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TSX Venture Exchange and Gold

The Venture held critical support this month despite the combined pressures of tax-loss selling and weakness in Gold.  Importantly, all indications are that a legitimate and sustainable turnaround is indeed underway and about to kick into higher gear. Technically, this view is confirmed by the Venture’s 3-year weekly chart that provides invaluable insight into this beaten-down Index.  Fundamentally, there is now simultaneous positive and accelerating growth in the U.S., Europe, Japan and emerging markets.  That’s good for commodities, and what’s good for commodities will also be beneficial for the Venture.  The Federal Reserve, though it has started to “taper”, remains committed to an overall accommodative policy and is unlikely to raise interest rates in 2014.

The CDNX climbed 31 points last week to close at 919, above the first of a few key resistance levels.  Below is a 3-month daily chart from John.  Up momentum is surging.  Expect another strong week.

 

CDNX 3-Year Weekly Chart

The Venture‘s 3-year weekly chart gives us a very positive “big picture” view of where this market is headed.  Investors are notoriously the most bearish and the most bullish at precisely the wrong times (remember back to the 2008 post-Crash period and late 2010/early 2011 on the Venture ).  Extreme bearish sentiment over the last number of months has coincided, in our view, with an important bottom in the Venture Index which has been in a healthy basing/consolidation phase since mid-April.

In late October, the Venture finally broke above its downtrend line in place since 2011.  Though this technical event did not lead to a significant immediate advance in the Index, it was nonetheless an intriguing and encouraging sign.  This downtrend line became potential new support, but it needed to be tested.  Indeed, that’s exactly what would take place over the next two months.  Between late October and late December, the Venture repeatedly and successfully tested this support.  Any market will take the path of least resistance, and the turning point for the Venture in this regard came last week.    The path of least resistance for the Venture is now north, not south – quite simply, the bears are exhausted and have lost control over this market.

The Venture’s RSI(14) on this long-term chart has been in a firm uptrend since July, and this has been accompanied by strong accumulation as shown by the Chaiken Money Flow (CMF) indicator.  Also, for the first time since 2011, the Venture is out-performing Gold – an important pattern change.  The key question at the moment is how soon the Venture will clear critical resistance in the 970’s – once this does occur, expect a major increase in volume as the new uptrend gets an injection of fresh fuel.

Copper 2.5-Year Weekly Chart

The action in Copper at the moment is highly encouraging and supports our bullishness regarding the Venture.  Copper’s 2.5-year weekly chart is pointing toward renewed strength in the metal, consistent with improving global PMI’s.

Mason Graphite Inc. (LLG, TSX-V) Updated Chart

Mason Graphite (LLG, TSX-V) was one of last week’s best performers on the Venture.  New support around the 50-cent level held, and LLG powered 30% higher to close the week at 69 cents.  John’s charts on LLG have been very accurate, so expect the current uptrend to continue but the mid-80’s will be a major resistance area.

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.

Gold

Gold’s 12-year rally, prompted by rock bottom interest rates and rapidly expanding central bank balance sheets, has come to an end this year with a nearly 30% correction entering the final two trading days of 2013.  Money managers are the least bullish they’ve been on Gold since 2007 – a sure sign that there is greater opportunity than risk at the moment.  Quite simply, too many investors are now parked in Gold’s bearish camp.  Surprises in 2014 will therefore likely be to the upside, not the downside.

For now, Gold appears to be in a trading range between just below $1,200 and just beneath $1,300.  Bullion appears to be gearing up for a near-term test of resistance at the upper end of that range.

 

Gold climbed $11 for the week to finish at $1,214.  Silver jumped 66 cents to close at $19.42.  Copper added 7 pennies, closing at $3.35.  Crude Oil gained $1 a barrel to close above $100 ($100.32) for the first time since October 21 as U.S. oil inventories fell for a fourth straight week.  The U.S. Dollar Index continues to look vulnerable, and closed down one-fifth of a point at 80.34.

U.S. Dollar Index Chart Update

Continued weakness in the U.S. Dollar Index entering 2014 should be supportive of Gold.  Analysts have been so focused on the booming U.S. stock market, they’ve ignored the deteriorating condition of the greenback.  Interestingly, the Dollar Index broke below a 2+ year uptrend line at around the same time as the Venture broke above its 2+ year downtrend line (the two often move in opposite directions).

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.  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 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.