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TSX Venture Exchange and Gold

The Venture continues to follow a predictable path and is beginning to gain momentum after a healthy and successful test of the 1000 support level.  A band of resistance exists between the mid-1020’s and the March high of 1050, but the end result of the kind of overall technical pattern displayed by the Venture since the fall of last year can only lead to one thing – a major breakout, an event we’re certain to see here in Q3.  So lock in on the most attractive opportunities now as the companies best positioned for success will significantly outperform the overall market and provide investors with unusual upside potential over the next couple of months.

As we stated last weekend, a bullish “W” formed in the RSI(14) on the 6-month daily Venture chart just below the 50% level – this is typically a highly reliable near-term reversal pattern, especially when it appears just after a successful test of strong technical support.  This is also a repeat of what occurred in late May when an RSI “W” formed after the Index revisited the 970 level. RSI(14) is now above 50%, gaining momentum.

After a sluggish Monday (Mondays have a tendency to be like that), the Venture gathered steam as the week progressed and closed Friday at its high for the day and the week – 1017.44, a modest gain of 5 points from the previous Friday.  We expect an even stronger week to finish off the month.  In short, the table is set for a breakout – likely in August – above 1050, followed by an immediate acceleration of this bullish phase.

Below is John’s updated 6-month daily chart.  Note the increase in buy pressure last week, and a bullish +DI/-DI crossover also appears to be in the works.  What’s notable, too, on this chart is the pattern of higher lows since February.

Venture 6-Month Daily Chart

Venture 5-Year Weekly Chart

RSI(14) on this 5-year weekly chart (with Gold comparative) continues to follow an uptrend line which illustrates how the bulls are now firmly in control.  In addition, you’ll note that the 50% RSI level has held as support throughout 2014 after serving as resistance since mid-2011 (major trend change).  A modestly overbought condition in the RSI that emerged in March when the Index hit 1050 gradually unwound to that new support level.

The Q2 decline that took the Venture to massive support at 968 May 20 came on light volume, and accumulation (CMF indicator) remains steady and strong – the most extended period of healthy accumulation we’ve seen, actually, in a few years.  This is a very bullish scenario, and includes a recent +DI/-DI crossover.  Those who gave up on this market during the 8% retreat from 1050 made a profound miscalculation.  Astute investors have a great chance to cash in big over the next few months in particular before the possibility of a fourth quarter correction.

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 carry out exploration or 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.

Gold

Gold has strong Fib. support in the $1,280’s and that was certainly evident last week as bullion dipped briefly below $1,290 and rebounded at the end of the week to close at $1,308.  Friday’s $14 gain was impressive, but bullion is now in the middle of one resistance band ($1,306 to $1,310) and below even more important resistance between $1,320 and $1,330.

How Gold finishes off this month is going to be interesting.  Overall, we remain on the bullish side due to the performance of the Venture.  Those who are calling for Gold and Silver to “plunge” – those arguments simply don’t hold water given how the Venture, a proven reliable leading indicator for both metals, is behaving.

Silver touched a Fib. support level in the low $20’s last week but recovered sharply Friday to finish at $20.75, a loss of just 14 cents for the week.  Copper gained 6 cents on encouraging economic data out of China to finish at $$3.23.  Crude Oil fell just over $1 a barrel to close at $102.09 while the U.S. Dollar Index enjoyed another strong week, gaining half a point to 81.04.

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 and will continue to support prices.   Despite Gold’s largest annual drop in three decades in 2013, the fundamental long-term case for the metal remains solidly intact based on the following factors:

• Growing geopolitical tensions, fueled in part by a highly dangerous and expansionist Russia under Vladimir Putin, have put world security in the most precarious state since World War II;
• Weak leadership in the United States and Europe is emboldening enemies of the West;
• Currency instability and an overall lack of confidence in fiat currencies;
• Historically low interest rates, a Fed balance sheet at more than $4 trillion (still expanding), and money supply growth around the globe;
• Signs of increasing inflation;
• Continued strong accumulation of Gold by China which intends to back up its currency with bullion;
• Massive government debt from the United States to Europe;
• Continued net buying of Gold by central banks around the world;
• Flat mine supply and a sharp reduction in exploration and the number of major new discoveries

Deflationary concerns around the globe and the prospect of Fed tapering had a lot to do with Gold’s plunge during the spring of 2013 below the technically and psychologically important $1,500 level, along with the strong performance of equities which drew “momentum traders” away from bullion.  The June 2013 low of $1,179 was 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 and the reluctance of central banks to increase interest rates.