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TSX Venture Exchange and Gold

Year-end tax-loss selling started to ease last week with the Venture losing just 6 points to finish the week at 888.  With only five trading days left in 2013, the Venture is down 5% for the month but we expect the Index to rebound sharply in the final few sessions of the year which should set the tone for a more promising 2014.  Technically, it’s important to keep in mind that the Venture continues to find support at its long-term downtrend line which it finally broke above in October.  For the first time since 2011, the Venture is also outperforming Gold.  Despite the downward pressure on the Index this month, buying pressure remains strong as you can see in John’s updated 3-year weekly chart.  Bargain hunters have been accumulating, and that’s a positive sign.

Notice in this chart how the RSI(14), at 33%. is almost at trend line support – another clue that a reversal is imminent.

CDNX 3-Year Weekly Chart

CDNX 3-Month Daily Chart

Below is a 3-month daily Venture chart that pinpoints the first two resistance levels that the Venture must overcome – 915 and 925 – in order to set the stage for a potential major rally or new uptrend.  Other conditions necessary will be reversals in the 50 and 100-day moving averages (currently at 930 and 934, respectively).  They will provide additional resistance along with the still-declining 200-day SMA, currently just below 950.  Ultimately, a push through major resistance in the 970’s would trigger an acceleration in a rally or even mark the beginning of a new longer-term bull phase.  This is the closest the Venture has been to a critical reversal and an uptrend that can actually be sustained over a period of many months, not weeks, since the bear market began in early 2011.  The 8-month consolidation since the spring has laid the foundation for a lasting recovery as long as support holds at the June low of 859.

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 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.  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.  Companies that are strong financially, have superior exploration prospects, competent management and clean share structures.

20 Venture Plays To Watch In 2014

Tomorrow, we’ll be highlighting 20 strong Venture plays – some of which will surely be market leaders in 2014 – for our readers’ due diligence.  By no means will this constitute a complete list of what we view as special opportunities near the end of a bear market cycle, and we’ll be reviewing others in the coming weeks.

Below are updated charts on two companies we’ve been following closely (part of the 20 list) that could come out swinging as the New Year begins – Barisan Gold Corp. (BG, TSX-V) and Garibaldi Resources Corp. (GGI, TSX-V).

Barisan Gold Corp. (BG, TSX-V)

Barisan Gold (BG, TSX-V) has been very volatile since reporting a stellar Cu-Au porphyry drill result in early November from its Upper Tengkereng Project in Indonesia.  That country is certainly not one of our favorite jurisdictions, but 904 metres of 0.41 g/t Au and 0.25% Cu (0.50% CuEq) in hole UTD-003 can’t be ignored.  As CEO Alex Granger stated in a news release, “We have validated one of the highest-grade porphyry discoveries anywhere in the world of the past decade. There are very few new porphyry discoveries that have returned intercepts of 1% Copper equivalent over more than 250 metres. This is even more impressive by the fact that we have not yet drilled down to the potassic zone and associated bornite mineralization of the Upper Tengkereng porphyry system where higher grades are usually intersected. The grades we are intersecting higher up in this system are higher than those that other recent discoveries have found in bornite-rich mineralization within potassic zones.”

The drill rig is the truth machine and it’ll be interesting to see if this system Barisan has hit can return even richer grades of mineralization.  As BG announced November 5, UTD-004 is planned to a depth of 1,400 metres and, should it reach that depth, is likely to be completed by the end of this month with assays available early in the New Year.  As of Nov. 5, this hole had reached a length of 192 metres and is fully mineralized starting at 6.6 metres from surface to 192 metres.

Below is a 2+ year weekly chart from John.  BG has been unwinding a technically overbought condition that emerged in November, with strong support now in the low 20’s.  It closed Friday at 27 cents.  As always, perform your own due diligence (Fib. targets aren’t price targets, just theoretical levels based on Fib. and technical analysis).  Speculation in advance of results could easily drive BG higher, in which case it would be smart in our view to take some profits off the table and ride some low cost or “free” stock.

Garibaldi Resources Corp. (GGI, TSX-V)

Garibaldi Resources (GGI, TSX-V) is one of the few companies on the Venture that hasn’t had to carry out a major financing in nearly five years.  That fact alone makes this very active company highly interesting as share price appreciation has maximum potential given GGI’s healthy share structure (no warrants, no PP shares to come into the market, just 58 million O/S in total with nearly 20% in management’s hands).  Technically, there are also few companies with this kind of a chart – GGI’s major moving averages are in bullish alignment, and a flag has formed on the 3.5-year weekly chart that clearly suggests GGI is gearing up for a major breakout.

