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TSX Venture Exchange and Gold

Aided by a sharp recovery in the major equity markets and firmer commodity prices, thanks to central bank intervention (or manipulation if you prefer), the CDNX posted a 52-point gain (3.5%) last week to close Friday at 1557.  As John pointed out in his most recent CDNX chart, last week would be an important test for the Venture and indeed it passed that test.  Support held at 1500, and what’s interesting now is that the 50-day moving average (SMA) appears poised to reverse this coming week to the upside – clearly a bullish development as the 50-day has been in decline since May.  However, as we know, the Index faces a major band of resistance beginning at 1575 and continuing to 1700 which is now just above the still-declining 100-day SMA.  And the 300-day SMA has reversed to the downside which is also a negative.  On balance, though, the November month-end rally that we correctly anticipated in the markets does appear to have some legs.  The next three weeks leading up to Christmas should prove very interesting.  A move through 1675 by year-end would bring the bulls out in force.

Risks: The euro zone situation, the potential for a worse-than-expected slowdown in China and the possibility of significantly higher oil prices (supply-demand factors, Iran) are all threats to the health of the global economy and the markets.

Gold

December is “decision time” for Gold as John’s charts have shown, and there’s every reason to believe the yellow metal will not disappoint.  Our outlook remains bullish, especially in light of  last week’s coordinated central bank action.   For the week, Gold jumped $65 an ounce to close at $1,745.  Silver gained $1.66 to $32.64, Copper jumped 28 cents to $3.57, Crude Oil surged $4.66 to $101.43, and the U.S. Dollar Index fell just over a point to 78.58.

A very favorable COT structure (commercial traders currently have low short positions in both Gold and Silver, and they are seldom wrong) supports our bullish outlook for precious metals which is based on a combination of technical and fundamental factors.

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 (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.

What’s also driving Gold is the weakness of the United States, brought on in no small part by one of the most ineffectual Presidents the nation has ever been saddled with.  America has lost its way and the recent S&P downgrade is both a real and a symbolic reflection of that.  Since the summer of 2009, the U.S. economy has produced a net total of just two million jobs while federal spending has gone through the roof.  Throughout its incredible history, the United States has demonstrated an amazing resiliency and the ability to bounce back from major economic, social and political troubles.  It will do so again but this will take time and a real Commander-in-Chief in the White House by November, 2012.  By then Gold will have climbed another 50% or more.