TSX Venture Exchange and Gold
The Venture squeaked out a 1-point gain last week to close at 1293 but there are signs the coming week could bring a convincing breakout through the 1300 area, allowing the Index to start gaining some important traction. Markets overall could flip into “risk-on” mode given weekend developments in the euro zone (the $125 billion bailout of Spain’s banks plus movement on the euro bond issue), as well as China, and this would certainly be helpful for the Venture which technically appears poised to move higher.
A reversal to the upside in the 20-day moving average (SMA) for the Venture appears imminent (within the first 3 trading sessions of the coming week). The last time this occurred was in early January and this was followed by a powerful move that took the Index to a high of 1696 by the end of February. The 20-day has been in decline since early March and we know what has happened since then – a painful 28% drop from February 29 to the May 16 low of 1215.
John’s latest CDNX chart is quite interesting. What it shows is that the Index is currently in a 3-Wave “corrective phase” with a short-term Fibonacci target of 1402. That would be a nearly 10% move from current levels which is a healthy advance that will send some stocks significantly higher than that. The question is, what happens if and when the Venture makes it to the 1400 level? The simple answer is that we’ll have to wait and see and evaluate the situation at that point. It’s quite possible that this A-B-C corrective phase could turn out to be Wave 1 of a 5-Wave Motive Phase. But it’s premature to predict that at this time.
Historically, there is an extremely high correlation between a positive first quarter for the Venture and a positive year overall. So the fact the Venture posted a first quarter gain tells us, based on historical trading, that a major rebound is very possible after a rather horrible April and May in particular. In addition, the similarity between the current market and 2005 continues to be striking. The CDNX bottomed in mid-May, 2005, and climbed 40% from its spring low to its closing 2005 level. A similar 40% move this year would take the Venture to – interestingly – the 1700 resistance area by the end of the year. What we’re saying is that while there is risk, there are also plenty of reasons for optimism. And Gold and Silver are looking strong as well.
Gold
Gold recovered strongly on Friday from an intra-day low of 1565 after a sell-off that started Thursday when Fed Chairman Ben Bernanke refused to dispense the drug of quantitative easing just yet – Bernanke was speaking to a Congressional committee and was keeping his cards close to his chest. We do believe the Fed will make an easing move at its meeting June 19-20 as the window will start to close soon after that with the U.S. election season swinging into full gear.
The downtrend in Gold since March appears to be over, from a technical point of view, and the COT structure (commercial traders’ very low short positions) strongly supports that interpretation (in addition, the performance of the TSX Gold Index in recent weeks clearly shows a bullish new uptrend in Gold is forming). As long as central banks around the world continue to flood the system with liquidity, as they are doing and will have to continue to do, the outlook for Gold has to be considered bullish.
John’s 2.5-year weekly chart shows how Gold has been forming a strong base. A test of the 200-day SMA and the downtrendline since August of last year is in the works.
Gold finished down $31 for the week at $1,595. Silver, which is also looking very bullish, lost 15 cents to $28.53. Copper fell 4 pennies to $3.30, its sixth straight weekly decline. Crude Oil edged up 87 cents to $84.10 while the U.S. Dollar Index softened by a third of a point to 82.44.
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. Massive central bank intervention appears increasingly likely to prevent a breakup of the euro zone and to kick-start the global economy. It’s hard to imagine Gold not performing well in this environment.
We had one of the lowest volume weeks on the CDNX, it continues to decline from its late January high. I can’t see where the money will come from to sustain a bull market without volume.
Comment by Andrew — June 10, 2012 @ 12:47 pm
You’re exactly right, Andrew. The volume needs to kick in. There is a lot of money sitting on the sidelines. Discoveries, higher gold and silver prices, and in general just a better overall speculative environment would bring volume back into this market. This is possible over the next few months, we’ll see. This coming week looks positive.
Comment by Jon - BMR — June 10, 2012 @ 12:55 pm
Hey Bmr any thoughts on Rbw trading lately June is half gone whats up with not being able to crack 0.195 level,warrants,wonder what ever happened with the investors from Us & Europe that David mentioned in your interview if im not mistaken,and for the record Rbw is my largest holding better chances than the lotto but im so far not a happy share holder,the graphite play I didnt like cause if you got the goods why go snooping elsewhere.
Comment by Gerry — June 10, 2012 @ 1:55 pm
Gerry, patience is so critically important……just ask any GoldQuest shareholders…..RBW is actually one of the few stocks on the Venture that is still up for the year (and above its February financing price)….most stocks on the Venture this year are below their financing levels from earlier in the year…we’ve just gone through a brutal major correction of nearly 30% on the Venture and RBW has survived very nicely…..
