BullMarketRun.com

TSX Venture Exchange and Gold

The Venture turnaround gained momentum last week with the CDNX climbing another 22 points to finish at 967.  Remarkably, the Index has posted 13 consecutive daily gains – better than any winning streak put together during the 2009-2011 bull market, though on less volume of course.  Expect trading activity to ramp up significantly on a confirmed breakout above critical resistance in the 970’s.  This could occur as early as next week, or perhaps we’ll need to be patient and wait a little longer.  In our view it’s only a question of when, not if, The Great Wall in the 970’s will come crumbling down.

Quite simply, the bears have lost control over this market, and the 3 charts below are proof of that.  Realizing this seismic shift now, ahead of the “herd”, will give you the opportunity to make bucket loads of money over the next 12 months as there are some incredibly cheap valuations at the moment despite the 13% move off last June’s Venture bottom.  Selectivity, of course, will be critical as a rising tide is not going to lift all boats (some boats are still destined to sink).

Its current wining streak is impressive, but what excites us the most about the Venture are some of the dramatic technical shifts that have occurred in recent months beginning with the breakout in October above a long-term downtrend line in place since 2011 on the 3-year weekly chart.  Importantly, through November and December, that downtrend line was repeatedly tested and held as support.  Starting just a couple of days before Christmas, following the end of tax-loss selling, the Venture took the path of least resistance and began to move powerfully north of the downtrend line.

We’ve been tracking that 3-year weekly chart consistently for the benefit of our readers and we’ll be posting an interesting updated version Monday morning.  Strikingly, RSI(14) – now at 55% – has broken decisively above 50 for the first time since the bear market began in early 2011.

Indeed, something very important is brewing. Not only has the Venture pushed above its 200-day moving average (SMA) for the first time since 2011, but this 13-year monthly chart from John shows how the MACD has finally turned upward after a decline that started during the first half of 2011.

13-Year Venture Monthly Chart

More Evidence Of A Major Technical Shift

This 2.5-year weekly chart shows another hugely significant development – the first bullish +DI/-DI crossover in the ADX indicator (on the longer-term weekly chart) since the bear market began in early 2011.

Updated Venture 9-Month Daily Chart

This updated 9-month chart from John shows how the Venture has overcome resistance around 940 and 958.  Now comes the test (yet again) of the 970 resistance.  There is certainly room for the RSI(14) on this daily chart to push higher, and we expect that it will.

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.

As Frank Holmes pointed out last night in his weekly Investor Alert at 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 for junior miners to acquire mining assets, just like Northern Star Resources did by purchasing the Plutonic mine from Barrick, based solely on the value of the proven and probable reserves.”

Gold

Gold and commodities in general responded well to Friday’s weak U.S. jobs report (employers hired the fewest workers in almost 3 years in December) with bullion jumping $21 an ounce to finish up $11 for the week at $1,249.  It appears Gold is ready to challenge resistance around $1,275.

According to Bloomberg, Gold analysts are the most bullish in a year on speculation that investors are covering near-record short positions. Following the first annual decline in 13 years, 15 analysts surveyed by Bloomberg expect Gold to rise this coming week, while 2 are bearish and 4 are neutral.

John’s 9-month daily chart shows that Gold may have formed a bullish technical double bottom.  If Gold can overcome resistance at $1,275, its next major challenge will be to push above the downsloping wedge.

Silver soared 63 cents Friday but finished the week up just 2 cents at $20.17.  Copper lost a penny to $3.32.  Crude Oil hit an 8-month low of $91.24 Thursday and closed Friday at $92.72, down $2.72 a barrel for the week (U.S. Crude Oil production is now at a 25-year high).   The U.S. Dollar Index is still finding very stiff resistance around 81 and closed the week down one-quarter of a point at 80.63, thanks to Friday’s weak jobs report.

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% 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.