BullMarketRun.com

TSX Venture Exchange and Gold

The Venture snapped a two-week losing skid with an 11-point gain last week – energy stocks led the way – as bargain hunters jumped in with the Index continuing to show every sign that its strong support band will hold.

While there could be some more “churning” within the support band, it’s important to point out that RSI(14) on this 5-year weekly chart is now at 50% (47% a week ago).  It found support, as expected, and has unwound an overbought condition that emerged in March when the Index hit 1050.  The recent decline that took the Venture to a closing low of 970 Tuesday came on low volume, and buy pressure remains very steady.  A couple of months from now, investors will look back at this correction from 1050 as an incredible buying opportunity.  The nervous nellies who have been sellers as opposed to buyers in the last few weeks – well, they’re betting on the highly improbable which is a breakdown of superb Venture support.  Those are very poor odds in our view.  The Venture will take of path of least resistance which will take it substantially higher than where it is now over the next few months.

Below is John’s updated 5-year weekly chart.  The rising 200-day moving average (SMA) is in the upper 960’s.  This market should really start gaining fresh momentum as soon it crosses back above its 50-day SMA (currently at 1002) and that moving average reverses to the upside – this should certainly occur during the last half of June, if not sooner.  The third quarter for the Venture is shaping up to be a very dynamic period.

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 has been “directionless” recently, acting sort of like a deer caught in the headlights.  Importantly, though, support is holding.  You can study the 1-year daily chart below and also get a strong sense that a “time of decision” is drawing closer for Gold – an important move either to the upside or the downside during the second half of this year.  Our guess is that the long-term downtrend line will be overcome, and that’s consistent with how the Venture has been behaving.

Solid support for Gold 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 breakout in Gold to the upside during Q3 (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 around $1,290.

Silver gained 13 cents last week to close at $19.47.  Copper gained 3 pennies to $3.17.  Crude Oil, supported by conflicts in Libya and Ukraine as well as positive economic data in the world’s top oil consumers, jumped $2.32 a barrel to $104.35.  The U.S. Dollar Index added one-third of a point to 80.36.

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.