From Grouse Mountain, British Columbia
TSX Venture Exchange and Gold
The Venture took some momentum into September with a 7-session winning streak – the Index hit a monthly high of 1027 on the final day of August – but had a disappointing first week of the new month with four straight losing sessions and a drop back below the 1000 level. For the week, the Venture lost 29 points to finish at 995, thanks in large part to two bad days in particular – Tuesday and Thursday.
Curiously, the way a month begins for the Venture is often not how it ends. We’ve seen many examples of this over the years. In fact, just in 2014, January, February, March, June, July and August all finished quite differently than they started. That’s quite remarkable and gives us hope that we’ll still see a very strong September despite the bumpy start. We’re convinced that a lot of money is sitting on the sidelines – some great drill results would quickly inspire investors. On that note we’re looking for leadership from northwest British Columbia and some specific situations in other jurisdictions. More on that in the coming days.
Below is the updated 6-month daily Venture chart. What are the technicals trying to tell us now?
In late August, the Venture gained momentum when it broke above a short-term downtrend line. Chart resistance was pointed out at 1027 and 1039. While the Index fell below various Fib. levels last week, it did find support at the top of that downtrend line which is also just a few points above the rising 200-day moving average. The Venture has not fallen below its 200-day SMA since finally pushing above it at the very beginning of January.
Below the 200-day, of course, is the Great Wall of Support between about 970 and 980 – an area of very strong resistance for many months last year which has successfully been tested on several occasions since March (the rising 300-day SMA, not shown on this chart, is 968).
Venture 5-Year Weekly Chart
Despite last week’s slide, the Venture still remains well within the parameters of a primary uptrend as shown in this updated 5-year weekly chart. Note the string of higher lows the Venture has made since bottoming at 859 in June of last year. The Index has also been out-performing Gold which is a positive sign, a clear change in trend from the period beginning in early 2011 to mid-2013.
RSI(14) on this 5-year weekly chart is once again testing the uptrend line around 50% which has held as critical 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 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) has remained steady and strong. We’ve seen the most extended period of healthy accumulation in a few years. This is a very bullish dynamic, and includes a +DI/-DI crossover at the beginning of this year. Those who gave up on this market during the 8% retreat from 1050 to the May low made a profound miscalculation. Astute investors have a great chance to cash in big over the next couple of months in particular before the possibility of a more substantial correction late in Q4 or very early in 2015 to unwind overbought conditions that may ensue.
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
Gold took a $20 hit last week, falling through support in the $1,270’s, to finish at $1,268. There is Fib. support at $1,259 and strong chart support at $1,240. Bullion stabilized at the end of the week following the announcement of the ECB stimulus and a much weaker than expected U.S. jobs report for August. Bullion has actually held up quite well in the face of an accelerated move in the U.S. Dollar Index. Expect the greenback to climb further, but the Americans are no more interested in a runaway currency than any other country.
As we approach the 13th anniversary of the horrific 9/11 attacks, and as the evil, hate-filled ISIS group continues its rampage in Syria and Iraq with an eye on also carrying out terrorist attacks on Western soil, the world is actually a more dangerous place now than it has been in decades. A much more belligerent Russia and an obvious lack of Western leadership (will President Obama or others finally rise to the challenge?) are also contributing significantly to the growing possibility of “Black Swan” geopolitical events across broad areas of the globe. Geopolitical tensions should provide a floor of support for bullion and perhaps even ignite a dramatic rise, though that’s not how we’d like to see Gold charge higher.
President Obama will address the nation Wednesday to explain “what our game plan is going forward” in the “fight” against ISIS. That should be an interesting speech. But this is not just a fight against ISIS, as many people are sugar coating it. This is war. To win this war will require effective leadership and raw power from the United States, Great Britain, and a strong coalition including participation from Arab countries. The war on terrorism began September 11, 2001, and it’s not going to end anytime soon – no matter how “war weary” Americans are. It’s not a war that the West can afford to lose.
Playing into this global instability theme is a grab for resources – Oil, metals, even water. The Chinese understand this very well, as do the Russians and others (ISIS is funding itself partly through the seizing and selling of Oil). Gold is an important part of the equation here. China is flexing its muscles, efficiently carrying out a strategy to back its currency with Gold and secure a supply of strategic metals/resources.
Below is John’s 6-month daily Gold chart. Historically, September is the metal’s best month of the year – so we’ll see if a turnaround kicks in shortly. A bullish “W” has formed in the RSI(14), which is encouraging, but sell pressure needs to abate and physical demand from Asia in particular needs to pick up.
Silver fell 27 cents last week to finish at $19.19. Copper gave up 2 pennies, closing at $3.17. Crude Oil gave up $2.67 a barrel to finish at $93.29 while the U.S. Dollar Index climbed more than a point to end the week at $83.76.
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 the ISIS terrorist group and 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
- 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 in our view. 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.
