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TSX Venture Exchange and Gold

It was a lackluster week for the Venture but the Index recovered after touching an intra-day low of 989.55 Thursday to finish the week down just 4 points at 997.  An uptick in both the RSI(14) and buy pressure as shown by the ADX indicator in the 6-month daily chart demonstrates how the Venture is backed by a massive wall of technical support in the immediate vicinity (plus or minus 10 points) of the rising 200-day moving average (SMA) at 981.  This support is so strong because it was resistance for a considerable period last year and has been tested successfully on various occasions since March.

We’ll follow this chart closely in the days ahead.  As soon as the Index breaks above the short-term RSI(14) downtrend line, that would be the signal that the July-early August weakness has run its course and a sustained move higher can begin.  While this market has been like watching paint dry in recent weeks, the underlying technical strength is very evident and points to an important Q3 breakout above the 1050 resistance.

Venture 5-Year Weekly Chart

Understand the primary trend, key support and resistance areas, and stay focused on the “Big Picture” which remains very positive for the Venture. Below is the updated 5-year weekly chart with a Gold comparative.  Note the string of higher lows the Venture has made since bottoming at 859 in June of last year.

RSI(14) on this 5-year weekly chart is once again testing the uptrend line (very healthy) around 50% which should continue to hold as support after serving as resistance since mid-2011 (major trend change).  A modestly overbought condition in the RSI that emerged in March when the Index hit 1050 has gradually unwound to this new support.

The Q2 decline that took the Venture to superb support at 968 May 20 came on light volume, and accumulation (CMF indicator) remains steady and strong – the most extended period of healthy accumulation we’ve seen, actually, in a few years.  This is a very bullish dynamic, and includes a recent +DI/-DI crossover.  Those who gave up on this market during the 8% retreat from 1050 made a profound miscalculation.  Astute investors have a great chance to cash in big over the next two to three months in particular before the possibility of a more substantial correction during Q4.

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 carry out exploration or 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.

Gold

Much to the frustration of the bears, Gold is stubbornly holding important support around $1,280 despite strength in the U.S. dollar.  Geopolitical tensions appear to have put a strong floor underneath the price of Gold, and we’re also quickly approaching the traditionally bullish month of September when physical demand from Asia almost always kicks in.

Gold gained $15 last week to close at $1,309.  A key resistance band exists between $1,320 and $1,330.  A sustained breakout above that area would really put the bears on the defensive.

Silver fell 39 cents last week to close at $19.91 (John will have updated Silver charts tomorrow morning as usual).  Copper fell 3 pennies to close at $3.21.  Crude Oil was relatively unchanged, finishing at $97.65.  The U.S. Dollar Index gained nearly one-tenth of a point to 81.40.

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 and will continue to support prices.   Despite Gold’s largest annual drop in three decades in 2013, the fundamental long-term case for the metal remains solidly intact based on the following factors:

• Growing geopolitical tensions, fueled in part by a highly dangerous and expansionist Russia under Vladimir Putin, have put world security in the most precarious state since World War II;
• Weak leadership in the United States and Europe is emboldening enemies of the West;
• Currency instability and an overall lack of confidence in fiat currencies;
• Historically low interest rates, a Fed balance sheet at more than $4 trillion (still expanding), and money supply growth around the globe;
• Signs of increasing inflation;
• Continued strong accumulation of Gold by China which intends to back up its currency with bullion;
• Massive government debt from the United States to Europe;
• Continued net buying of Gold by central banks around the world;
• Flat mine supply and a sharp reduction in exploration and the number of major new discoveries.

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.  The June 2013 low of $1,179 was 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 and the reluctance of central banks to increase interest rates.