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TSX Venture Exchange and Gold

Encouragingly, the Venture actually eked out a 1-point gain last week to close at 1035 despite a $49 drop in the price of Gold and a 7% setback in the TSX Gold Index.  How the week went was very much on display Friday as the top three volume leaders were medical marijuana plays, all performing exceedingly well, in a great example of “herd behavior” trading.  At least this “sector” is generating volume and some people are making money (lots of it in certain cases).   The Venture may have lost a little bit of momentum last week but this market certainly hasn’t gone to “pot”, pardon the pun.

One of the big gainers for the week was Reliant Gold Corp. (REC, TSX-V) which rose from the ashes and jumped from 2.5 cents to as high as 9 cents before settling Friday at 6 cents.  The company announced last Monday that it has worked out the terms of a JV agreement with Probe Mines Ltd. (PRB, TSX-V) on its Borden Lake South Project (a definitive agreement is expected to be executed by April 4).  Probe has been one of the great Canadian exploration success stories over the past year, one we’ve been tracking closely, and another company to keep an eye on in that area is Nikos Explorations Ltd. (NIK, TSX-V) – it has tripled in the past 10 trading sessions but potential 10-baggers aren’t restricted to just marijuana plays.

We’re in a new bull market on the Venture, albeit a selective one at the moment.  There are huge opportunities in the junior exploration space but the key is to focus on important discovery areas (the Sheslay Valley is a key example) that have an excellent chance to generate their own “herd behavior” trading in the not too distant future, and projects that make sense that are being advanced in the right way by capable management groups.  One of numerous examples – Highbank Resources Ltd. (HBK, TSX-V) took a big step forward last week as it obtained its NOW permit approval for its Swamp Point North aggregate project near the Port of Prince Rupert (a smart play on the LNG boom in B.C. and the expansion of the Port of Prince Rupert).  HBK has broken out above key resistance to a new multi-year high.

We have two charts on the Venture today, and both show tremendous underlying strength in this market.

John’s 5-year weekly chart gives us the “big picture” direction of where the Venture is likely headed in 2014 – somewhere, in our view, between the first two Fib. resistance levels (1465 and 1650, approximately).  Investor patience will be critical – it certainly won’t be straight up from here.  Understand the key support and resistance levels – near-term/short-term/medium term/longer term – so you don’t panic on a pullback or get overly bullish at the wrong time in terms of your trading.  Keep in mind, too, that “discovery plays” can run counter to the market as Doubleview Capital Corp. (DBV, TSX-V), Garibaldi Resources Corp. (GGI, TSX-V) and Prosper Gold Corp. (PGX, TSX-V) demonstrated near the end of January during a 5% Venture pullback.   We expect DBV to commence drilling this coming week at its Hat Property Cu-Au porphyry discovery and they have some “bulls-eye” targets.  If DBV hits again, and we like their odds, the Sheslay Valley plays could explode no matter what the overall market is doing.

13-Month Venture Daily Chart

Note the uptrend line on this 13-month daily chart, and keep in mind the Feb. 26 intra-day low of 1005 (the rising 50-day SMA is immediately below that).  There is tremendous support underpinning the Venture between the 970’s, an area of strong resistance last year, and 1005, limiting the potential of any near-term pullback from current levels to about 5%.  Declining buy pressure this month and an RSI(14) divergence with price on this chart are indicative of potential minor weakness and maybe a test of that trendline support in the days ahead.  We’ll see what happens – great accumulation opportunity if there is any weakness.

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 got hit by a few factors last week – profit taking, an apparent deescalation (in the eyes of the market) of the Russia-Ukraine crisis (Putin can’t be trusted, this is going to heat up), and remarks by Janet Yellen in her first news conference as Fed Chair.  Bullion recovered slightly Friday but still suffered a $49 or 3.5% weekly drop, closing at $1,335.

This 2-year weekly chart shows how Gold met resistance at a long-term down trendline.  The current trend remains bullish, however, with very strong support around $1,300 where the MA-10 on this weekly chart ($1,306) has crossed above the MA-40 ($1,298).  Asian physical demand has been subdued recently but should kick in at the bottom end of chart support between $1,275 and $1,300, if bullion were to drop that low.  The U.S. Dollar Index remains in a downtrend despite last week’s strength.

Silver fell $1.19 an ounce to close at $20.27.  Copper, clearly in oversold conditions, stayed unchanged at $2.94.  Crude Oil climbed by nearly $1 a barrel to $99.46 while the U.S. Dollar Index jumped three-quarters of a point to 80.12.

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.