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TSX Venture Exchange and Gold

It was an impressive week for the Venture as some key short-term technicals swung positive and the Index confidently pushed through the 1000 level again, as predicted, and also overcame resistance at 1007.  The Venture closed up 17 points or nearly 2% for the week to finish at 1014.  It’s important that investors grasp this critical point:  Based on many measures of technical analysis (TA), this is a powerful-looking market right now and it’s underpinned by tremendous support.  In our view, all the ingredients are coming together, technically and fundamentally, for a Venture explosion to the upside over the summer.

As John’s 1-year daily chart showed Friday, the Venture has regained momentum after a mild correction of just under 7% between March 11 and April 15 when the Index fell from a high of 1050 to an intra-day low on the 15th of 979.  TA correctly called the closing low of 985 on March 27.  There is a highly impressive degree of technical strength supporting this market, and a confirmed breakout has now occurred above the 1007 resistance.  The current “Wave 5” – no precise timeline just yet – has a target of 1150, a 13% climb from current levels which is the kind of environment within which some top performing plays can easily double or triple.

Let’s now take a look at the longer-term bigger picture with a 5-year weekly chart.  The rising 200-day moving average (SMA) has now joined up with superb support  around 970 which was resistance on the Venture for most of last year.  This support is made that much stronger given the fact that the 970 area was such stiff resistance over such a long period.  The downside, then, from the current level of 1014 is very limited.  The potential upside, as you’ll see, is huge.  Ultimately, we see a high probability of the Venture challenging resistance this year anywhere between 1350 and the Fib. 50% retracement level just below 1650.  Buy pressure is increasing, +DI remains above -DI on the ADX trend indicator, RSI(14) found strong support at 50 and is moving higher, and important moving averages are in bullish alignment.  It appears that by about the middle of June – just over six weeks from now – the 300-day SMA will reverse to the upside.  Historically, that has proven to be a hugely bullish event and the last time we saw this occur was in late 2009 into early 2010.

5-Year Venture Weekly Chart

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 staged an impressive intra-day turnaround Thursday, falling as low as $1,268 – within a strong support band – and closed the week on a powerful note at $1,304.  That was a slight gain for the week and what we see on the 1-year daily chart is an encouraging switch from sell pressure – dominant since late March – to buy pressure.  The first key hurdle for bullion to overcome is the downtrend line just above the April high, and then the second hurdle will be the chart resistance at $1,350.

Clearly, events in the Ukraine are lending support to Gold and how that’s going to play out, no one really knows – but the Russians are up to no good and Vladimir Putin knows that Western leadership is weak, especially at the Obama White House.  American bashers can’t understand this, but the world is a more dangerous place when the United States is not leading and demonstrating strength on the international stage.  The geopolitical situation now seems comparable to what it was when Jimmy Carter occupied the White House in the late 1970’s.

1-Year Gold Daily Chart