We expect the Grizzly Property in northwest B.C. to be a “game-changer” for Garibaldi in 2014 as the Sheslay Valley region matures as an exploration hotspot, and the Grizzly is diamond drilled for the first time ever.  Several years of work have gone into identifying highly prospective targets over a 15-km long corridor from the northwest to central portions of the property.  News from the company’s summer/fall program is expected very soon.

Immediately, however, it’s Garibaldi’s extensive landholdings in Mexico that could deliver some early New Year joy for shareholders.  Recently, Garibaldi reported high-grade Gold channel samples (up to 28.4 g/t) over significant widths at its La Patilla Property in an established mining district near El Rosario in Sinaloa State.   These channel samples were taken across structure (true width) and therefore demonstrate that La Patilla has some robustness to it.  Drilling is now attempting to confirm the consistency of mineralization and if it extends to depth.     Near-surface mineralization has been outlined (through channel sampling) over a strike length of 225 metres between the Murcielago breccia and the La Patilla vein system, and remains open in all directions.  The area is highly faulted, and hydrothermal activity appears to have cooked up an interesting volcanic rock package of rhyolite and andesite.  We know that artisanal miners have been extracting Gold mineralization near-surface at La Patilla for many decades.  What’s also revealing is that Garibaldi has already negotiated a long-term agreement with the local community for potential modest mining at the property – no minor accomplishment, and it shows the locals are on board with GGI’s exploration and overall plans for La Patilla.  The property has never been previously diamond drilled, so the possibility of some early-stage excitement here is very real.

Elsewhere in Mexico, GGI has a few things happening at its Tonichi Project in Sonora State (drill results are pending from the last hole completed at the Locust target), including royalty income from a pilot coal program, and the company’s Iris Project immediately adjacent to two operating mines in Chihuahua State has drill-ready targets.

Gold

The Fed surprised most pundits in September by not beginning the “tapering” process, and did so again last week by announcing the start of tapering – a modest $10 billion reduction in its monthly bond buying program.  Even though Gold had already “baked in” a Fed announcement regarding tapering, immediate knee-jerk selling tested the June low before bullion bounced back on Friday to close the week slightly above $1,200.  Liquidity issues at this time of year, on top of year-end portfolio “window dressing”, can create extra volatility, so how Gold behaves through the end of the month is hard to predict and will be interesting to watch.

Commerzbank, in a note to investors, commented that “If the Gold price should succeed in forming a stable and long-term bottom at above $1,220 per troy ounce, investor interest is likely to pick up again – after all, the considerable uncertainty over QE3 is gone, meaning that the spectre of ‘tapering’ has lost its ability to scare the Gold market.”

Below is a 9-month daily chart from John.  Gold does have strong support around $1,200, and RSI(14) is bouncing off previous support.  History shows us that when money managers are so pessimistic regarding Gold as they are now, it’s the time to buy.  Yes, the potential for another spike downward in Gold clearly exists, but too many investors are parked in the bearish camp right now and that means a major turnaround in bullion is either imminent or within months of occurring.

For the week, Gold was down $36 an ounce after finishing at $1,203.  Silver was off 26 cents at $19.42.  Copper was down a penny to $3.28.  Crude Oil jumped $2.72 a barrel to $99.32 while the U.S. Dollar Index added one-third of a point to close at 80.55.

U.S. Dollar Index Updated Chart

All things considered, the Dollar Index put in a rather unimpressive performance last week by climbing just one-third of a point on the Fed news.  The Fed plans to gradually trim back QE, but interest rates are going to remain low for an extended period even after unemployment levels hit the Fed target.  Given that kind of an environment, combined with a declining 200-day SMA and a major resistance band between 81 and 82, we don’t see how the Dollar Index is going to be able to gain much traction during the first half of 2014.  Weakness in the greenback should be supportive of Gold.

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 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 drew money away from bullion.  June’s low of $1,179 may have been the bottom for bullion – only  time will tell.  Bullion tested that low this past week.  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%).   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.

Note: John and Jon both hold share positions in BG and GGI.