TSX Venture Exchange and Gold
The Venture stabilized last week, staying above support at 800, but still endured its 8th consecutive weekly decline – the smallest point drop, however, since the sell-off began at the beginning of September. Last week’s 5-point loss left the Index at 805 Friday but sell pressure has weakened considerably since peaking around the middle of this month. The Venture is just a couple of points below its 10-day moving average (SMA) – a reversal to the upside in that SMA could certainly occur this coming week, and that would give the Index some much-needed technical momentum to close out a very rocky month.
Below is a 3-month daily chart that shows how the Venture’s RSI(2) hit several low extremes during September and October. The possibility of a sudden and powerful upside move certainly can’t be ruled out after what has occurred over the last 8 weeks, but neither can a potential retest of October 16 levels.
The good side to the wash out we’ve seen is that it has created some very attractive opportunities in high quality select situations, and there have been several excellent examples of that recently. During periods of market weakness, nervous nellies with a herd mentality often make the mistake of doing the opposite of what they should do – they panic and actually indiscriminately sell stocks, some of which they instead should be buying at a discount. Many of us spend a lot of time going from store to store searching to save a few dollars or a few hundred dollars on a particular product, but somehow we’re not as comfortable shopping for deals in the stock market that involve even more money and greater potential savings. Human behavior at times is indeed very strange. There are some really interesting individual companies at the moment that could gain serious traction in the days and weeks ahead, so in times like this it’s particularly important to focus on the “market within a market”. It’s all about selectivity.
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 create a supply problem and therefore great opportunities for 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
The Venture has correlated more closely with Crude Oil than Gold over the last couple of months, so the combination of a stabilization of Oil prices and a breakout in Gold would be the best-case scenario for the Venture.
A key event this coming week will be the FOMC meeting Tuesday/Wednesday, and Gold traders will be closely analyzing the language coming out of that for any clues that the Fed may have become more dovish in recent weeks given strong evidence of a global economic slowdown.
After posting back-to-back weekly gains, and hitting a 6-week high early in the week, Gold eased off $7 an ounce last week to finish at $1,231. The nearest chart support is $1,229. Strong resistance exists in the mid-$1,250’s and that’s where bullion needs to push through in order to put the bears on the defensive. There has been a modest pick-up in physical buying out of China and India in recent weeks.
This chart sure looks like an important bottom formed October 6. Still waiting for sell pressure, dominant since late July, to switch to buy pressure.
Silver keeps attempting to break above resistance around $17.40. It fell 6 cents last week to close at $17.21 (updated Silver charts Monday morning). Copper added 3 pennies to $3.06. Crude Oil sank another $1.75 a barrel to $81.01 while the U.S. Dollar Index ended a 2-week decline by advancing half a point to 85.70.
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;
- 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. The June 2013 low of $1,179 was the bottom for Gold in our view. 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 and the reluctance of central banks to increase interest rates.
