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TSX Venture Exchange and Gold

After rallying more than 6% during 12 sessions ending November 21, the Venture hit another Oil slick last week that caused it to skid to a new post-Crash low of 738 intra-day Friday.  For the week, the Index fell 47 points or nearly 6% to close at 742.  Crude Oil’s 13.5% weekly decline, precipitated by OPEC’s decision not to cut output in the face of a global Oil supply glut, had everything to do with the Venture’s latest stumble, and additional weakness in Crude can be expected before prices begin to stabilize or rally out of oversold conditions.  Ultimately, WTIC at $50 seems increasingly likely but we may not see that level until sometime in 2015.   Saudi Arabia, in particular, is taking direct aim at North American shale producers.

The Venture’s problems began in September with the breakdown of the symmetrical triangle shown in the 9-month daily chart below.  In addition, the Index fell below key support at 970 and also sliced right through the 200-day moving average (SMA) which quickly reversed to the downside.  This was a warning that something negative on the commodities front was on the horizon, and Oil especially was hit hard in October and November.  The Venture’s strength earlier this year had a lot to do with a surging energy sector.

On a positive note, and this is something we’ll need to watch closely in the days ahead, there is currently an RSI(14) divergence with price as far as the Venture is concerned.  In other words, as the Index itself hits new lows, we’re seeing higher lows in the RSI(14).  This type of pattern has been witnessed during previous important Venture bottoms, including the Crash of 2008, and it’s a clue that a potentially sharp reversal to the upside is not far off – history indeed tells us that immediately before Christmas the Venture should begin to launch higher.

December will be an “opportunity” month, a time to accumulate quality situations that could really start to take off entering the New Year.  Selectivity, as always, is key.

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 eventually create a supply problem and therefore great opportunities in Gold and quality Gold stocks.  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 the path of least resistance last week.  Bullion couldn’t gain traction above $1,200 and then suffered when Oil prices took a hit.  For the week, bullion was off $33 an ounce to finish at $1,169.

Swiss voters today have overwhelmingly rejected a proposal that would have forced the central bank to buy large amounts of Gold over a period of 5 years.  The “NO” vote on the “Save our Gold” initiative was no surprise, though polls pointed to a closer outcome (only about 20% of voters cast ballots in favor of that initiative).

While a “No” vote in Switzerland was largely already priced into the Gold market, some knee-jerk selling on results is likely.  And bullion may also be dragged down a little more by additional weakness in Oil.

Strong physical buying from China, India, Russia and other emerging markets will be necessary in order to keep Gold above its early November low of $1,130.

Gold 5-Year Weekly Chart

This long-term weekly chart shows Gold trading in a downsloping flag.  Two near-term possibilities exist here – a rally toward the top of that flag, or a breakdown below it.  RSI(14) is just above previous support.  Known resistance at $1,200 is obviously strong as demonstrated last week.

Silver showed signs of wanting to break out to the upside but stalled in the mid-$16.50’s.  For the week, it retreated 87 cents to close at $15.58 (updated Silver charts Monday morning).  Copper got hammered, falling 14 cents to $2.92.  More than $10 a barrel was shaved off WTIC which finished at $66.15, a 4.5-year low.  The U.S. Dollar Index, meanwhile, fell slightly to 88.22.

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 (air strikes won’t stop them) 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 – a “day of reckoning” will come’;
• 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. Deflationary concerns persist, and now Gold is having to grapple with a bullish U.S. Dollar.  However, we’re convinced that the 40% drop in Gold from its September 2011 all-time high is merely a healthy correction within an ongoing long-term bullish cycle that will take the metal to new all-time highs as the decade progresses.  There are many potential catalysts, including inflationary pressures that should eventually kick in, to power Gold to $2,000 and beyond within a few years.