TSX Venture Exchange and Gold
In this space a week ago, we gave strong technical evidence that a turnaround in the Venture after a 27% sell-off was likely under way. It’s now even more certain, based on TA, that an important shift has indeed occurred in the markets, giving the Venture – for the immediate future – a decidedly bullish tone. We expect confirmation of this new trend on Monday.
Friday, buoyed by an impressive $50 reversal to the upside in Gold, the Venture overcame resistance at 770 with a 12-point gain to finish the week up 7 points at 777. An RSI(14) divergence with price at the 745 low November 6 was an early clue that the strong bearish phase was weakening. Last week’s action signaled that a significant push higher has likely started. It’s impossible to tell at this point if 745 was the “capitulation” bottom that wiped 70% off the value of the Index since the early 2011 high of 2465, but the bullish signs at the moment are impossible to ignore. So, too, are the potential near-term substantial gains we could see in quality situations as the recovery sets in.
Venture 9-Month Daily Chart
The Venture has finally emerged out of deeply oversold RSI(14) conditions that persisted from late September through early this month. Sell pressure (CMF) and -DI have both peaked, and the 10-day moving average (SMA) has now reversed to the upside after providing support over the last several sessions. The balance of probabilities suggests that the coming week should be strong.
Fundamentally, these are certainly very challenging times for the resource sector but we believe some rare opportunities have opened up these last several weeks in certain companies that are active with strong projects and have access to capital. The commodity sector has been hit very hard since the summer, due to a variety of factors including the explosive move in the U.S. Dollar Index, but the greenback’s ascent seems to have stalled – at least for now. This is going to give commodities a great chance at a robust rebound out of very oversold conditions.
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
For the second Friday in a row, Gold exploded to the upside. What’s more significant about this latest advance is the close above $1,180, and the multiple indicators telling us that bullion’s current rally is packed with some energy. Short positions are still high, providing plenty of potential fresh fuel for a surge through resistance at $1,200.
Gold finished at $1,188 Friday, a powerful rebound from an intra-day low of $1,145, for a weekly gain of $10.
Helping Gold at the moment are some cracks starting to appear in the U.S. Dollar Index which has encountered very stiff resistance, as expected, around 88 (bullish sentiment hit extreme levels – too many traders on the same side of the fence). In addition, analysts have noted that Gold forward offered rates and Gold lease rates imply some tightness is developing in the physical market, another bullish factor for bullion.
This 6-month daily chart shows a sharp turnaround in accumulation, increasing RSI(14) up momentum and the likelihood of a bullish +DI crossover in the coming week.
Gold 5-Year Weekly Chart
This 5-year weekly chart shows a “hammer” similar to that seen at other important lows over the last several years, so (possibly) things could get really interesting in the Gold market before the year is out. As John has noted, a strong move toward the top of the downsloping flag (around $1,300) could certainly occur – to the surprise of many.
Silver reversed more than 7% to the upside during Friday’s trading to close at $16.32, a gain of 49 cents for the week. Copper was unchanged at $3.07, Crude Oil fell nearly $3 a barrel to $75.82 while the U.S. Dollar Index was off slightly at 87.54. Friday’s action in the greenback was clearly bearish.
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.
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