BullMarketRun.com

TSX Venture Exchange and Gold

Note:  Canadian markets are closed Monday for “Victoria Day”.  U.S. markets are open.  We’ll be posting a BMR interview (video) this evening or Monday morning.

The Venture has declined in seven out of the last 10 sessions and surrendered another 14 points last week to close at 977, putting it within a very strong band of support between the 940’s and the 980’s.  Testing of this support is normal and healthy from a technical standpoint, and it’s also the mirror image of the repeated tests of resistance around 970 over many months last year.  Underpinned by both chart and Fib. support, including a rising 200-day moving average (SMA) in the 960’s, the Venture has backed off into a safe accumulation zone in advance of what we believe will lead to a powerful breakout above the 1050 level during the third quarter.

Below is an updated long-term chart from John.  Buy pressure has remained steady this month despite a 25-point drop so far in May.  It’s reasonable to believe that RSI(14) will find strong support around current levels where it faced stiff resistance since mid-2011 on this 5-year 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, seemingly confused about which way to turn, traded in a narrow range last week, closing up $3 an ounce at $1,293.

Solid support exists in the $1,270’s while key resistance is in the $1,325 to $1,350 area.  Those are important levels to watch.  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.  Besides support in the $1,270’s, bullion has shown a lot of resiliency at its rising 100-day SMA which currently sits at $1,289.

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.

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

The outcome of the parliamentary elections in India – a huge majority for Narendra Modi’s Bharatiya Janata Party – should be long-term Gold bullish.  Investors have been keen on Modi’s pro-business platform, as evidenced by the $332 billion increase in value of Indian equities since the BJP named him as its candidate for Prime Minister last September.  A stronger economy in India – the creation of new wealth – should ultimately lead to increased demand for Gold.  Up until last year, when it was overtaken by China, India was the world’s largest consumer of bullion.  The incompetency of India’s now ousted government forced it to impose various restrictions on the Gold trade in that country, over the last year in particular, and an easing of those restrictions is expected during the second half of this year.

A 1-year chart for Gold shows a rising RSI(14) trendline while modest buy pressure has replaced sell pressure which was dominant from late March until late April.  Gold’s “moment of decision” is drawing near – expect a significant move over the summer, hopefully to the upside.

Silver gained 19 cents last week to close at $19.34.  Copper climbed 6 cents to $3.14.  Crude Oil jumped just over $2 a barrel to finish at $102.02, while the U.S. Dollar Index gained one-fifth of a point to 80.05.

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.