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TSX Venture Exchange and Gold

The Venture climbed another 9 points last week on increased volume to finish at 976 as it continues to edge closer to an important confirmed breakout.  The Index’s 13-session winning streak – longer than any streak put together during the 2009-2011 bull market – finally ended last Monday, but this market has risen 10% since December 19 and has posted gains in 15 out of the last 18 trading days.  Momentum is clearly in the Venture’s favor at the moment, and the very useful 3-year weekly chart we’ve been tracking (updated version Monday morning) shows a breakout in the RSI(14) – it’s now at 57%, pushing significantly above RSI(14) resistance levels that were encountered during all major rallies since the bear market began in early 2011.  Yes, the Venture is indeed in the process of “turning around” after three very difficult years but selectivity and investor patience remain critical.

A few really encouraging specific signs were witnessed this past week in the mining/exploration sector beginning, of course, with Goldcorp Inc.’s (G, TSX) proposed takeover of Osisko Mining Corp. (OSK, TSX).  Osisko called the offer “very low” and “opportunistic”.  The highly respected Frank Holmes, who will be speaking at the Vancouver Resource and Investment Conference which we’ll be attending Sunday and Monday, made an astute observation in his January 10 weekly Investor Alert (www.usfunds.com).   “Valuations of Gold miners are approaching their cheapest relative to book value in at least two decades, precisely at the time when free cash flow generation has bottomed and cost reductions are kicking in. The current valuations present opportunities…”

Financings are beginning to pick up, at least for the better deals – Simon Ridgway’s Cordoba Minerals Corp. (CDB, TSX-V) announced a $12 million raise Wednesday for its very interesting Colombian project, and then reported Friday that the financing has been increased to $15 million.  On Wednesday, Niocorp Developments Ltd. (NB, TSX-V) announced a $10 million financing.

And then there was the massive move Friday in Excelsior Mining Corp. (MIN, TSX-V) – up 43 cents to close at 55 cents on total Venture volume of 13.3 million shares – as the market reacted with euphoria over the company’s release of a very positive Prefeasibility Study for its Gunnison Copper Project in southern Arizona.  That kind of reaction shows how market sentiment is changing.

A few drilling discoveries and it’s off to the races…

Venture 13-Year Monthly Chart

Let’s take a look first at the bigger picture as far as the Venture is concerned with this 13-year monthly chart from John.  Critically, the MACD has reversed upward after being in decline since 2011.  This suggests that, indeed, a very important change of direction is occurring in the market.  In addition, it appears we’re about to see a decisive cross of %K above the 20% line.

Venture 6-Month Daily Chart

We’re not prepared just yet to call a “confirmed” breakout in the Venture above critical resistance around 970.  The Index successfully tested the 970 area Thursday during an intra-day pullback, and climbed as high as 980 Friday.  But a breakout at some point is inevitable, in our view, and could certainly occur next week.  Momentum is strong, and it’s reasonable given present circumstances to expect RSI(14) on this 6-month daily chart to remain at highly elevated levels (currently above 70%) for a while longer.  Buy pressure is really ramping up.

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 in 2013 is that it forced producers (at least most of them) to start to become much more lean in terms of their cost structures. Producers, big and small, have started to make hard decisions in terms of costs, projects, and rationalizing their their overall operations.  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 (technology has made it easier for groups opposing mining projects to organize and disseminate information, even in remote areas around the globe).   Ultimately, all of  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.  Companies that are strong financially, have superior exploration prospects, competent management and clean share structures.

Gold

Gold finished the week on a strong note, surging $11 an ounce Friday to finish at $1,254.  That was a modest $5 gain for the week, but the close above $1,250 is encouraging and suggests that bullion could be gathering the energy to test important resistance around $1,275.

John’s 9-month daily chart shows that buy pressure is increasingly rapidly – quite a dramatic change, actually, from the mostly dominant sell pressure since mid-September.  RSI(14) is on a nice uptrend with lots of room to go higher.  For an important “shift” in this market to occur, for the bears to be put on the defensive, Gold must push through the $1,275 resistance and then overcome the downsloping wedge.

The U.S. Gold market is closed Monday for a holiday.  Investors will be keeping a close eye, however, on Chinese economic data set for release Monday.

Silver gained 15 cents last week to close at $20.32 (John will have updated Silver charts Monday).  Copper added 3 pennies to $3.32.  Crude Oil advanced $1.65 a barrel to close at $94.37 while the U.S. Dollar Index jumped half a point to finish at 81.18.

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 Gold’s largest annual drop in three decades in 2013, the fundamental long-term case for the metal remains solidly intact – 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 at $4 trillion and still expanding, 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 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 has drawn “momentum traders” away from bullion.  June’s low of $1,179 may have been the bottom for Gold – only  time will tell.  Given the high level of bearishness that exists in this market at the moment, it’s probably safe to say that if Gold hasn’t seen its low yet, it’s at least very close to a bottom (within 10% to 15%).  We do, however, expect new all-time highs as the decade progresses and inflationary pressures finally kick in around the globe after years of ultra-loose monetary policy.  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.