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TSX Venture Exchange and Gold

The Venture snapped a two-week losing skid with a gain of 10 points to finish at 962.  Strength in commodities helped last week, and U.S. equity markets turned around over the last two trading sessions after the Dow plunged more than 1,000 points from its January high. As we’ve been pointing out consistently, the Venture has a very strong band of technical support between the 920’s and the upper 940’s – Fib. levels coinciding with general chart support including the 50, 100 and 200-day moving averages (SMA’s).  The 50-day is crossing above the 200-day (the “Golden Cross”) for the first time since the Venture bear market began in early 2011.

Below is a 6-month daily Venture chart from John.  This shows a very pronounced RSI(14) bullish “W” pattern, and a bullish crossover in the ADX indicator.  Very promising for the coming week.

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 showed some surprising strength last week, considering the fact that many Chinese buyers were on the sidelines due to the Lunar New Year holidays.  Gold jumped $21 an ounce to close Friday at $1,267.  Is something brewing with bullion?  Quite possibly. We have a very interesting 10-year monthly chart we’ll be posting as part of tomorrow’s Morning Musings, while below is a 9-month daily chart that shows Gold threatening to break out above a downsloping wedge.  The bullish trend is gaining strength.  The key for Gold, of course, will be to push through stiff resistance around $1,275.  When that occurs (appears increasingly likely), some shorts could be scrambling.

Silver soared 83 cents last week to close at $20.00 (John will have updated Silver charts tomorrow morning).  Copper gained 4 pennies to $3.26.  Crude Oil climbed another $2.39 a barrel to finish at $99.88 while the U.S. Dollar Index fell half a point and closed at 80.67.

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.