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TSX Venture Exchange and Gold & Silver

Over the last 30 sessions, going back to June 22, the Venture Exchange has traded in a narrow range between a low of 1154 and a high of 1242.  The EMA-20, currently at 1189, has provided stiff resistance for several months since the downtrend started in March.  All things considered, including the anticipation of major moves by both the ECB and the Federal Reserve by September, the Venture appears ready to finally bust out of this downtrend as early as next week.

Below is an updated CDNX chart from John that makes the technical case for a near-term turnaround as the Index continues to gather internal strength.  There are several indicators of importance – the Bollinger Band squeeze, RSI(14), increased buying pressure since late July, and a general weakening of the bearish trend.  The Venture has been “crawling along a bottom” for well over a month which has been an ideal time to accumulate positions in quality situations for what could turn into a very strong move in the coming weeks.  Several companies have also been reporting excellent exploration results, and more should be expected which will add fresh fuel to the market.  Historically, the CDNX has shown the tendency to suddenly reverse violently in one direction or the other.  With sentiment having been so negative since the spring, the conditions are ideal for such an event to the upside very soon that could surprise many investors.

The CDNX gained 13 points Friday on increased volume – impressive going into a holiday long weekend – and finished the week down 4 points at 1187, just two points below the EMA-20 resistance.

While Friday’s U.S. jobs data was better than expected in terms of the number of new jobs created (163,000 in July vs. an expected 100,000), the report wasn’t strong enough to dramatically alter the Federal Reserve’s view that the economy is growing too slowly to register meaningful improvement in the unemployment rate (in fact, the unemployment rate actually rose one-tenth of a point in July to 8.3%).   That rate hasn’t come down since the beginning of the year, keeping it well above almost any definition of maximum sustainable employment, which is half the mandate Congress has given the central bank. That leaves the door open to new moves by the Fed to help the economy.

Meanwhile, the European Central Bank seems determined to step in aggressively to ease the euro zone debt crisis.  The market didn’t get all the immediate action it was hoping for Thursday from ECB President Mario Draghi, but the direction the central bank is going seems quite clear.  That’s bullish for stocks and commodities and should help foster a “risk-on” environment, at least going into the end of this third quarter.

Gold

As you can see in John’s chart below, Gold’s drop Wednesday and Thursday was very normal from a technical perspective as bullion simply tested support at the neckline.  Resistance is currently between $1,620 and $1,640 an ounce which we expect Gold will overcome within the next few weeks.  The yellow metal was off $20 for the week, closing Friday at $1,604.

Central bank buying of Gold continues to be a strong theme.  This past week, the Bank of Korea, which has the world’s seventh biggest foreign exchange reserves, announced it had purchased 16 metric tons of Gold last month, increasing reserves to 70.4 tons. Central banks and the International Monetary Fund (IMF) are the largest bullion owners with 29,500 tons at the end of last year, or 17% of all mined metal, World Gold Council data shows.  Central banks have been net buyers for two straight years, the Council said.  Purchases this year will probably exceed the 456 tons added in 2011, the Council estimates.

Silver bounced around but finished the week essentially unchanged at $27.79.  Copper fell 6 cents to $3.37.  Crude Oil, after a big jump Friday, closed the week up 27 cents at $91.40 while the U.S. Dollar Index full a full point Friday and closed the week down one-third of a point at 82.31. The Dollar Index appears to have put in at least a temporary high around 84 which is bullish for commodities and the Venture Exchange.

Looking ahead to the coming week, performance bonds needed to trade Silver and the platinum group metals will be lowered, the CME Group said late Thursday.  That may help to attract more activity to those markets as the lower performance bonds, also known as margins, means traders need to put up less money for collateral in order to trade those markets.

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.