TSX Venture Exchange and Gold
The Venture posted its third straight weekly gain and its best weekly performance since the end of August with a 12-point advance to finish at 789. The Index benefited from continued firmness in Gold prices as well as strength in the broader equity markets with the Dow and S&P 500 racing to new all-time highs.
The Venture confirmed a breakout above 770 resistance last week, as expected, and now the next hurdle to clear is the 800 area. Quite a significant shift has occurred in the technical dynamics of the Index in the last few weeks, leading us to believe that the 745 low early this month may indeed have been a capitulation bottom. Only time will tell with regard to that, but volatility can work both ways. We witnessed a 27% slide in just 47 trading sessions from the beginning of September to the morning of November 6. An equally robust move to the upside could be in the cards, especially if Gold can gain traction above $1,200 an ounce and if Crude Oil can hold support at $70 and rebuild from there.
Bottom line: The risk-reward ratio with the Venture is far more favorable now than it was in September after some key support levels were taken out. Now is the time to be shopping for bargains because this market has the potential to really take off to the upside at some point over the next month, likely immediately before Christmas and into the New Year. You don’t want to be “chasing” stocks in February. We see some outstanding opportunities after the September-October bloodbath. Investors brave enough to step up to the plate and take a swing at some high quality situations could be very handsomely rewarded during the first quarter of next year.
Venture 9-Month Daily Chart
This 9-month daily chart really gives an excellent “Big Picture” view of the nearly 30% “mini-crash” and where this market is likely headed over the near-term.
The Index has emerged out of deeply oversold RSI(14) conditions that persisted from late September through early this month. Sell pressure (CMF) and -DI both peaked in mid-October. In fact, sell pressure has now transitioned into buy pressure which is very positive. In addition, a +DI bullish crossover appears to be looming. RSI(14) has recovered to 47% and is showing increasing up momentum. All things considered, this is quite a dramatic shift and probably most junior resource investors are oblivious to it. The 20-day SMA is set to reverse higher this coming week, and the 50-day SMA is well positioned to do so by the end of December which is another reason for optimism going into 2015.
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
A very interesting week is coming up for Gold. Will it confirm a breakout above $1,200 resistance? We believe the chances are very good that it will.
Something seems to be churning in the Gold market. The trading action over the last few weeks, including the volatility, has been curious to say the least. The physical flow from West to East – China, Russia and India are all accumulating – is a sign that something’s afoot that we can’t fully perceive at the moment.
Technically, Gold has been following John’s script as presented in his 5-year weekly chart. Bullion found support at the bottom of a downsloping flag at $1,130, and the current “Wave 4” move may not end until Gold reaches the top of the flag formation around $1,300. If this scenario plays out, be careful about a potential “trap” around $1,300 as a “Wave 5” reversal (if Gold doesn’t push through $1,300 resistance) could take bullion to a new low as part of a final capitulation.
One step at a time, though. For now, Gold is looking strong. For the week, it was up another $14 and closed at $1,202.
Gold 6-Month Daily Chart
What a shift in the last few weeks. The drop below the $1,180 level appears to have moved Gold from weak hands into strong hands. We’ll get a good indication of how healthy this market really is in the week ahead as resistance at $1,200 is put to the test (interestingly, both Gold and the U.S. Dollar Index are at critical levels – it would be highly unusual if both were to push through resistance at the same time).
Silver added 13 cents last week to finish at $16.45 (updated Silver charts Monday morning). Copper fell a penny to $3.06. Crude Oil added 69 cents a barrel to $76.51 while the U.S. Dollar Index jumped nearly a full point to finish at 88.38, slightly above Fib. resistance but confirmation of that potential breakout is required next week.
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.
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. Deflationary concerns persist, and now Gold is having to grapple with a bullish U.S. Dollar. However, we’re convinced that the 40% drop in Gold from its September 2011 all-time high is merely a healthy correction within an ongoing long-term bullish cycle that will take the metal to new all-time highs as the decade progresses. There are many potential catalysts, including inflationary pressures that should eventually kick in, to power Gold to $2,000 and beyond within a few years.
The surprise move by China’s central bank overnight – to cut interest rates – is bullish for the commodity sector and precious metals which are finishing the week on another strong note…as John’s charts have consistently shown this month, Gold could surprise many investors to the upside going into year-end with a move that could take it considerably higher toward the top of a flag formation – shorts ought to be very concerned at the moment, especially if there’s a confirmed breakout near-term on a closing basis above $1,200…that’s the first key resistance…
