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TSX Venture Exchange and Gold

The Venture posted its fourth consecutive weekly gain, albeit a modest 3-point advance to finish February at 1025.  For the month, the Venture was up a whopping 8% which compares to a 4% increase in the Dow, a 5% jump in the Nasdaq, a 3.8% climb in the TSX and an 8.8% surge in the TSX Gold Index.  The fact that the Venture is out-performing the broader indices is a very positive sign, yet another indication the bear market in juniors is over.

This 5-year weekly Venture chart shows the new phase the CDNX is now in – the downtrend line since 2011 has been overcome, the 200-day moving average (MA-40 on this weekly chart) has reversed to the upside, and the next major chart resistance is 1150.  The Index has held above the 1000 level for nine straight sessions.  Superb support exists in the 970’s which of course was very stiff resistance for many months. A short-term pullback is possible in March, or momentum may continue to take the Venture higher before a minor correction sets in.  Just keep the big picture in mind (the main trend is bullish) and the immediate resistance and support levels.

Quite simply, the Venture is now in the very early stages of a new bull market in our view. A lot of wreckage has been left behind following the devastating 65% drop from the 2465 early 2011 high to the late June 2013 low of 859.  And many companies are still struggling to raise money.  But capital is flowing into the strong plays, companies with solid management and geological teams, and properties of high merit.  It’s our view that northwest B.C.’s prolific Sheslay Valley will pour gasoline on the Venture fire in the coming weeks and months, and discoveries elsewhere will also come into play to bring investors back into this market.

Below is an updated 5-year weekly Venture chart from John.  It won’t be a straight climb up – there will be volatility and pullbacks of course along the way – but a strong argument can be made that we’ll see the Venture hit the first Fib. resistance level of 1465 at some point this year – more than a 40% increase from current levels.  That’s the kind of environment that produces “10-baggers” for investors.

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 in 2013 is that it forced producers (at least most of them) to start to become much more lean in terms of their cost structures. Producers, big and small, have started to make hard decisions in terms of costs, projects, and rationalizing their their overall operations.  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 (technology has made it easier for groups opposing mining projects to organize and disseminate information, even in remote areas around the globe).   Ultimately, all of  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, grades have fallen significantly just over the past decade.

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 are strong financially, have superior exploration prospects, competent management and clean share structures.

Gold

Gold posted its best monthly performance since July of last year, and the question now is whether certain dynamics can come into play – geopolitical events (Ukraine), physical demand, short covering, U.S. dollar weakness, etc. – that can drive bullion through stiff resistance around $1,350 where it reacted last week.

The situation in the Ukraine is being viewed in many quarters as the biggest geopolitical risk event in some years, so it’ll be interesting to see how Gold and equity markets respond in the coming week.  Russia, however, is flexing its muscles at a time of weak leadership in the United States and elsewhere in the West, so who exactly will stand up to Vladimir Putin?  Nobody, really, and Putin knows that.  There is no Ronald Reagan or Margaret Thatcher on the world stage, and Obama lacks the will to even approve Keystone let alone stand up to an international bully.  We don’t want to downplay the significance of events in the Ukraine; however, be careful not to fall victim to the mainstream media’s fear-mongering over events there and how they could impact equity and other markets (instead, use their coverage to your trading advantage).

February was a key month for Gold as it broke above a downtrend line in place since the beginning of 2013.  For the week, bullion was up $3 an ounce as it closed at $1,329.  Buy pressure is strong as shown in this 9-month daily chart, while RSI(14) has backed off slightly (now at 65%) from recently overbought conditions.  The 200-day SMA at $1,304 provides solid new support.

Silver fell 63 cents last week to close at $21.23 (resistance band between $22 and $23).  Copper lost a nickel to $3.22.  Crude Oil climbed 39 cents to finish at $102.50 while the U.S. Dollar Index tumbled half a point to close at 79.78.  A test of critical support at 79 seems likely in the near future.  It’ll be interesting to see how the greenback reacts to the Ukraine crisis.

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 drew “momentum traders” away from bullion.  June’s low of $1,179 was likely the bottom for Gold.  Extreme levels of bearishness emerged in the metal last year.  With the long-term bull market remaining intact, we expect new all-time highs in Gold as the decade progresses.  Inflationary pressures should eventually kick in around the globe after years of ultra-loose monetary policy.