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TSX Venture Exchange and Gold

The CDNX is behaving almost precisely in the manner we predicted in our July 9 alert when we stated the Index was in the beginning stages of a powerful new move to the upside that could result in a gain of at least 30% from the 1862 June 28 low by year-end.

The CDNX posted its third consecutive weekly advance, gaining 53 points to close at 2060.  The Venture was the star of the week with its rise of 2.6% – the Dow was up 1.6%, the Nasdaq climbed 2.5% while the TSX jumped 1.5%.  Gold was relatively flat.  Since its correction ended June 28 when it bottomed out at 1862, the CDNX has gained 198 points or 11%.  The 50-day moving average (SMA) has reversed to the upside, a very bullish sign, and the 10 and 20-day SMA’s should provide strong support during this new upleg that could really begin to accelerate next month and into September.

Not only are there technical factors in favor of the CDNX at the moment, but a tsunami of drill results/exploration news is now beginning to hit this market.  In the non-Gold space, BE Resources Inc. (BER, TSX-V) was a beneficiary of this Friday as the stock rocked from a dime to 75 cents on rare earth assay results from its Warm Springs Project in New Mexico.  That kind of a gain by one play on huge volume is what helps add fuel to the fire as far as the overall market is concerned.

The next major area of resistance on the CDNX is 2100.  A minor reaction or brief pause around that level should be expected but as John’s recent CDNX chart outlined, this market should have no problem clearing 2100 next month.

Gold

Gold hit a new record high, above $1,610, before pulling back slightly and finishing the week up $6 an ounce at an even $1,600.  Volatility can be expected in this market in the coming week with the U.S. debt talks at a critical stage.  Few observers expect the U.S. to actually go into default by August 2, but what’s key to watch for is whether or not Congress can work out more than just a patchwork agreement on a deficit and debt reduction plan.  Battle lines are being drawn for the 2012 elections so we’re not hopeful that major progress will occur right now in terms of cleaning up Washington’s fiscal mess.  That would definitely be bullish for Gold.

Technically, Gold has superb support around $1,550 so the downside from current levels is quite limited.  Physical buying is coming in on the dips and that can be expected to continue which should keep prices strong.  John’s next major target for Gold remains at $1,675.

The fundamental case for Gold remains incredibly strong – currency instability and an overall lack of confidence in fiat currencies and governments in general, an environment of historically low interest rates and negative real interest rates (inflation is greater than the nominal interest rate even in parts of the world where rates are increasing), massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand, investment demand, emerging market growth, geopolitical unrest and conflicts, and inflation concerns…the list goes on.  It’s hard to imagine Gold not performing well in this environment.  The Middle East is being turned on its head and that could ultimately have major positive consequences for Gold.

China, which became the world’s largest Gold producer in 2007, retained its position again in 2010 by mining 340.88 tonnes, up 8.57% year on year, according to the China Gold Association in a report released today.

Increases in Gold output will help China hedge against financial risks and inflation, as well as maintain economic security, the association stated.

While China is producing more Gold, the demand for Gold in that country continues to increase at a rapid pace.

Silver was up 80 cents for the week, closing at $40,07.  Copper was off a penny at $4.38 a pound, Crude Oil climbed to $99.87 while the U.S. Dollar Index fell nearly a full point to 74.25.