month daily chart (see below) with a 5-point gain, so the set-up for a near-term resumption of the overall uptrend appears to be in place.

Superb technical support (chart and Fib.) is underpinning this market between the rising 200-day moving average (SMA) at 946 through the mid-980’s. Keep in mind that the late January/early February pullback reversed at the rising 100-day SMA which now sits at 963.  In addition, according to Elliott Wave theory, what appears to be under construction at the moment is “Wave 4” which last week found support at the top of “Wave 1”.  So it’s possible that Thursday’s 985 close (exactly at the 300-day SMA, by the way) could be the closing low in this pullback – we should know for sure next week (-DI on the ADX indicator appears to have peaked which is bullish).

If 985 is not the closing low, there are other strong layers of support as mentioned.  Many individual company charts continue to look very positive with strong overall uptrends firmly in place.  As the saying goes, “The Trend Is Your Friend”, and the Venture trend that has been established since last October is very bullish and predictable.  That’s why we were able to call an important low in late December and another important low in late January/early February.  Now is no different.  Successful investors understand volatility and the importance of embracing weakness, especially when the primary trend is up.

Venture 9-Month Daily 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

It was a second straight rough week for Gold as the yellow metal fell another $40 to close at $1,295 following a $49 decline the previous week.  The correction is not totally surprising – bullion climbed nearly 20% in less than three months which also gave a 45% boost to the TSX Gold Index.  The “Big Picture” remains very positive in our view with Gold showing a strong support band between $1,270 and $1,300.  A near-term test of $1,270, which is also the Fib. 38.2% retracement level from the high earlier this month, is clearly possible.  Physical demand from Asia has been subdued recently but may start to pick up again below $1,300.

Below is an updated 1-year daily chart from John.  Over the past 10 months it appears that bullion has been constructing a bullish cup-with-handle pattern with the handle now under construction and $1,270 acting as support.

Net holdings for global Gold exchange-traded products continue to reflect net inflows in March, according to Barclays. Outflows from ETPs contributed significantly to Gold’s decline last year, so analysts have been watching to see when these stabilize. “After turning positive for the first time in more than a year in February, month-to-date flows have remained positive overall in March at 9.6 (metric) tons,” Barclays stated. “With hefty net outflows turning into modestly positive net inflows, gold could find some downside support, albeit these net inflows are not entirely firm, alternating between inflows and outflows over the past few weeks.”

Silver fell 45 cents last week to close at $19.92 (updated Silver charts Monday morning).  Copper reversed higher, gaining 9 cents to finish back above $3 a pound at $3.03.  Crude Oil gained $2.21 a barrel to close at $101.67 while the U.S. Dollar Index was relatively unchanged at 80.12.

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 of 2013  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.