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TSX Venture Exchange and Gold

After an 8% jump in February, the Venture is off to a flying start in March with an 18-point gain last week – its fifth consecutive weekly advance – to close at 1043.  Friday’s performance was particularly impressive – the Index shrugged off an $11 drop in Gold and a 12-cent tumble in Copper by climbing 3 more points with new 52-week highs exceeding new 52-week lows for the first time this year (for the first time in a long time, in fact).  Just another indication of how this market has turned the corner, yet there are still many investors who are behind the curve on this.

Yesterday we posted an important 10-year weekly chart showing how the SMA(50) for Venture advancing issues has reversed to the upside – yet one more piece of evidence that a new bull market is underway.  On Monday, we’ll show how a surge in CDNX volume (volume is such a critical technical indicator) also demonstrates that a major market shift has occurred.  Within a few months, it’s reasonable to believe that the “masses” will be piling into the Venture in ways we haven’t seen since 2010. Do your due diligence and be selective, but get positioned now in the best plays if you aren’t already.  The next six months could be spectacular.

Below is John’s updated 5-year weekly Venture chart, showing a market with steadily increasing buy pressure and room to move higher in the immediate future with RSI(14) currently at 68%.  One possible scenario over the near-term is that the Venture may challenge the 1150 area – the next major chart resistance – before a period of consolidation sets in prior to another leg up that eventually carries the Index to anywhere between 1350 and 1650 by late summer/early fall.  There will likely be several catalysts for this including what we predict will be one of the most significant and dramatic area plays – the Sheslay Valley – that British Columbia has ever witnessed (much more on that in 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 continues to find stiff resistance, as expected, around $1,350.  From $1,275 to the 200-day SMA at $1,303, there is outstanding support, so for now bullion can be expected to trade within that range until it decides to break one way or the other.  We believe the bias in Gold is to the upside, especially given the way the Venture is behaving, so a breakout through $1,350 seems much more likely than a collapse below $1,275.  Despite’s Friday’s weakness due to a better-than-expected U.S. jobs report, Gold managed to post its fifth straight weekly advance by climbing $10 to $1,339.

Below is a 9-month Gold chart from John.  RSI(14) is trending lower at the moment on this chart, so it’s possible bullion may need to consolidate for a little while longer below $1,350 before it’s ready for a breakout.  Buy pressure is strong and so is the bullish trend.  Note the 2013 double bottom reversal pattern.

Silver fell 41 cents last week to close at $20.89 (John will have updated Silver charts Monday as usual).  Copper got hammered on Friday (China-related factors) and closed down 13 cents for the week at $3.09 (very strong support at $3.00).  Crude Oil edged 8 cents higher to $102.58 while the struggling U.S. Dollar Index fell one-tenth of a point to 79.69.  A test of critical support at 79 in the near future appears almost certain for the U.S. Dollar Index.

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 drew “momentum traders” away from bullion.  June’s low of $1,179 was likely the bottom for Gold.  Extreme levels of bearishness emerged in the metal last year.  With the long-term bull market remaining intact, we expect new all-time highs in Gold as the decade progresses.  Inflationary pressures should eventually kick in around the globe after years of ultra-loose monetary policy.