TSX Venture Exchange and Gold
The Venture declined each day last week in a healthy correction that took the Index back to new support in the low-to-mid 950’s. It closed Friday at 955, down 19 points or 2% for the week (Gold slipped 2.7%).
There was no confirmed breakout above 970 resistance recently, but that doesn’t mean such an event is not in the works. The current technical posture of the Venture is still very positive and investor patience is critical. The Index held up well last week despite a sell-off in Gold, a change in behavior for the Venture that first emerged in August. The 50-day moving average (SMA) is at 950 and continues to rise, while the 100-day SMA around 930 is now reversing to the upside which is an important development. Fundamentally, of course, this market would benefit tremendously from higher Gold prices and a fresh discovery. This continues to be a time to search for bargains, in our view, and plant the seeds that will yield a very bountiful harvest in 2014.
Below is as 3-month daily chart from John. RSI(7) is unwinding an overbought condition – look for it to stabilize and reverse higher during the upcoming week.
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 this year is that it forced producers (at least most of them) to start to become much more lean and mean in terms of their cost structures. 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 showed that 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 small universe of companies that have the ability to execute both on the ground and in the market – companies that have the cash, the expertise, the properties and the drive to make discoveries that majors will buy. And companies that haven’t obliterated their share structures over the past couple of years.
Gold
Gold met resistance in the $1,360’s last week, just as John’s chart suggested it would. A chart support band is between $1,306 and $1,315. Gold remains range-bound until a catalyst drives it through the $1,360’s or pushes it below strong Fib. support in the $1,270’s. The behavior of the Venture, and the fact the U.S. Dollar Index has broken below a 2.5-year uptrend, suggests to us that Gold has more upside potential in the coming weeks and months than most investors realize.
Silver meet resistance at $23 last week and closed at $21.87, down 63 cents. Copper added 2 pennies to $3.28 on encouraging economic news out of China. Crude Oil plunged to its lowest level since late June, falling $3.28 a barrel to $97.85. The U.S. Dollar Index, meanwhile, found support as expected at 79 and climbed 1.5 points to finish the week at 80.72. It’s now trading near the top of a resistance band between 80 and 81, and will have a very difficult time sustaining a move above 81. This should be supportive of both Gold and the Venture.
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 $3.5 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, deflationary concerns around the globe and the prospect of Fed tapering by the end of the year (not likely now) 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 $1,179 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.
