TSX Venture Exchange and Gold
It was a rough week for the CDNX which plummeted 7.8%, a drop precipitated by a breakdown in Gold which plunged $112 an ounce last week and fell below its 200-day moving average (SMA) for the first time in nearly three years. The euro zone is the culprit. Liquidity issues and overall stress in the financial markets has not stimulated safe-haven Gold buying but has instead weakened the euro, strengthened the greenback and dragged Gold lower. The CDNX stabilized by Thursday and finished the week on an encouraging note, jumping 21 points Friday to close at 1426. Given current oversold conditions, and the end of tax-loss selling this coming week, there’s a good chance the CDNX will finish the year higher than where it is now but the overall chart pattern remains a concern. A declining 300-day moving average, as we’ve repeatedly stated, is not a positive sign for this market, so the possibility of a new 52-week low during the first quarter of next year has to be considered significant. Volatility will continue, some selective issues will perform well and rallies out of oversold conditions will provide trading opportunities. Investors with longer-term time horizons (six to 12 months) should see some excellent bottom-fishing opportunities in the weeks ahead. Tremendous profits are born at times like this for patient investors. When the crowd is all going in the same direction, it’s best to run the opposite way.
Below is John’s latest CDNX chart which we posted separately yesterday. You’ll notice an obvious head and shoulders pattern that has formed during this fourth quarter, and the intense selling pressure this month. The neckline (1500) will provide stiff resistance.
The TSX Gold Index plunged 33 points or 8% last week but John has a 10-year weekly chart on the Gold Index this morning that does gives bulls reason for optimism. The upsloping channel, in place since early 2009, has not been violated and RSI is at support.
Gold
The incredible bull market in Gold continues, and even a drop of another $100, $200 or $300 an ounce would not change that. The difficult and volatile situation in the euro zone has created liquidity problems, forcing some institutional investors to liquidate profitable Gold positions. Given the short-term chart damage that was inflicted on Gold last week, it’s quite possible the yellow metal could correct even more during the first quarter of next year but investors should remember that even the Market Crash of 2008 sent Gold down by only 30% before it quickly moved to a new all-time high. In the last few years we’ve seen pullbacks in Gold of 30%, 19% and 14% (the average time from the low in those three corrections to another new high was 7 months). Currently, Gold is down 17% from its September high of just over $1,900 an ounce.
Silver fell $2.49 or 7.7% for the week to $29.74. Copper declined 25 cents to $3.32, Crude Oil tumbled $5.88 to $93.53 while the U.S. Dollar Index gained 1.55 points to 80.14.
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.
A Torontonian, an American and a Newfoundlander are involved in a grisly crime and are all sentenced to death. The executioner told them that they would each get to choose the method by which they would die.
Their choices were: lethal injection, electric chair or by hanging.
The American was afraid of needles and didn’t want to be hanged. The American chose the electric chair.
He sat in the chair and they pulled the switch and nothing happened. The executioner said that if this happens a second time that he could go free.
They tried a second time and again nothing happened so they set him free.
The guy from Toronto was also afraid of needles and didn’t want to be hanged so he too chose the electric chair.
Once again, the chair didn’t work and he was free.
Next it was the Newfoundlander’s turn to pick how he was to be executed.
He said “I’m afraid of needles, the electric chair won’t work so you’re going to have to hang me”.
Comment by Bert — December 18, 2011 @ 4:27 pm