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TSX Venture Exchange and Gold

The CDNX continues to show resilience and the fact it gapped up Friday morning and improved on those gains by the end of the day is a bullish sign entering next week.  With various technical indicators looking positive, including a 50-day moving average that’s now rising for the first time since April, we’re comfortable with the idea that a significant rally in the Index is brewing.  There is evidence of accumulation recently in this market – smart money stepping back in, and that is obviously bullish – at least for the short-term.

Below is an updated CDNX chart that John completed Friday morning, just prior to the market open.  Support at 1500 has held.  The fact this market has had every reason to break support at 1500 recently and hasn’t is a bullish sign.  The increasingly likely scenario now, in our view, is that the CDNX is going to challenge resistance at the November 8 high of 1675 which also happens to be in the immediate vicinity of the declining 100-day moving average (SMA).  At the very least, then, the probability of a profitable rally of just over 8% from current levels appears strong.  A decisive move through the November high and the 1700 area would open the door for a very quick push to 1800 and perhaps higher.  It’ll be important to keep a close eye on volume levels for clues as to how powerful a rally we could see.  It’s much too early to predict the start of another bull market.  Keep in mind, the 100, 200, 300 and 1000-day moving averages are all currently in decline.  The 1000-day, interestingly, is currently sitting at about 1650 and provided resistance at 1675 in November.

For the week, the CDNX finished down just 10 points at 1547 after Friday’s 30-point advance.

Gold

The ongoing euro zone crisis is definitely a major influence on Gold and will continue to be for the foreseeable future.  In other words, the problems in Europe weren’t solved with the Brussels summit and they’re going to continue like re-runs of All In The Family.  We’ll comment more on the euro zone situation in tomorrow’s Morning Musings. The implications of the Brussels summit are significant and will ultimately lead to much higher Gold prices when the European Central Bank finally has to step in and print money faster than Helicopter Ben. At some point, the EU will fail.

For the week, Gold was down $34 an ounce after closing Friday at $1,711.  Support is very strong near current levels as John’s charts have shown.  Silver was off 41 cents to $32.23, Copper was unchanged ($3.57) along with the U.S. Dollar Index (78.59) while Crude Oil fell $2 a barrel to $99.41.

The TSX Gold Index was off 5 points for the week, closing Friday at 403, but like the CDNX this Index shows bullish potential at the moment which tells us Gold could have a strong finish to the year.

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.