BullMarketRun.com

TSX Venture Exchange and Gold

The Venture fell marginally each day last week and has declined in 8 out of the last 11 sessions.  However, Friday’s intra-day reversal from a low of 975 to a close of 991 (23-point loss for the week) was yet another example of the resiliency of this market and its powerful wall of support in the immediate vicinity of 970 which previously was very stiff resistance for many months.

The Venture is in the early stages of a new bull phase that should carry it to significantly higher levels over the summer and into the fall as John’s charts have consistently pointed out over the last several months.  What’s looming prominently on the horizon – an important and highly bullish technical event we project to occur by the end of June – is a reversal to the upside in the 300-day moving average (SMA).  As an investor you don’t ever want to be on the wrong side of that equation, whether it’s an upside reversal or a downside one.

Below is John’s updated 5-year weekly chart.  The bear market bottom occurred during the second quarter of last year and RSI(14) has been climbing an uptrend ever since.  An exceptionally strong support band exists from the 940’s through the 980’s, and in the middle of that range is the rising 200-day SMA.  Interestingly, buy pressure is increasing here in the month of May as demonstrated by the CMF.  RSI(14) has retreated to 50% where it should find support – that level served as resistance on several previous occasions between 2011 and the end of last year.

Bottom line:  We saw a test of Venture support in late January/early February.  More tests in March, April and again this month.  This is normal and healthy, and these “tests” may not be over yet.  But the primary trend is bullish and smart money is accumulating on weakness in advance of an eventual major upside breakout.

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 bounced around again last week and closed Friday at $1,290, a loss of $11 for the week.  John’s 1-year daily chart (see below) shows strong support in the $1,270’s.

The $1,325 to $1,350 area is key resistance.  If Gold can overcome that hurdle with a confirmed breakout above $1,350, then the next stop is $1,400.  A solid case can be made for a big move in Gold to the upside over the summer (that’s what the Venture seems to be hinting at), and that would catch a lot of traders by surprise.

UBS recommends selling Gold on any price rallies, arguing bullion lacks the incentives to push higher, and more importantly, to maintain its “elevated perch”.   The bank’s analysts added that recent gains were aided by “nervous shorts”.  Similarly, Goldman Sachs argues that Gold’s recent gains are a result of transient factors, implying prices are expected to grind down from here.

Dundee Capital Markets’ chief economist Martin Murenbeeld, one of the most accurate Gold forecasters in recent years, believes bullion is likely to end 2014 at $1,367 per ounce, before climbing to $1,438 in 2015.

Silver fell 31 cents last week to close at $19.15.  Copper gained 2 pennies to finish at $3.08.  Crude Oil added 23 cents to $99.99 while the U.S. Dollar Index found support around 79 and rallied to finish the week up one-third of a point at 79.87.

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 of 2013  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.