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TSX Venture Exchange and Gold

Despite a jump in Gold, it was another rough week for the Venture with the Index surrendering 40 more points (5.4%) after a 6% decline the previous week.  The Venture traded briefly below 700 toward the end of the session Friday but closed at 702.

While the Venture keeps hitting new multi-year lows, we’re seeing a divergence between the Index level and RSI(14).  That’s usually a sign that a bottom is being formed and a turnaround is on the way.  John’s updated 9-month daily chart illustrates the RSI(14) divergence with price.  It would be encouraging in the week ahead if the Index were able to hold support around current levels, or at least remain above the 2008 Crash low around 680.

Keep in mind that if the Venture were to experience a “normal” December, it should finish the year at about 780.  That would give it a 4.6% monthly gain, the average December advance since 1999.  So selling into this current weakness makes no sense.  Actually, this is when astute buyers actually have the best chance at some quick trading profits.  Last year, if you recall, the Venture fell about 50 points during the first 9 trading sessions of the month.  Sentiment was very bearish.  The Index stabilized over the next 6 sessions and then took off sharply to the upside as it commenced a record consecutive daily winning streak.

Venture Historical December Trading

It might not feel like it right now, but historically December is indeed the Venture’s best month of the year.  The first 2 weeks of December tend to be weak followed by the start of a significant uptrend during the last half of the month.  This momentum typically carries into January and February before a spring thaw and then a summer rally.

If one averages out the dates of the December lows going back to 2000, there’s a good chance we’ll see the Venture bottom out in the week ahead – December 12, to be precise, is the “magic” date.  Over the last 3 years, the low has been put in on December 15, 13 and 19, respectively.  The probability is extremely high, therefore, that we will see a bottom anytime over the next 10 trading sessions.  If you pick away at the best opportunities in the days ahead, it’s almost impossible NOT to make money looking out over the next couple of months.

The Seeds Have Been Planted (And Continue To Be Planted) For The Next Big Run In Gold Stocks

There’s no better cure for low prices than low prices. The great benefit of the collapse in Gold prices in 2013 is that it forced producers (at least most of them) to start to become much more lean in terms of their cost structures. Producers, big and small, have started to make hard decisions in terms of costs, projects, and rationalizing their their overall operations. Exploration budgets among both producers and juniors have also been cut sharply. In addition, government policies across much of the globe are making it more difficult (sometimes impossible) for mining companies to carry out exploration or put Gold (or other) deposits into production, thanks to the ignorance of many politicians and the impact of radical and vocal environmentalists (technology has made it easier for groups opposing mining projects to organize and disseminate information, even in remote areas around the globe). Ultimately, all of these factors are going to eventually create a supply problem and therefore great opportunities in Gold and quality Gold stocks.  Think about it, where are the next major Gold deposits going to come from?  On top of that, grades have fallen significantly just over the past decade.

Gold

Despite Friday’s setback, Gold enjoyed a terrific week.  In fact, if the best the bears can do is knock bullion down $13 an ounce on weak Oil and a blowout U.S. jobs report that sent the Dollar Index exploding to new multi-year highs, then clearly they’re losing their hold on this market.  Something is underpinning Gold, and this is why we believe that a convincing breakout through the resistance band between $1,200 and $1,220 is in the works by year-end or the beginning of 2015.

For the week, Gold finished at $1,193 for a gain of $24.  Bullion enjoyed a spectacular turnaround Monday when it plunged into the low $1,140‘s and then immediately rallied almost $80 an ounce on short-covering and a variety of fundamental factors.

The question now is, what is Gold‘s path of least resistance?  We’re about to find out.  The closest support is $1,180 while $1,200 to $1,220 remains formidable resistance.

Gold 5-Year Weekly Chart

Over the next couple of months, we believe Gold has a greater chance of moving toward the top of the downsloping flag than breaking below it.  This suggests a move as high as about $1,300, at which point Gold will have to make a critical decision.

Like Gold, Silver experienced an important reversal Monday and managed to hang on to most of those gains by the end of the week.  Silver climbed 71 cents from the previous Friday to finish at $16.29 (updated Silver charts Monday morning).  Copper gained 3 pennies to $2.95.  Crude Oil hit five-and-a-half year lows, finishing the week down 31 cents at $65.84.  The U.S. Dollar Index surged more than a point to close at 89.36.

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 and will continue to support prices.   Despite Gold’s largest annual drop in three decades in 2013, the fundamental long-term case for the metal remains solidly intact based on the following factors:

• Growing geopolitical tensions, fueled in part by the ISIS terrorist group (air strikes won’t stop them) and a highly dangerous and expansionist Russia under Vladimir Putin, have put world security in the most precarious state since World War II;
• Weak leadership in the United States and Europe is emboldening enemies of the West;
• Currency instability and an overall lack of confidence in fiat currencies;
• Historically low interest rates;
• Continued strong accumulation of Gold by China which intends to back up its currency with bullion;
• Massive government debt from the United States to Europe – a “day of reckoning” will come’;
• Continued net buying of Gold by central banks around the world;
• Flat mine supply and a sharp reduction in exploration and the number of major new discoveries.