BullMarketRun.ca

TSX Venture Exchange and Gold

The beleagured Venture Exchange posted its fifth consecutive weekly loss, hitting lows not seen in over three-and-a-half years, while the Dow Jones Industrial Average raced to a new all-time record high as it closed up for the 10th week in a row.  It may seem that these are the worst of times if you’re a junior resource stock investor, or even if you hold some “blue chip” Gold producers.  But one of the secrets to making BIG money in the market is buying stocks or being patient with stocks that no one else wants at the moment, and selling them later – whenever that might be – at much higher prices as sentiment changes.  It’s a very simple formula, but not an easy one for most investors to execute as emotions (fear and greed) often get in the way of common sense.  The 2008 Crash was a great example of how to get rich by running in the opposite direction of the crowd.  At the moment, yet again, public sentiment toward Gold stocks and the junior resource sector as a whole is at record or near-record lows.  This will change.  Unfortunately, it’s impossible to know exactly when that sentiment shift will occur – next week, next month, this summer, next year?

The Venture closed Friday at 1118, though this was a loss of just 2 points for the week.  Below is a 5-year weekly chart from John that does offer some encouragement.  For now at least, technical support is holding around the 1100 area while there is also a divergence between RSI(14) and price.  What this market needs right now more than anything is the start of a new uptrend in Gold and Silver prices, and/or a major discovery or two that could also ignite a legitimate area play.  In the past, such events have always pulled the Venture Exchange, or the old Vancouver Stock Exchange, out of the doldrums.

More consolidation around the 1100 level should be expected in the week ahead.  The broader equity markets are due for a correction – the Dow’s RSI(2) is at an extreme 99.32 as John will show in a chart Monday morning.  What will be interesting to see is how Gold, the Venture and the TSX Gold Index each behaves during a broad market pullback.  Our hunch is that Gold and the producers, at least, will go counter-cyclical.

Gold

A stronger than expected U.S. jobs report Friday initially put pressure on the Gold market, but bullion recovered almost all of its losses by the end of the day to close down just $2 for the week at $1,579.  Technical support is holding above the February low of $1,554 and the COT structure is very bullish, so the likelihood of a collapse below key long-term support beneath $1,500 seems remote despite the many bearish forecasts that have contributed to Gold’s recent weakness.  Liquidation by large funds seems to have subsided, and physical buying from Asia is giving Gold the support it needs.  It’s encouraging that bullion is still trading where it is despite the recent intense selling pressure.  Below is a 2-year weekly chart from John.

Silver managed to move up slightly last week to $29.00.  Copper added 3 pennies to close at $3.51.  Crude Oil gained nearly $1 a barrel to $91.64 while the U.S. Dollar Index climbed nearly half a point to 82.71.

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), a Fed balance sheet now in excess of $3 trillion and expanding at $85 billion a month, 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.