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TSX Venture Exchange and Gold

The Venture was under pressure again last week but managed to hold above the 1200 level and closed Friday at 1221, a 38-point loss for the week.  This is generally a sluggish time of the year at best for the Venture with tax-loss selling pressures and not much in the way of exploration or news.  The situation is compounded this year with the fiscal uncertainties in Washington.  But if one examines the overall trading behavior of the Index since the May-June lows, the action that has occurred since then – including the basing – is a bullish sign going into 2013.  Critical support for the Venture is at 1165, and we’d be very surprised if that doesn’t hold this move.  If it does hold, market psychology could change dramatically just before Christmas with the idea that the low in this cycle has been put in.  The reversal during this fourth quarter in the 1,000-day moving average (SMA) tellus us the low has been put in, and a change in the long-term trend is indeed underway.  Investor patience is key.  Rather than succumbing to mainstream media-inspired fear over the next two to three weeks, with regard to the so-called “Fiscal Cliff” and whatever else these fear-peddlers can dream up, now is when it’s critical as an investor to be unemotional, patient and the look-out for opportunities.  Below is John’s updated chart for the Venture.  The Index started to rebound when it touched 1201 intra-day Wednesday and hit an RSI(2) extreme low.

Gold

It was a strange week for Gold as bullion gave up almost all of its gains from the previous week when it pushed through resistance at $1,740 and climbed above its 50-day SMA.  Gold closed Friday at $1,715, a $37 loss for the week after a $38 gain the week before.  One has to wonder if there weren’t some “market games” being played.  One trader is believed to have sold as many as 15,000 futures contracts (worth 100 ounces each) almost immediately after the opening of the Comex futures market Wednesday morning, leading to a $20+ drop in Gold without any news that would justify such a move.  Rumor has it, a large number of put options were purchased the day before. For the past 17 sessions, Gold has traded between strong support at $1,700 (central bank buying is believed to be underpinning the market at this level) and resistance at $1,760.  This trend may continue for a while longer, but a decisive move in one direction or the other should occur within the next month.  The long-term chart and the underlying fundamentals remain very bullish, so our expectation is for a breakout through $1,800 during Q1 or even before (the mid-December Fed meeting could be critical).  Below is a 6-month daily chart from John.

Silver continues to outperform Gold.  It actually gained 21 cents last week to close at $33.44 (John will have updated short and long-term Silver charts as part of Monday’s Morning Musings).  Copper hit a 5-week high with its biggest weekly gain in more than 2 months (11 cents to $3.62), thanks to bullish demand-supply dynamics and increased confidence that a rebound in China’s economy is well underway.  Crude Oil added 63 cents to $88.91 while the U.S. Dollar Index was relatively unchanged at 80.23.

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.