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TSX Venture Exchange and Gold

The Venture dipped as low as 912 intra-day Wednesday but showed its underlying technical strength by bouncing back to close Friday at 932, just a 2-point loss for the week despite a significant drop ($46) in the Gold price (the TSX Gold Index was down nearly 7%).  Over the last five months, the Venture has outperformed both bullion and the TSX Gold Index – an important pattern change that suggests there are better days ahead for the yellow metal in 2014.  John’s three-year weekly CDNX chart, which we’ll be posting tomorrow morning, continues to show a very encouraging trend which leads us to believe that the anxiously-awaited confirmed breakout through the 970’s will occur by the end of December, setting the stage for a strong start to 2014.

The Venture broke above an important long-term down trendline in late October. Since then it has been testing that trendline as new support, which is to be expected.  The 100-day moving average (SMA) has also ended a nearly year-long decline by reversing to the upside, providing this market with additional support.  At the same time, we’re seeing weakness in the U.S. Dollar Index which fell below an important long-term uptrend on its weekly chart in September.  The Venture and the Dollar tend to go in opposite directions.  The next four to six weeks will be very interesting to see if these trends hold up and confirm.

Below is a three-month daily CDNX chart from John.  The Slow Stochastics indicator, with %K on the rise and breaking above %D, is a good sign for the coming week.

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. 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, grades have fallen significantly just over the past decade.

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.

Gold

Gold got knocked down $46 an ounce last week to finish at $1,244.  Frank Holmes, in his weekly Investor Alert this weekend, referred to “organized price manipulators” in the Gold market who “are still trying to panic investors into selling off their Gold holdings.”

Below is a 9-month daily chart from John.  Two immediate areas of support to note – $1,240, and $1,200 to $1,215.  The late June low, of course, was $1,179, so a re-test of that support certainly can’t be ruled out.  In what we would interpret as a bullish contarian sign, Gold analysts surveyed by Bloomberg News are the most bearish since late June – 19 analysts expect prices to drop this coming week, nine are bullish and three neutral.  That’s the largest proportion of bears since June 21 – just as Gold was about to hit its yearly low.

Silver fell 95 cents last week to close at $19.83 (John will have updated Silver charts tomorrow morning as usual).  Copper added 3 cents to finish at $3.20.  Crude Oil reversed, gaining $1 a barrel to close at $94.84.  The Dollar Index, meanwhile, again couldn’t sustain a move above 81 and finished the week down more than one-tenth of a point at 80.65.  The Index faces considerable overhead resistance as witnessed the past couple of weeks.

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.