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TSX Venture Exchange and Gold

The Venture is finding support at its rising 10-day moving average (SMA) and was essentially unchanged last week, closing down half a point at 964.68.  Volume continues to be lackluster, though all is not dull as Colorado Resources‘ (CXO, TSX-V) significant Copper-Gold discovery in northern B.C. is generating interest, not only of course in CXO but in some other surrounding players.  The key for the Venture this coming week will be to maintain support at the 10-day SMA (currently 959) and hopefully generate fresh momentum with a push above the 20-day SMA (currently 976) for the first time since January.

Below is a 1-year weekly CDNX chart from John.  The break below neckline support at 1165 was a critical breach, and the initial result was a fall of more than 200 points over the ensuing couple of months.  There’s not enough evidence at the moment to suggest that we’ve seen the bottom in this market.  As long as Gold is still vulnerable in the coming months to further declines, which it is (at the minimum we expect a re-test of the April low), then the Venture could still hit new 4-year lows.  However, for the time being at least, a rally from the April 17 low of 918 continues and potentially could gather momentum in the coming days and weeks.  Below is a 1-year weekly chart from John.  The 970 area is resistance and a close above this level during the week ahead would be very encouraging – watch for it.  Keep in mind that a rally of 100 points or so from where the Index is now would result in some outstanding gains in a select number of stocks.  So the potential of a strong short-term trading opportunity certainly exists.

INK Research reported last week that insider buying on the Venture is nearing record highs, led by the mining sector.  The company’s proprietary insider buying indicator hit 715%, meaning there are seven stocks with insider buying for each stock with insider selling.  This marks a steep increase since early March, when the indicator was near 400%.  Such a high level of buying interest among officers and directors within their own businesses in the resource sector has correctly foreshadowed a recovery in share prices in the past.

Gold

Gold encountered resistance again last week at the Fibonacci $1,484 level, the first critical technical hurdle it must overcome in order to take on a more bullish posture.  There is major resistance from the $1,480’s through to $1,550, while strong support is evident around $1,450.  Physical buying has helped to stabilize the Gold market recently but what and who are the catalysts that could drive Gold beyond $1,550 again in the near future?  That’s the big question.  And there’s a lot of heavy lifting to do.  Below is an updated 6-month daily chart from John.  We see a greater probability of an eventual re-test of the low $1,300’s than a breakout above $1,550 given current technical conditions.  Keep in mind that the declining 50-day SMA (currently $1,537) has been providing stiff resistance since late last year.

Gold closed up $8 an ounce last week to finish at $1,471.  Silver added 9 cents to close at $24.13.  Copper had a huge day Friday, surging 6% thanks to the U.S. jobs report, short covering, and a large drawdown in LME warehouse stocks.  Copper was up 12 cents for the week at $3.29.  Crude Oil enjoyed another powerful week, climbing $2.61 a barrel to $95.61, while the U.S. Dollar Index fell one-third of a point to 82.10.

Arizona Governor Jan Brewer vetoed a measure last Thursday that would have made Gold and Silver legal tender in the state, saying the legislation could have resulted in lost tax revenue.  The Republican-controlled state legislature voted through the measure last month in a response to what backers said was a lack of confidence in the international monetary system.  The bill called for Arizona to make Gold and Silver coins and bullion legal tender beginning in mid-2014, joining existing U.S. currency issued by the federal government.  “While I believe the concern over a devalued dollar as a result of an unsustainable federal deficit is justified, I am unable to support this legislation,” Brewer, a Republican, said in an open letter to state Senate President Andy Biggs.  The push to establish Gold as currency in the United States has become increasingly popular, with more than 10 states currently drafting similar legislation.

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.  Despite its current weakness, the fundamental long-term 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, a Fed balance sheet now in excess of $3 trillion and expanding at $85 billion a month, money supply growth around the globe, massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand, emerging market growth, geopolitical unrest and conflicts…the list goes on.  However, deflation is prevailing over inflation in the world economy and this had a lot to do with Gold’s recent plunge below the technically and psychologically important $1,500 level. Where and when Gold bottoms out in this cyclical correction is anyone’s guess, but we do expect new all-time highs later in the decade.  There are many reasons to believe that Gold’s long-term bull market is still intact despite a major correction from the 2011 all-time high of just above $1,900 an ounce.