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TSX Venture Exchange and Gold

The Venture Exchange (CDNX) broke above key resistance last week on strong volume, confirming that a new uptrend is indeed underway that has the potential of developing into something very explosive.  The CDNX out-performed all the major markets last week, gaining 91 points or 4% to close at 2389  (the Dow and Nasdaq were both flat last week while the TSX was up 78 points or just one-half of 1%). Our CDNX “buy signal” was a close above 2330 and that’s exactly what occurred Tuesday.  Volume Friday was the highest since the “turnaround day” March 15.

The 17% correction in the CDNX (2465 to 2054) was highly unusual by historical standards in terms of its duration (just 7 trading sessions).  The fact the Index has bounced back so strongly after suffering some significant technical damage is extremely bullish going forward.  There is obviously resistance at the early March high of 2465 but the bulls are now clearly in charge again and that wall could come down very quickly. All moving averages are now in bullish alignment and the RSI has considerable room to move higher.

Despite the fact the CDNX has gained 16% since the 2054 low March 15, interest in the Gold stocks really didn’t kick in until this week.  So our cautious stance toward the market from March 10 to the confirmed April 5 breakout has not resulted in many missed opportunities.  In fact, there are still plenty of bargains as we started to outline several days ago.  Visible Gold Mines (VGD, TSX-V), for example, closed at 43.5 cents March 9.  Friday, it closed at 41.5 cents and could be on the verge of breaking out above a “symmetrical triangle” as John will illustrate in a chart later today.

Our top call last week was White Tiger Mining (WTC, TSX-V), which we brought to our readers’ attention almost immediately after news came out from the company last Tuesday regarding a potential stellar hole from its Marshall Lake copper-Silver-Gold project in northern Ontario.  White Tiger exploded to 80 cents Thursday before trading was halted pending news from the company.  We’ll be a keeping a close eye on that situation Monday.  White Tiger has just 15 million shares outstanding and is led by a couple of experienced pros in Ron Coombes and Doug Mason.

The CDNX was powered last week by a major breakout in Gold as the yellow metal finally got through resistance around $1,450 and moved into new all-time high territory.  Gold closed Friday at $1,475 for a weekly gain of $56.  Silver enjoyed another strong week, climbing $3.10 an ounce to close at a new 31-year high of $40.93.  A new all-time high in Silver certainly seems achievable this year (Silver’s record high was set January 18, 1980, when it hit $49.45).

Near-term, we expect Gold to take a run to the $1,500 level before it meets some resistance and pauses to catch its breath.  In fact, John’s first Fibonacci target is $1,493 as shown in the chart below:

The fundamental case for Gold remains incredibly strong – currency instability and an overall lack of confidence in fiat currencies, an environment of historically low interest rates and negative real interest rates (inflation is greater than the nominal interest rate even in pats of the world where rates are increasing), 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, rising oil prices…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.

For those pundits who mistakenly claim that Gold is in a “bubble”, its interesting to note that Gold ownership as a percentage of global financial assets is only 0.7% vs. 0.2% in 2002 at the beginning of the current bull cycle (a majority of that increase has been fueled by Gold’s sharp price appreciation).

As an asset class, Gold is still very much under-owned. And the “masses” still haven’t piled into Gold stocks.  We’re not even close to a bubble in Gold.

The U.S. Congress avoided a government shutdown late Friday with an 11th hour budget deal between Republicans and Democrats.  But all of that wrangling was just a dress rehearsal for the incredible battle that is brewing over the debt ceiling and the fiscal 2012 budget.  What was cut from the 2011 budget Friday ($38.5 billion) through the end of September was peanuts compared to the TRILLIONS that will need to be slashed over the next decade.  The U.S. government is in a deep financial mess along with many governments at the state and local levels.

Meanwhile, Fed Chairman Ben Bernanke was interviewed after giving a speech in Atlanta last Monday night where he stated that the recent increase in U.S. inflation is driven primarily by rising commodity prices globally and is unlikely to persist. “I think the increase in inflation will be transitory,” Bernanke stated.  “Our expectation at this point is that in the medium term inflation, if anything, will be a bit low.  We will monitor inflation and inflation expectations very closely.”  Bernanke argued that supply and demand factors are driving energy and commodity costs higher but that these should eventually stabilize, allowing the United States to avoid any inflation troubles.  Of course this is the same individual who declared on July 1, 2005, that the U.S. was not experiencing a housing bubble.  Back then he stated, “I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit.”

Bernanke’s comments last Monday suggest the Fed Chairman is committed to maintaining historically low interest rates and completing a $600 billion stimulus program as scheduled in June, despite calls from some of his colleagues to consider cutting the stimulus effort short and perhaps raising rates beginning in the fourth quarter in light of an improving economy and rising inflation.

Crude oil prices, buoyed by Middle East unrest and very bullish supply-demand dynamics, rose to their highest level since September, 2008, on Friday.  U.S. light sweet crude jumped $2.49 Friday to close at $112.79 a barrel.

DundeeWealth’s chief economist, Martin Murenbeeld, continues to believe that Gold and other commodities are headed toward being a separate asset class, and expects to see increased levels of managed money being invested in commodities.

The U.S. Dollar continues to get pummeled with the Dollar Index off nearly three-quarters of a point Friday, closing at 74.86.