TSX Venture Exchange and Gold
After gaining almost 11% over just 18 trading sessions, the CDNX got the excuse it needed last week for a pullback as the Index fell in sympathy with the broad market sell-off that materialized over growing fears the United States may default on its debt and/or lose its AAA credit rating. Usually the highly speculative market (the CDNX) is the one that gets clobbered the most when fear starts to grip investors, but in this case the CDNX actually held up extremely well. For the week, it was off 3.9% which was slightly better than the Dow’s performance (down 4.2%). The Nasdaq was off 3.6%, the TSX fell 4% while the TSX Gold Index declined 5.3% despite Gold’s climb to a new record high.
Even more encouraging, the CDNX was the best-performing market for the month of July as it posted a gain of 3.9%. Even on Friday, going into an uncertain weekend with the U.S. Congress seemingly at an impasse over debt ceiling negotiations, the CDNX strengthened toward the end of the trading session and closed at 1979 after dropping as low as 1963 (Fibonacci support) earlier in the day.
The CDNX ended a long correction June 28, jumped 199 points or nearly 11% in just 18 sessions, and Friday completed a 50% retracement of that advance – very normal technical behavior in the early stages of a powerful new uptrend which we maintain the CDNX is in.
So where to from here? The big challenge in the month of August for the CDNX is to blast through the 2050 – 2100 resistance area on a sharp increase in volume. That’s what we’re expecting, based on John’s most recent charts. This will confirm the bulls are clearly back in control and will set the stage for another strong move to the upside in September which traditionally is a strong month for Gold stocks. A tsunami of exploration news is expected through August and September which could really light a fire under this market.
Gold
With markets focused on the U.S. debt ceiling debate, as well as the continuing debt saga in the euro zone, Gold surged to a new record high of $1,634 before closing Friday at $1,627, a gain of $27 for the week (higher Gold prices didn’t help the likes of Barrick, Goldcorp and others, however. Barrick, the world’s largest Gold producer, raised its capital expenditure estimates for two of its main mines while Goldcorp cut its production guidance for the year to between 2.5 and 2.55 million ounces due to production problems at three mines).
Where Gold goes from here next week is anyone’s guess – much will depend of course on what happens in the U.S. Congress between now and the August 2 “deadline” for raising the U.S. debt ceiling. Many observers, however, feel the Treasury Department has some “wiggle room”, that it has enough cash flow and that the Fed can sell bonds so that the deadline can actually stretch out to mid-August if Congress and the White House can’t sort something out by Tuesday. Volatility is likely in the Gold market. One can’t rule out a jump of $50 or more next week or a drop back below $1,600.
Investors should stay focused on the “big picture” which remains very bullish long-term for 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. September is also the beginning of the gift-giving season for the yellow metal which drives up demand. It’s really now becoming just a question of when, not if, Gold hits $2,000 an ounce. Ultimately, $3,000 or more is very possible.
Gold’s upsloping trend channel is a picture of beauty. Gold hasn’t hit resistance yet in this channel but there’s also ample room for it to be knocked down a bit, if only temporarily. John’s interesting updated chart:
The fundamental case for Gold remains incredibly strong – currency instability and an overall lack of confidence in fiat currencies and governments in general, an environment of historically low interest rates and negative real interest rates (inflation is greater than the nominal interest rate even in parts of the world where rates are increasing), 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. It’s hard to imagine Gold not performing well in this environment. The Middle East is being turned on its head and that could ultimately have major positive consequences for Gold.
Silver was down 17 cents for the week, closing at $39.90. Copper was up 7 cents at $4.45 a pound, Crude Oil fell $4.17 a barrel to $95.70 while the U.S. Dollar Index was weak again and dropped a half point to 73.74.
