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From PDAC in Toronto

TSX Venture Exchange and Gold

Despite a one-day $90 drop in Gold, and a $63 weekly loss for the yellow metal, the Venture impressively held its ground and fell by just 11 points for the week to close at 1679.  For the CDNX to essentially shrug off that kind of a retreat in Gold is very encouraging and suggests to us that the weakness in Gold is just temporary as the CDNX is an extremely reliable leading indicator.  That said, a minor pullback in the Index can’t be ruled out before an eventual surge through resistance around 1700.  As John’s chart shows below, the Index has a very strong support band between 1625 and 1675.  

Central banks around the world are in “full-on expansion mode” and that’s the kind of situation that helps underpin a CDNX bull market.  Today at PDAC, we expect to hear a consistent message from many newsletter writers that the outlook for 2012 in the junior resource sector is extremely positive. This is an ideal time to be getting into the market as we’ve been stating over the last six weeks.  Any weakness should be considered a buying opportunity.

Gold

Throughout this long bull market in Gold, large single-day drops like last Wednesday’s $90 shake-out – call it manipulation by Ben Bernanke or the “banksters” if you will – have occasionally occurred and they have always proven to be buying opportunities.  A reported 31-tonne sell order on the CME took spot Gold prices down from $1,784 to $1697 on the final day of February with the dip unraveling approximately half of Gold’s gains since the beginning of the year.  Interestingly, as we mentioned above, the Venture Exchange held up well and Gold ETF buying was strong with investors adding 338,000 ounces on Wednesday, the largest daily increase to global holdings since late January. The SPDR Gold Shares ETF accounted for the bulk of ETF flows, having increased by just less than 300,000 ounces last week. Gold ETF holdings currently sit at an all-time high of 80,030,000 million ounces after about 900,000 ounces of additions last month, in line with January inflows. So far this year, investors have increased Gold ETF investment by 1,860,000 ounces, showing investors’ confidence in the metal and a distrust of paper assets.

Technically, Gold continues to look strong with solid support in the high 1600’s and resistance – for now – around $1,800.  Last week it simply moved down toward its weekly SMA(40) which has provided strong support in the past as John’s chart below shows.

Silver fell 68 cents for the week to $34.73.  Copper was up 3 pennies to $3.88.  Crude Oil cooled off, declining $3.07 a barrel to $106.70 while the U.S. Dollar Index gained just over a full point to 79.45.

The “Big Picture” View Of Gold

As Frank Holmes so effectively illustrates at www.usfunds.com, Gold is being 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, is having a huge impact on Gold.

The fundamental 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 and negative real interest rates that won’t end anytime soon (inflation is greater than the nominal interest rate even in parts of the world where rates are increasing), money supply growth, massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand, investment demand, emerging market growth, geopolitical unrest and conflicts, and inflation concerns…the list goes on.  It’s hard to imagine Gold not performing well in this environment.  The Middle East is being turned on its head and that could ultimately have major positive consequences for Gold.