BullMarketRun.com

TSX Venture Exchange and Gold

For the week, the Venture finished 3 points higher at 987 with small gains each day after a 6-point loss last Monday.

There continues to be a “disconnect” between the malaise that is evident in the world of the junior resource sector and the highly encouraging underlying technical strength of the Venture Exchange.  But that shouldn’t be surprising.  Looking at the small turnout and some of the gloomy faces at last week’s Resource Conference in Vancouver, this is exactly the right time to get greedy – precisely when it makes sense to take a contrarian view and plant the seeds that will lead to a bountiful harvest.   The time to be fearful is when the crowd becomes greedy, when you have a Resource Conference at full capacity like the one in January, 2011, when everybody was bullish and there was a waiting list for booth space.  To really understand this sector and make good money at it as an investor, it’s almost essential to have a solid understanding of human psychology.  Emotions (fear, greed, impatience, etc.) certainly rule the market.  But that’s a chapter (or a few chapters) for another day.

What the charts keep telling us is that the bear market ended a year ago and the Venture is preparing for an explosive second half of 2014 that will catch many investors by surprise.  What the catalyst(s) will be for this, we’re not entirely sure but likely a combination of factors including an important new discovery somewhere.

Any investor who is “discouraged” by the fact that the Venture has fallen from its March high of 1050 to current levels simply doesn’t understand basic technical analysis.  The current situation is not unlike the one back in November/December when the Venture retreated from the 970’s to test new support (previous resistance) at the top of a downtrend line.  What we’ve seen in recent weeks is a very natural and healthy test of a powerful support band (also a higher low) that previously was strong resistance for many months last year.

While there could be some more churning within the support band in the immediate future, it’s important to point out that RSI(14) on John’s 5-year weekly chart appears to have found a “comfort zone” in the immediate vicinity of the 50% level, as expected.  A modestly overbought condition in the RSI(14) that emerged in March when the Index hit 1050 has gradually unwound.  The recent decline that took the Venture to a monthly intra-day low of 968 May 20 came on light volume, and accumulation (CMF indicator) remains steady and strong.

A couple of months from now, investors will look back at this correction from 1050 as an incredible buying opportunity.  The nervous nellies who have been sellers as opposed to buyers in recent weeks – well, they’re betting on the highly improbable which is a breakdown of superb Venture support.  Those are very poor odds in our view.  The Venture will take the path of least resistance which means a significantly higher market over the coming months – perhaps not the mainstream view, but you don’t make big money by following the crowd.

The Venture’s rising 200-day moving average (SMA) on this weekly chart is at 970.  This market should really start gaining fresh momentum as soon it pushes back above its 50-day SMA (currently at 995) and that moving average reverses to the upside – a technical event that should certainly occur during the last half of this month.  Patience is the key, as always.  The third quarter for the Venture is shaping up to be a very dynamic period.

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 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.

It doesn’t take a rocket scientist to figure out that the next huge bull market in Gold stocks is just around the corner due to demand-supply dynamics, much leaner producers who will suddenly become earnings machines, and a junior market that will be healthier simply because a lot of the “lifestyle” companies sucking money out of investors will simply disappear or get taken over by individuals or groups who are actually competent and serious about building shareholder value.   A healthy “cleansing” in the market has been taking place.  As this continues, more and more seeds are being planted for an incredible future move in well-managed Gold producers and explorers that could make the dotcom bubble look like a tea party.  As for the juniors, focus on the small universe of companies that have the ability to execute both on the ground and in the market.  Companies that are strong financially, have superior exploration prospects, competent management and clean share structures.

Gold

Gold survived two widely anticipated events – Thursday’s ECB meeting and Friday’s U.S. jobs report – to finish slightly higher for the week at $1,252.  A strong support band exists between $1,220 and $1,240, and bullion may yet have to test that a little more vigorously.  Resistance is around $1,260. For now, we see Gold being range-bound and keep in mind that June is traditionally bullion’s weakest month of the year.  A third quarter recovery is likely, just based on seasonality factors if nothing else.  The Venture, which has proven to be an excellent leading indicator of Gold prices, is telling us that bullion is not about to “tank”.

The 6-month daily Gold chart shows sell pressure in decline while RSI(14) is emerging out of oversold territory.  The recent bearish trend is weakening as demonstrated by the ADX indicator.

Silver jumped 20 cents last week to finish at $19.01.  Copper continues to be under pressure and fell another dime to $3.05.  Crude Oil was essentially unchanged ($102.66) while the U.S. Dollar Index hit resistance at 81 during the week and closed Friday at 80.43, a gain of less than one-tenth of a point for the 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.  Despite Gold’s largest annual drop in three decades in 2013, the fundamental long-term case for the metal remains solidly intact – currency instability and an overall lack of confidence in fiat currencies, governments and world leaders in general, an environment of historically low interest rates, a Fed balance sheet now at $4 trillion and still expanding, money supply growth around the globe, massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand (especially from China), emerging market growth, geopolitical unrest and conflicts…the list goes on.  However, 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 likely the bottom for Gold.  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.