Secondly, the company has done a terrific job building its assets on the ground over the last 6 months……late last year, Rainbow was essentially a shell…….it completed the deal with Braveheart and then things started to move……what they’ve done in terms of adding value on the ground over the last 6 months has been impressive by any measure…….an expanded Big Strike package, Jewel Ridge, and the graphite play……with its Referendum Property, RBW has significant revenue possibilities through a bulk sample….
I don’t understand your comment, “why go snooping elsewhere”??? re: the graphite situation…….Gerry, it’s not like they grabbed some property in Quebec……they’ve tied up 40 sq. km immediately west and south of the Big Strike Project in what could become a world class flake graphite camp…..I can guarantee you, if Johnston didn’t do this, shareholders down the road would be screaming at him and demanding his head for NOT getting into the graphite play if it develops into something big, which could definitely happen……they have economies of scale on this project….their prospectors can cover the graphite ground in conjunction with everything else…….it was a very astute business decision and Johnston also told me that some big players with big dollars are pumped about this…….
With regard to “investors from the U.S. and Europe” – I did the interview, I know what he said….that comment pertained to site visits this summer, Gerry……RBW is bringing in a whole bunch of investors, analysts, brokers, newsletter writers, etc., to the properties this summer……..that should have a huge impact on the Rainbow story reaching the masses, and will let the world know about the graphite situation in the West Kootenays….also, in case you missed it, RBW announced I think in the last release that the stock will soon be trading on the OTCQX market which will help raise the profile of the company in the U.S…….
Personally, my average price on RBW is about 21 cents but I’m not in this for pennies. I fully expect that once the drilling begins – permits could come any day now – this stock is going to begin to firm up very nicely……the other thing you have to understand here is that the initial holes at Gold Viking and International are being drilled directly into the honey zone – directly into known high grade structures, based on historical work and other geo information……I’ve been on the Gold Viking property myself……i went 450 feet into an historical adit and there is mineralization all over…..when I say they are drilling into a honey zone, that’s exactly what they’re doing……I really like the odds of a “hit” very early on in the drill program at both properties…..then all of a sudden the rest of the investment world will take notice……..at the International, Gerry, RBW is drilling into what some geologists (in technical reports) have already called a deposit….it’s a fabulous target with eye-popping silver grades, and it would have been a mine already if weren’t for access issues which in recent years have been resolved……..with a tight share structure, RBW could absolutely soar…..so that’s my rationale……a $40 million market cap on RBW from an initial “hit” is very realistic, perhaps a lot more (investors love high grade)…..that’s about $1 per share, or more…..think about it….speculation alone once the drilling gets into full swing could take this to double or triple where it is now before any results even come in…..
Comment by Jon - BMR — June 10, 2012 @ 2:33 pm
@jon. Just wondering whst your thoughts are on the upcoming Greek elections. I see the fear mongrels are basically saying depending on rests its gona be the end of the world as we know it. You would think market would get smart to the recycled negative European headlines. Realistically Greece and Spain etc could sink like Atlantis and the global economy wouldn’t really suffer
Comment by Heath — June 10, 2012 @ 2:46 pm
The Europeans seem to finally be getting ahead of things with the Spain bank bailout…..as far as Greece goes, the EU is better off IMHO without that basket case of a country, so personally I’d rather see them leave…the country is rife with corruption at all levels of society, it has an entitlement disease and they lied their way into the EU…..the market would probably go up if they decided to leave (they should be kicked out first)…….recycled negative European headlines? You’re exactly right…….do they have some important issues to sort out – yes they do, but the media has done a great job of scaring the daylights out of everyone which is why so many investors have been pouring into bonds which pay next to nothing…wait ’til they reverse course….a typical example of how the media spins things was on CTV news this afternoon when the anchor led with, “The euro zone crisis has deepened” with a $100+ billion bailout of the Spain banks……..it has deepened??? really???? it has just improved…..but you can see how the idiots in the media either don’t know what they’re talking about, or just want to spread more fear, or both……
Comment by Jon - BMR — June 10, 2012 @ 3:02 pm
Thanks Jon for the quick response got to go BBQ some burgers have a good weekend.
Comment by Gerry — June 10, 2012 @ 3:17 pm
I like the “honey zone” better than the “honey hole”…honey hole rolls of the tongue better but ZONE just sounds so much better. Hoping this week we can finally get those drills turning…
Comment by db — June 10, 2012 @ 5:23 pm