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TSX Venture Exchange and Gold

After an impressive winning streak of 19 days out of 22, from December 20 through January 23, the Venture has cooled off modestly over the last six trading sessions which is healthy of course for the Index from a technical standpoint.  A very strong support band ranges from the low 920’s to the upper 940’s, and we saw a test of that Friday as the Venture dipped to 944 intra-day before recovering to finish at 951.  That was a 16-point drop for the week, the second straight weekly decline. For the month, the Venture gained 19 points or 2% and out-performed the Dow, the S&P 500, the Nasdaq and the TSX – a very good sign (the Dow actually suffered its worst month in over a year, falling 878 points or 5.3%).  Gold outshone the Venture slightly, gaining 3.4% in January.

Getting the overall trend right is the key, and we’re convinced the Venture has turned the corner with the bear market that started in early 2011 finally “peaking” with last June’s low of 859.  Below is a 5-year monthly chart from John showing how the RSI(14) pattern since the spring of 2012 is essentially a mirror image of the one between late 2009 and early 2011.  Note how the MACD histogram is now in the bullish zone for the first time since 2011 – excellent sign.

The Venture pushed above its long-term downtrend line in October, and overall it has been trading within a horizontal channel for the past nine months – a range that it should finally break out of at some point this quarter, especially if the 200-day moving average (SMA) reverses to the upside.  The Venture has broken above its 200-day for the first time since the bear market began, and this SMA now also contributes to that strong support band between the 920’s and the upper 940’s.

Bottom line:  The Venture bear market is indeed over in our view.  Patience and selectivity, however, remain critical.  Focus on the companies with strong management and geological teams, healthy balance sheets with no immediate need to raise money, attractive share structures, excellent properties in safe jurisdictions, active programs, and a management group that’s driven to push hard to build shareholder value.

New Discoveries Could Give The Venture The Lift It Needs

Fresh discoveries will be key in terms of igniting this market and restoring investor confidence.  In northwest British Columbia, an extremely significant exploration situation is deservedly gathering increasing attention and momentum.   Quite simply, the Sheslay Valley is rapidly developing into B.C.’s next major Copper-Gold porphyry discovery camp.  The biggest juniors in the area are Garibaldi Resources Corp. (GGI, TSX-V), Prosper Gold Corp. (PGX, TSX-V) and Doubleview Capital Corp. (DBV, TSX-V).  Doubleview, of course, reported an important discovery January 20 at its Hat Property on trend with Prosper ‘s advanced Star target approximately 9 km to the northwest.

According to our extensive research, a massive area in the Sheslay Valley covering at least 600 sq. km can be considered highly prospective for Cu-Au porphyry deposits.  Parallel trends (SE/NW) are cutting across this entire district, in classic northwest B.C. fashion, with ample geological, geochemical and geophysical evidence supporting the possibility of deposits like “pearls on a string” for many kilometres.  This play has serious “legs” to it and the intensity of it is only going to ramp up as all three companies gear up for more drilling.  Keep in mind, the Sheslay Valley has been under-explored and under-exploited for far too long, and it’s right on trend with major deposits, current and past producing mines to the south and southeast.

On Friday, Garibaldi soared 21% to a nearly two-year high, closing at 23 cents, after announcing it has expanded its Grizzly Property by nearly 50% to a whopping 262 sq. km through staking and the strategic acquisition of a claim package immediately east of DBV’s Hat Property (within as little as 1 km).  Garibaldi has the Hat surrounded on three sides now, but there’s also a 15-km corridor stretching through the heart of the Grizzly (from Grizzly West to Grizzly Central) featuring “multiple targets”, according to GGI – “known mineral occurrences over a wide corridor coincident with magnetic anomalies.”

Garibaldi stated it best for all the players in the Sheslay Valley Friday when it referred to the area as “an emerging Copper-Gold porphyry mining camp with world-class potential.” GGI is finalizing an “aggressive” 2014 exploration season at the Grizzly including a first-ever drill program. GGI has financial strength behind it (more than $3 million in working capital according to its latest financials ending Oct. 31) and a clean share structure as it hasn’t had to carry out a significant financing in five years.

There are smaller players in the area besides GGI, PGX and DBV, and one of them we really like – given its strategic property location – is Ashburton Ventures Inc. (ABR, TSX-V).  Few investors seemed to have clued in to the fact that ABR’s Hackett Property (contiguous to the Hat) is on trend and very close (within at least 1200 metres by our estimate) to Doubleview’s discovery holes.  ABR has been edging higher on increased volume since DBV’s announcement, but at 6.5 cents its market cap is still only a very modest $1.8 million.  As always, perform your own due diligence.

Gold

As expected, after climbing for five straight weeks, Gold ran into stiff resistance around $1,275 and got pushed back to finish Friday at $1,246 for a loss of $23 on the week.  Physical demand volumes out of Asia dwindled considerably since Thursday with the start of Chinese New Year, and Chinese traders will not likely be back in full force until the week of February 10.  Next Friday’s U.S. jobs report will be critical for bullion.

Below is a 9-month daily chart from John.  Buy pressure has been subsiding recently, and it’ll be interesting to see if RSI(14) can hold at the 50% support level.

Silver tumbled 74 cents last week to close at $19.17 (John will have updated Silver charts tomorrow morning).  Copper slipped a nickel to $3.22 on emerging market concerns and weaker economic data out of China.  Crude Oil, however, climbed nearly $1 a barrel to $97.49.  The U.S. Dollar Index gained three-quarters of a point to close at 81.25.

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 below the technically and psychologically important $1,500 level, along with the strong performance of equities which has drawn “momentum traders” away from bullion.  June’s low of $1,179 may have been the bottom for Gold – only  time will tell.  Given the high level of bearishness that exists in this market at the moment, it’s probably safe to say that if Gold hasn’t seen its low yet, it’s at least very close to a bottom (within 10% to 15%).  We do, however, expect new all-time highs as the decade progresses and inflationary pressures finally kick in around the globe after years of ultra-loose monetary policy.  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.