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TSX Venture Exchange and Gold

Market volatility continues.  Amazingly, there have been triple digit moves in the Dow on a closing basis in 20 out of the last 24 sessions dating back to the August 8 low.  Through all of that, the Dow is actually ahead 182 points (1.7%).  The CDNX, which is what we follow and track most closely at BMR, is up 103 points or 6.1% since its August 8 close of 1682.  The TSX Gold Index, by comparison, has surged 18.5% during that time.    Markets overall have been difficult to navigate over the last while but investors with exposure to good quality Gold stocks (juniors and producers) have seen their portfolios outperform the major indexes.

The CDNX dropped 25 points or 1.4% last week (vs. a 1.7% loss for the TSX and a 2.2% loss for the Dow) to close at 1785.  This has been a selective market and some plays are doing quite well.  With Gold above $1,800 an ounce, there are investors shopping for attractive situations and that is likely to continue.  With many companies expected to report drill results in the coming weeks, a fresh discovery somewhere could certainly light a fire under the CDNX.

Part 1 of our Week In Review And A Look Ahead is somewhat abbreviated as we’re preparing for our trip to the Rouyn-Noranda and Val-d’Or areas of northwest Quebec where we’ll be conducting interviews and investigating some of the most exciting exploration stories in that prolific region.  We expect our coverage to begin by Tuesday or Wednesday.

Gold

Gold’s volatility continues as well.  It just barely made a new all-time high last Tuesday of $1,922.20 on the Spot Market before correcting again and falling slightly below $1,800.  It regained strength on Thursday but fell sharply again early Friday before rebounding to close at $1,859.  The loss for the week was $25.   Our view, as John outlined in a chart a week ago, is that Gold remains in a consolidation phase and must further unwind its current overbought condition before making a decisive move through resistance just above $1,900.  Patience is the key.

Gold’s fundamentals remain strong and the Swiss central bank policy change to peg the franc to the value of the euro has to be considered long-term bullish for Gold as it helps to further underpin the yellow metal’s status as the ultimate currency and the ultimate financial safe haven.

Silver fell $1.87 last week to close at $41.38.  Copper was off 12 cents to $4.00 while Crude Oil gained 79 cents to finish at $87.24.  The U.S. Dollar, meanwhile, continues to show it’s the best of bad bunch as far as the currencies go.  The Dollar Index charged through resistance this past trading week around the 76 level to close at 77.20.  It’ll be interesting to see how the greenback performs through the rest of September.

Continued volatility in Gold can be expected given the very fluid situation in Europe and the upcoming FMOC meeting September 20 and 21.  There is a lot of anxiety in the markets right now with major concerns regarding sovereign debt woes in Europe as well as growth slowdowns in Europe and North America.  One encouraging sign, however, is continued strength in the emerging markets.  The situation in China remains very robust – good news for the commodity markets – and we strongly encourage readers to check out an excellent report (click on the link below) by Frank Holmes from China in his Investor Alert last night:  “China Fears Much Ado About Nothing”.

http://www.usfunds.com/investor-resources/investor-alert/?CFID=3317909&CFTOKEN=48434171

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 (inflation is greater than the nominal interest rate even in parts 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, and inflation concerns…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.

What’s also driving Gold is the weakness of the United States, brought on in no small part by one of the most ineffectual Presidents the nation has ever been saddled with.  America has lost its way and the recent S&P downgrade is both a real and a symbolic reflection of that.  Since the summer of 2009, the U.S. economy has produced a net total of just two million jobs while federal spending has gone through the roof.  Throughout its incredible history, the United States has demonstrated an amazing resiliency and the ability to bounce back from major economic, social and political troubles.  It will do so again but this will take time and a real Commander-in-Chief in the White House by November, 2012.  By then Gold will have climbed another 50% or more.