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TSX Venture Exchange and Gold

When the mainstream media latches on to an emotionally charged word, term or concept, they love to throw it around recklessly like confetti at a wedding.  That’s what has been happening with “Fiscal Cliff”.  The word “cliff” conjures up all sorts of negative and scary images, and “Fiscal Cliff” is a phrase the media is having a field day with at the moment.  This has caused many nervous investors to hit the panic button, dump their stocks and raise cash in order to “prevent” their hard-earned dollars from falling over the cliff on January 1 and disappearing forever into the abyss.  These sorts of panics over the years have all proven to be great buying opportunities for patient and astute investors.  The market is driven by fear and greed.  When there’s fear, get greedy.  When there’s greed, get fearful.  That’s how you make money in the market.

The Venture Exchange was not immune last week to the media scare-mongering over the “Fiscal Cliff” and went into a three-day tailspin (Tuesday, Wednesday, Thursday) that took it down nearly 100 points or almost 7%.  On Friday, bargain hunters stepped up to the plate and drove the Index up 13 points to close the week at 1235.  That was still a 66-point drop (5%) from the previous Friday, but the Index is still within an important support band that stretches from 1215 to 1253. RSI(2), as John shows in the 7-month daily chart below, was pushed to an extreme low that matched previous important lows in the Venture over the last several months.  The next several trading sessions will obviously be critical to see if this support band holds.

As far as the broader equity markets are concerned, the Dow hit an RSI(14) level not seen since the late May/early June lows – same with the S&P 500, the Nasdaq and the TSX.  So we should see the markets stabilize in the week ahead and begin to emerge out of these oversold conditions. As one market observer stated, there’s a big risk right now in NOT being in stocks given the pullback we’ve just experienced.

Gold

Gold gave up one-third of its gains from the previous week and closed Friday at $1,714, a loss of $17 for the week.  There are clear areas of support and resistance, and for now bullion may simply bounce around between $1,675 and $1,740 until it breaks decisively one way or the other.

The Indian Gold market is showing signs of recovery, up 9% to 223.1 tons in the third quarter of 2012 from 204.8 tons in the third quarter of 2011, following increases in both jewelry and investment demand.  Meanwhile, billionaire fund manager George Soros increased his stake by about 50% in the SDPR Gold Trust while John Paulson maintained his holdings in the world’s largest Gold bullion-backed ETF.  During the third quarter, Soros Fund Management raised its stake in the SPDR Gold Trust from 884,400 shares in the second quarter to 1.3 million shares.

Silver matched Gold’s loss for the week in percentage terms, falling 32 cents to $32.31.  Copper held steady at support, closing Friday at $3.45.  Crude Oil gained 85 cents a barrel to $86.01 as tensions escalated between Israel and Hamas, while the U.S. Dollar Index climbed to 81.19 as it continues to trade within a resistance band between 81 and 81.50. It’ll be important to keep a close eye on the Dollar Index in the days ahead.

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 that won’t end anytime soon (inflation is greater than the nominal interest rate even in parts of the world where rates are increasing), money supply growth, 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.  QE3 has arrived, and massive central bank intervention is now taking place to prevent a breakup of the euro zone and to kick-start the global economy.  It’s hard to imagine Gold not performing well in this environment.