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TSX Venture Exchange and Gold

The Venture enjoyed another strong week, pushing decisively through resistance at 955 on increased volume as it gained 23 points to finish at 974, a 6-month high.  This 2.4% advance compared favorably with the TSX (up 2%), the Dow (up 1.5%) and the Nasdaq (up less than 1%), though Gold (up 2.7%) slightly out-performed the Venture while the TSX Gold Index climbed a whopping 10.6%.

After several previous unsuccessful attempts, the Venture’s breakout through 955 is very encouraging.  The Index also broke above a down trendline on a long-term weekly chart.  The 100-day moving average (SMA) is also now reversing to the upside, another very positive development.  However, we’re still looking for the Index to show some conviction on a move through resistance at 970. Friday’s action was unconvincing in that regard.  The Index was in slightly negative territory for most of the trading session before closing near its high of the day at 973.58, up a point from Thursday.  Friday’s volume was also just marginally higher than Thursday’s.  Patience is a virtue.  The next few trading days should be interesting as the month draws to a close.  Two things to watch for that could trigger that “decisive” move investors would like to see – even higher Gold prices (a breakout through the $1,360’s, for example) and/or a stellar drill hole from somewhere that generates a rush of fresh enthusiasm and confidence into these juniors.

Below is a 3-month daily Venture chart from John.  Buy pressure is increasing – a positive sign.  At the moment, 955 is now strong new support.

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 this year is that it forced producers (at least most of them) to start to become much more lean and mean in terms of their cost structures.  Among many others, Barrick Gold (ABX, TSX), the world’s largest producer, said it may sell, close or curb output at 12 mines from Peru to Papua New Guinea where costs are higher.  Producers, big and small, have started to make hard decisions in terms of costs, projects, and rationalizing their operating structures.  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.  Ultimately, all 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, a recent Mineweb study showed that grades have indeed fallen significantly just over the past decade.  For instance, grades in the South African Gold sector fell from an average of 4.3 grams per metric ton in 2002 to an average of 2.8 grams per metric ton in 2011.  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 have the cash, the expertise, the properties and the drive to make discoveries that majors will buy.

Gold

After a $44 advance the previous week, Gold shot up another $36 an ounce this week to close Friday at $1,353.  Looking ahead to the coming week, bullion will need a catalyst to push through chart resistance in the $1,360’s or it will consolidate its recent gains with support extending from the $1,320 level.

The CMF indicator shows that a 1-month period of sell pressure has been replaced by weak buy pressure.  Importantly, there has also been a bullish +DI/-DI crossover – the last time this occurred was in early August.  RSI(14) on the 3-month chart is at 60%, so Gold still has room to move higher in the immediate future before getting into overbought territory.  So right now, Gold is caught between support and resistance.  A decisive move through the $1,360’s would certainly trigger fresh buying.  Due to the recent partial U.S. government shutdown, we don’t have the advantage of examining up-to-date COT reports for a look at what the commercial traders in particular have been doing recently with regard to their Gold positions.  The Commodity Futures Trading Commission says it will catch up on those delayed reports by the week of November 4.

The Federal Reserve meets this coming week (Tuesday and Wednesday) and is widely expected to continue the current pace of its bond-buying program, but the Fed’s tone and language will be gauged carefully by the market.

Below is a 3-month daily Gold chart from John.

Silver gained 64 cents last week to close at $22.60 (John will have updated Silver charts Monday).  Copper fell a penny to $3.26.  Crude Oil lost $3 a barrel to close at $97.85 while the U.S. Dollar Index continues to be under pressure.  It fell by more than one-third of a point to close at 79.21.

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 this year’s drop, the fundamental long-term 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, a Fed balance sheet now in excess of $3.5 trillion and expanding at $85 billion a month, 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 by the end of the year (not likely now) had a lot to do with Gold’s plunge during the spring below the technically and psychologically important $1,500 level, along with the strong performance of equities which drew money away from bullion.  June’s low of $1,179 may have been the bottom for bullion – time will tell.  We do, however, expect new all-time highs as the decade progresses.  There are many reasons to believe that Gold’s long-term bull market is still intact despite this major correction from the 2011 all-time high of just above $1,900 an ounce.