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TSX Venture Exchange and Gold

Editor’s Note: Morning Musings Monday will be posted at 4:00 am Pacific followed by an updated version at approximately 8:00 am Pacific.

Venture Exchange

A week ago we stated that the case for a powerful Venture move continued to strengthen.  Indeed, an important breakout occurred Friday as the Index finally pushed through its 100-day moving average (SMA) – it has been below that level since November of last year – and the next immediate target is major resistance at 970.  Significantly, Friday’s move had some volume behind it – the strongest in more than 4 months.  On 2 occasions over the spring, the Venture failed in an attempt to overcome The Great Wall at 970.  What’s different about this occasion, however, is that sentiment has changed in the Gold and commodity markets, the Venture’s 50-day SMA has just reversed to the upside which is adding fresh fuel to its gas tank, and seasonal factors are highly favorable.  Historically, September is Gold’s best month of the year and it’s also typically a busy time on the exploration front in terms of both results and the commencement of programs.

British Columbia is 1 region that’s particularly hot, another very positive factor for the Venture, and 1 event the market is eagerly anticipating this coming week is the official closing of Pete Bernier’s Prosper Gold (PGX.H, TSX-V) qualifying transaction regarding the Sheslay Cu-Au Porphyry Project in the northwest part of this mineral-rich province.  With conditional approval for the QT already granted by the Exchange, Prosper Gold is slated to begin trading during the 1st week of September.  We fully expect PGX to be a market leader given the credibility of Bernier and his team, plus the fact they are going to instantly hit the ground running with a major drill program.  As we’ve been reporting for a couple of months, after extensive research and discussions with numerous geologists, prospectors and others in the industry, the Sheslay River Valley has the potential to rapidly develop into Canada’s premier Cu-Au porphyry play.  Bernier and award-winning geologist Dirk Tempelman-Kluit are taking over an advanced exploration project featuring a minimum of 5 porphyry bodies (how many more will they find?) with mineralization open in every direction.  And this system has not been tested at depth.  It’s this type of situation that will bring excitement, confidence and investors back into the market.  This group knows how to execute in every way, as they demonstrated with Richfield Ventures a couple of years ago when their multi-million ounce Gold discovery at Blackwater in central B.C. was bought out for half a billion dollars by New Gold Inc. They understand how to find a world class deposit, and Bernier has all of his Richfield team behind him at Prosper Gold.

The Venture jumped 12 points Friday to close at 947, a gain of 7 points for the week, after Gold surged to a 9-week high while Silver closed above $24 an ounce.  Copper and Crude Oil both remain firm, providing additional support for the Venture.  One of Friday’s volume leaders was North American Nickel Inc. (NAN, TSX-V) which jumped 46% to close at 27 cents after announcing it had intersected an 18.62-metre core length of sulphide mineralization averaging approximately 40% to 45% total sulphides, including numerous sections containing 65% to 80% sulphides, within noritic host rocks at the Imiak Hill Nickel-Copper-Cobalt zone on NAN’s 100%-owned Maniitsoq Project in Greenland (more on this story Monday).  Positive exploration results like this are critical for the Venture, and additional exciting developments elsewhere (B.C., other jurisdictions) would create the sparks that could really ignite this market.

Below is John’s updated Venture chart.  Everything is pointing toward an immediate challenge of the 970 area.  It’s increasingly looking like the 859 late June low, which coincided with Gold’s low around $1,180, was the Venture’s final bottom in a 2+ year bear market (a 65% plunge from the early 2011 high).  The upcoming rising tide will not lift all boats.  Investors need to focus on companies with that have cash, high quality properties, and management teams that can execute both on the ground and in the market.

Chart Of The Week

This is a new feature – our Chart of the Week.  John has spotted some incredible opportunities, particularly in recent weeks and months, and we’re so fortunate that he’s able to share his special insight with us and our readers.  Below is a 10-year monthly chart for Garibaldi Resources (GGI, TSX-V) that we posted yesterday – this also bodes well for the Venture, we believe.

This is a powerful, eye-opening chart, plain and simple.  GGI’s bullish technicals include a critical +DI/-DI crossover (the 1st time this has occurred in GGI since late 2009 prior to a major upside move in the stock) and 200 and 300-day moving averages that have just reversed to the upside.  RSI(14) has broken above 50, shows strong up momentum and has plenty of room to move higher. GGI has also staged a key breakout above 12 cents which had been resistance for about 14 months.

While Garibaldi has an impressive portfolio of properties in Mexico and a proven track record in terms of creating value there, what’s powering GGI right now is the growing realization of the strategic importance and geological potential of its 175 sq. km Grizzly Property contiguous to the western and southern borders of Prosper Gold’s Sheslay Project (70 sq. km).  The combined 245 sq. km area, at the top of B.C.’s prolific Golden Triangle and on trend with major deposits/mines to the south, features the important Mount Kaketsa Pluton, a “heat engine” believed to be driving mineralizing fluids.  Kaketsa originates on Garibaldi’s 100%-owned ground (still very under-explored) where there are numerous known Cu-Au occurrences and large anomalies (airborne magnetic and soil) similar to those seen on the Sheslay.  GGI has a strong management and geological team, and we expect they will take full advantage of the opportunity that Bernier’s arrival on the scene has created.  As we mentioned, this has tremendous potential to rapidly develop as Canada’s most exciting Cu-Au porphyry play given the players involved and the geology of the area.  As always, perform your own due diligence.

Gold

Gold finished the week on a powerful note, pushing convincingly through its 100-day SMA with a $22 gain Friday.  Bullion closed up $21 for the week at $1,398, setting the stage for a potential near-term breakout above the $1,400 technical and psychological resistance.  Given the bullishness we’re seeing in the Venture and Gold stocks in general, it’s our belief we will see Gold power through $1,400 and ultimately take a run at stiffer resistance – the previous support band between $1,550 and $1,600.  Gold, which has likely already taken into account any imminent slow scaling back of the Fed’s $85 billion a month bond buying program (still very questionable if the Fed starts “tapering” in September), is currently benefiting from a variety of factors including a drying up of ETP selling, short-covering, impressive Asian demand, and strong Oil prices.  The U.S. debt ceiling will likely soon have to be increased, and events in the Middle East should also be supportive for Gold.

Below is a 3-year weekly Gold chart from John.  Note that sell pressure, dominant all year, has ended.  RSI(14) is showing strong up momentum and the +DI indicator is rising quickly, leading us to believe there could soon be a bullish +DI/-DI crossover.

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

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 to learn to become much more lean and mean in terms of their cost structures. Among many others, Barrick Gold (ABX, TSX), the world’s largest producer, said it may sell, close or curb output at 12 mines from Peru to Papua New Guinea where costs are higher.  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, a recent Mineweb study shows grades have indeed fallen significantly just over the past decade.  For instance, grades in the South African Gold sector fell from an average of 4.3 grams per metric ton in 2002 to an average of 2.8 grams per metric ton in 2011.  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 10% to 15% of companies that have the ability to execute both on the ground and in the market – companies that have the properties, the cash, the management and the skills to make discoveries that majors will buy.

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 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, deflation is prevailing over inflation in the world economy and this 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 $1,180 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.