TSX Venture Exchange and Gold
It was another difficult week for the Venture which fell below important support around 918 and lost 36 points for the second straight week, closing at 883. The Index is off 13.8% since the beginning of September (20 down sessions out of 24) compared to a 19.8% slide in the TSX Gold Index and a 7.5% drop in bullion. Gold stocks are hinting – they could prove right or wrong – at more weakness to come in the metal.
As far as the Venture is concerned, some simple technical facts to ponder:
1. Extreme oversold conditions have emerged as you can see in this 6-month daily chart;
2. The break below the 920 area (an uptrend line in place since last year) was significant, and this level is now new resistance on any rally;
3. Next major chart support is 860.
Friday was the first bullish session in the last five with some increased volume as well. Sell pressure is declining, so Monday’s trading will be important in terms of confirming the possibility of an immediate “relief rally”. The Index fell as low as 872 intra-day Thursday before bargain hunters stepped in and (encouragingly) continued to buy Friday despite a drop in Gold below $1,200 an ounce.
Fundamentally, the Venture needs some exciting news very quickly on the exploration front along with a reversal in the commodities’ sell-off.
Venture 5-Year Weekly Chart
The landscape has changed dramatically in just 5 weeks with the Venture (and commodities in general) going into a sudden tailspin, thanks in large part to a surging U.S. Dollar Index. The first warning of increased downside risk came when the Venture’s RSI(14) recently broke below an uptrend in place for more than a year on this long-term weekly chart. With surprising ease, the Index then cut through strong support around 970 and 920 like a knife through butter. Historically, such a dramatic u-turn – especially given rising 200 and 300-day moving averages (SMA’s) – is highly unusual. Investors should prepare for a very volatile October with the possibility of big moves in either direction.
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 create a supply problem – 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
The big question regarding Gold – can it hold critical support around $1,180? An important initial test will come as the new trading week begins tomorrow.
A stronger-than-expected U.S. jobs report Friday led to another surge in the greenback and a $23 haircut for Gold, leaving the yellow metal down $28 for the week at $1,191.
Two positive signs: 1) Overall sentiment toward Gold is very negative, especially among North American investors, and 2) Commercial traders have sharply scaled back their net-short positions recently. When the “smart money” commercial traders have reduced their net-shorts to extreme levels (possibly sometime this month), that’s when a sharp reversal in the Gold price can be expected.
Moves to the upside or the downside in any market often get exaggerated, so another spike down in Gold seems very possible to force panic selling and capitulation. This 6-month chart shows a build-up of overhead resistance in the $1,200’s.
Silver fell 80 more cents last week to close at $16.86 (updated Silver charts tomorrow morning). Copper fell 3 pennies to $3.04. Crude Oil sank $3.80 a barrel to $89.74 while the U.S. Dollar Index gained another full point to 86.64.
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 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;
- 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.
Deflationary concerns around the globe and the prospect of Fed tapering had a lot to do with Gold’s plunge during the spring of 2013 below the technically and psychologically important $1,500 level, along with the strong performance of equities which drew momentum traders away from bullion. The June 2013 low of $1,179 was the bottom for Gold in our view. Extreme levels of bearishness emerged in the metal last year. With the long-term bull market remaining intact, we expect new all-time highs in Gold as the decade progresses. Inflationary pressures should eventually kick in around the globe after years of ultra-loose monetary policy and the reluctance of central banks to increase interest rates.
