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TSX Venture Exchange and Gold

The Venture was on track to post its fifth consecutive weekly advance until the broader indices tripped Friday over emerging market concerns with the Dow tumbling more than 300 points.  The Dow suffered its worst week since November 2011, losing 579 points or 3.5% over four sessions (Monday of course was a holiday in the U.S.).

All things considered, the Venture held up very well though it experienced its first “down” Friday since November 1 as it slid 16 points to close at 967.  For the week, the Index was off a mere 9 points – a healthy pullback given the fact that this market has made quite a jump since its December 19 intra-day low of 883.52.  John was correct in not calling a “confirmed” breakout last week above resistance around 970, but we believe it’s just a matter of time before this important breakout occurs.  Investor patience, as we mentioned a week ago, is critical.

The Venture has built a wall of very powerful support stretching from its rising 50-day moving average (SMA) at 930 all the way to current levels.  So the “Big Picture” is very simple:  Bullish dynamics are in place to make this a “turnaround year” on the Venture with some exceptional wealth-building opportunities.

Below is a 5-year monthly chart from John and some key points that support our technical argument:

1. In October, as we’ve pointed out repeatedly, the Venture finally broke above a long-term downtrend line which was tested repeatedly for two months and held;

2. RSI(14) on the longer-term charts (weekly and monthly) has pushed above all resistance levels encountered since the bear market began in early 2011;

3. The MACD histogram is now in the bullish zone for the first time since 2011;

4. The extreme oversold RSI(14) conditions during the second quarter of last year, as shown in the chart below, were exactly what would one expect at a market bottom – these conditions were a “mirror image” of the extreme overbought situation that emerged in late 2010/early 2011;

5. The Venture has broken above its 200-day SMA for the first time since the bear market began, and a “Golden Cross” appears set to occur – the 50-day SMA is poised to soon move above the 200-day, and the latter SMA also appears to be gearing up to reverse to the upside later this quarter.

Bottom line:  The Venture bear market is indeed over.  Patience and selectivity, however, remain critical.  Focus on the companies with strong management and geological teams, healthy balance sheets with no immediate need to raise money, attractive share structures, excellent properties in safe jurisdictions, active programs, and a management group that’s driven to push hard to build shareholder value.

Venture 5-Year Monthly Chart

Frank Holmes On The Venture

We strongly suggest investors check out the excellent piece posted last night regarding the Venture by Frank Holmes, CEO and Chief Investment Officer for U.S. Global Investors, as part of his weekly Investor Alert at www.usfunds.com (“Why The Recent Lift In Junior Miners Will Likely Continue”) – click on the link below:

http://www.usfunds.com/investor-library/investor-alert/

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

As we mentioned in this space a week ago, Gold’s close above $1,250 the week of January 13 was encouraging and suggested that bullion could be gathering the energy to test important resistance around $1,275.  That’s exactly what’s occurring, and next week is going to be very interesting with bullion sitting right beneath this area after Friday’s $1,269 close for a weekly gain of $15.  Which way this will go in the coming days is anyone’s guess, and next week’s Federal Reserve meeting (Tuesday and Wednesday) will be a key factor in determining if the Gold bulls can put the bears on the defensive.

Despite Gold’s rise last week, Silver fell 41 cents to close at $19.91.  Copper suffered its biggest weekly loss in two months, falling a nickel to close at $3.27.  Crude Oil gained $2.27 a barrel to finish at $96.64 while the U.S. Dollar Index slid two-thirds of a point to 80.48.

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.