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TSX Venture Exchange and Gold

As we indicated yesterday morning prior to the start of trading, the Venture is looking a lot healthier these days from a technical standpoint.  That fact was very much in evidence during trading yesterday as the Index held up so well despite weakness in the broad markets and a $25 retreat in the price of Gold.  The Venture found support intra-day above its rising 30-day moving average (SMA) and rebounded at the end of the session to close up 1.67 points at 962.41.  The Dow, meanwhile., tumbled 209 points while the TSX was off 96 points.

The Venture posted its second straight weekly gain, climbing 14 points.  Key resistance, as we’ve pointed out, is 970.  Buy pressure is increasing and the bearish trend is weakening as you can see in John’s 1-year daily chart.  All things considered, the opportunity for a significant Venture rally commencing in the month of June clearly exists.  All the ingredients are in place including some positive developments on the exploration front.  What the Venture seems to be telling us is that Gold and Gold stocks have bottomed, for now at least. Newmont Mining (NMC, TSX) was actually the best performer in the S&P 500 last week, gaining more than 7%.

Keep in mind that a Venture rally will likely be focused on a relatively small universe of stocks – companies with money to spend and drill programs to carry out.  Follow the money – look for the leaders and run with them.  A rising tide is not going to lift all boats as we saw in 2009 and 2010.

F

Gold

Gold has formed a strong support band between $1,320 and $1,350 and is now starting to flex its muscles a little bit as we saw Thursday when it powered through the $1,400 level.  It gave up those gains yesterday but John’s 2-year weekly chart below confirms that the outlook over the short-term, at least, remains positive.  Sell pressure and the bearish trend are both weakening, while a bullish low “W” has formed in the RSI(14) indicator.

The latest COT report (May 21) showed that commercial traders have reduced their net short positions to the lowest levels since late 2008 when bullion bottomed during the Crash around $700 an 0unce.  Others, like the large speculators who would rather be chasing stocks at the moment, have built up very high short positions, but we’re siding with the commercials who are seldom wrong.  Small traders, not surprisingly, are the most bearish since February, 2001, just before Gold started its record decade-long run.

Gold closed at $1,388 Friday for a modest $2 weekly gain.

Silver lost 12 cents, finishing at $22.27.  Copper fell a penny to $3.28.  Crude Oil slipped $2.18 a barrel to $91.97 while the U.S. Dollar Index fell one-third of a point to 83.27.

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.