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TSX Venture Exchange and Gold

Markets suffered across the board last week, sending the CDNX below important support between 1575 and 1600.  The Index closed Friday at 1505 for a weekly decline of 103 points or 6.4%.  Our overall bearish stance toward the CDNX continues, especially now with a declining 300-day moving average (SMA), but one reasonable theory is that a temporary bounce or “relief rally” could now unfold (followed by another wave down) given current technical conditions in both the CDNX and the broader markets.  The CDNX does have support at 1500, another critical area to now watch.  It could initially bounce off 1500 before ultimately crashing through that level to test the support band shown in John’s chart between 1300 and 1350.  The “big picture” strongly suggests there is more downside risk in this market than upside potential at this point and investors need to be extremely careful.  Protection of capital is paramount.  There will be some exceptions but in general there should be better buying opportunities in most speculative plays during the first quarter of next year.

There are some individual situations that do look positive.  Cap-Ex Ventures (CEV, TSX-V), for example, gained 7 cents last week on strong volume to close at $1.05.  The company has made a potential world class iron ore discovery near Schefferville, Quebec.  The fact that insiders bought over half a million shares at an average price of $1.14 last week should be a sign to investors of just how big this deposit could be.  The chart is strong, more results are on the way and the current market cap is modest ($46.3 million) given the significance of this discovery.  The company’s latest financials for the nine-month period ending May 31 showed working capital of $11.5 million.

Spanish Mountain Gold (SPA, TSX-V) is working on an advanced high-tonnage, low-grade Gold deposit in central British Columbia, and last week the stock became heavily oversold and fell below its rising 100-day moving average (SMA) where it has been a strong buy throughout the year.  On Friday, SPA dipped as low as 67 cents before rallying back strongly to close up 3 pennies for the day at 75 cents.  SPA has significantly out-performed the CDNX this year and that trend should be expected to continue, especially if Gold moves higher.  The company was armed with nearly $20 million in cash as of the end of September.

Gold Canyon Resources (GCU, TSX-V), developing a potential 5 million+ ounce Gold deposit in Ontario (Springpole Project, 110 kilometres northeast of the Red Lake mining camp), has had 10 consecutive losing sessions and closed Friday at $2.35, a 42-cent loss for the week.  It has good support around current levels and has once again dropped below its still-rising 300-day SMA where it has to be considered attractive from a technical standpoint.

For smart traders and patient investors, there are still opportunities in the current market environment.

The Dow and S&P 500 are coming off their worst Thanksgiving week performances (losses of of 4.78% and 4.69%, respectively) since The Great Depression.  The HXD, the double-leveraged short S&P/TSX 60 ETF that we have been excited about in recent weeks, has posted 10 straight daily gains and is up in 12 out of the last 13 trading sessions.  The crowd is once again scared and very negative.  All the more reason why a rally in the markets is probably imminent but beware of January.

Gold

Support appears to be holding for Gold in the $1,665-$1,680 area, and that bodes well for a possible bullish move in the near future. For the week, Gold fell another $45 an ounce to close at $1,680.  Silver lost $1.43 to close at $30.98, Copper fell 12 cents to $3.29, Crude Oil slipped 64 cents to $96.77 while the U.S. Dollar Index surged to 79.63 as anxiety grew over the euro zone debt crisis.

Beneath Gold’s $1,665-$1,680 support band is huge trendline support around $1,625 as John’s latest chart, posted yesterday, clearly shows.  December will be a key test of Gold’s strength going into 2012 as the trendline support will continue to rise and converge with that band between $1,665 and $1,680.  “Decision time” is on the way.  An explosive move to the upside in Gold is certainly possible.

The “Big Picture” View Of Gold

As Frank Holmes so effectively illustrates at www.usfunds.com, Gold is being 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, is having a huge impact on Gold.

The fundamental case for Gold remains incredibly strong – currency instability and an overall lack of confidence in fiat currencies, governments and world leaders in general, an environment of historically low interest rates and negative real interest rates (inflation is greater than the nominal interest rate even in parts of the world where rates are increasing), massive government debt from the United States to Europe, central bank buying, flat mine supply, physical demand, investment demand, emerging market growth, geopolitical unrest and conflicts, and inflation concerns…the list goes on.  It’s hard to imagine Gold not performing well in this environment.  The Middle East is being turned on its head and that could ultimately have major positive consequences for Gold.

What’s also driving Gold is the weakness of the United States, brought on in no small part by one of the most ineffectual Presidents the nation has ever been saddled with.  America has lost its way and the recent S&P downgrade is both a real and a symbolic reflection of that.  Since the summer of 2009, the U.S. economy has produced a net total of just two million jobs while federal spending has gone through the roof.  Throughout its incredible history, the United States has demonstrated an amazing resiliency and the ability to bounce back from major economic, social and political troubles.  It will do so again but this will take time and a real Commander-in-Chief in the White House by November, 2012.  By then Gold will have climbed another 50% or more.