TSX Venture Exchange and Gold
It wasn’t a pleasant week on the financial markets as the Dow suffered its worst week of the year, falling 4% after its 12th losing session out of 13 Friday, while the speculative Venture Exchange really got hit hard, losing 9% of its value last week after closing Friday at 1228. Since February 29, the Venture has plummeted 28% from a 2012 high of 1696 to its lowest point – 1215 – since September, 2009. Relief to the Venture started to come Thursday when Gold rose strongly after hitting a 10-month low of $1526.70.
Where to from here?
Over the past few years the Venture Exchange and commodities have performed best when the Federal Reserve has engaged in “quantitative easing” or, in the early part of this year, when the ECB was in the midst of its LTRO program. Given the recent escalation in the euro zone crisis, and an apparent weakening of the U.S. economy, additional measures from the Fed – besides a commitment to maintaining a zero interest rate policy through 2014 – and a “big policy” response out of Europe to keep the euro zone intact, could be in the cards. Perhaps this growing possibility is what woke up Gold on Thursday.
Stock markets are clearly deeply oversold and pessimism is high – typically what one sees at an important bottom.
Below is John’s updated chart for the CDNX. For now, it appears conditions are ideal for a near-term rally in the Venture in concert with the broader markets. Only time will tell if a bottom has actually been put in, but at 1215 that’s quite possible – especially with the apparent turnaround in precious metals. The Venture is down 51% from its 2011 post-crash high of 2465 while the TSX Gold Index has plunged as much as 42% from its all-time high last summer.
Gold
Gold rallied sharply Thursday and Friday, in what appeared to be more than just a short-covering bounce, after successfully testing strong support in the low $1,500’s and putting in a hammer candle. “Growth” appears to have prevailed over “austerity” in Europe and elsewhere. If global central banks crank up the printing presses, the yellow metal could go ballistic. In addition, the U.S. Dollar Index hit resistance and critically overbought levels last week. Look for Gold to build on this new momentum and power higher next week as our updated chart suggests.
The chart below, taken from www.usfunds.com, shows the 60-day percentage change of the Gold price and the U.S. Dollar. Gold’s recent weakness has triggered a -2.2 sigma event in standard deviation terms. Over the past 10 years, this has happened less than 2% of the time. Historically, each time Gold has touched the -2 sigma mark, the precious metal has rallied.
TSX Gold Index
The TSX Gold Index was unchanged for the week at 286 after an intra-day low of 266 Wednesday, an area of support from early 2009. The drop from February 23 to Wednesday’s low was a whopping 32%, even greater than the drop in the juniors (28% for the Venture). The producers rallied Wednesday, Thursday and Friday, giving hope that this nasty correction has come to an end.
In an interview on Mineweb.net, Gold Fields CEO Nick Holland said that the Gold industry needs a price above $1,500 per ounce, otherwise curtailment of projects, rationalization and possibly more consolidation was in the cards. Holland pointed out that the all-in cost of the industry to produce an ounce of Gold is probably around $1,400 per ounce and that doesn’t leave a lot of margin at $1,500. CIBC recently pegged $1,700 per ounce as the replacement cost for an ounce of Gold and highlighted that tax increases have been one of the fastest growing components of the cost creep.
Silver
Silver fell 17 cents last week to close at $28.72 but also formed a hammer reversal after touching a low of $26.73 intra-day Wednesday. It looks very bullish at the moment as John shows in this 2.5-year weekly chart.
Copper lost 18 cents last week and closed at $3.49. Crude Oil fell another $4.65 to $91.48, putting it below the $92 level for the first time since last October. The U.S. Dollar Index, meanwhile, has been on a powerful run and gained nearly a point last week to finish at 81.09. It ran into resistance above 81.50, however, and needs to unwind an extreme overbought condition.
Like clockwork, all over the media you will get articles on how to protect your money when the markets have already dipped and right at the top you see articles like Goldman’s “Go long equities”. Every article printed now seems to be signalling the end of the world which indicates to me a chance to put some money to work. There are massive problems currently in the world which have a long way to go before they are resolved, but my prediction is we are going to see some unprecedented policy moves shortly.
Comment by Joey — May 19, 2012 @ 5:51 pm
Report out late Friday on Gbb (website). 43-101. Appears to be lots and lots of gold!! Should be a wonderful takeover target with many multiples first. The beginning of a good run when the market turns. Blue sky potential with more drill results to be reported. Should be worth the long wait!!!
Natalie
Comment by Natalie — May 20, 2012 @ 11:18 am
RBW-from stockhouse..
Over the next 5 weeks, there are a lot of shares and warrants “coming to the market”, potentially.
This is the warrants situation:
Warrants Exercise Price Expiry date
2,345,000 $ 0.15 June 29, 2012
7,500,000 $ 0.25 June 29, 2012
1,000,000 $ 0.25 December 29, 2012
684,500 $ 0.25 June 7, 2013
2,996,501 $ 0.25 August 13, 2013
140,000 $ 0.15 August 13, 2013
Total number of warrants: 14,666,001
There are over 9,8 million warrants to expire by the end of June at prices between $ 0.15 and $ 0.25. Usually the warrant holders sell some of their shares to get cash for exercising the warrants. So this could be the first “inflow” of shares in the market.
The second issue is the expiry of the holding period of the latest PP shares.
There will be over 5,500,000 shares (from the second tranche of the latest financing which closed Feb. 15) become free tradeable at June 15. These PP participants got over 2,750,000 warrants as well. Around this date there could be additional shares “coming to the market”.
So I would monitor the price action and the selling of bigger blocks through individual houses over the next 5 weeks. By the end of June, we should be through this critical time window and be fairly safe until the end of December when the next batch of warrants expires.
FANTOMAS
Comment by db — May 21, 2012 @ 5:33 am
Just a couple of comments on that. Share structure is always critical, and RBW does have the benefit of a tight share structure. First, the latest PP was done through mostly management and close associates and original Braveheart shareholders – it was not a PP that brokers were flogging. So expect very, very little of that stock to come out into the market when it becomes free-trading. These are long-term holders.
The 15 cent warrants that are still left are apparently mostly in the hands of management and a few close associates, from the original financing of Rainbow. Again, I expect very little selling of stock to exercise these warrants – these individuals have ample resources and shouldn’t have to sell stock in order to exercise some 15 cent paper.
If 25 cent warrants are getting exercised, then we all can be happy because that will mean the stock is trading above that level. If those warrants aren’t exercised by the end of the June, I would hope the company would just let them expire and that would further tighten the share structure and bring down the number of fully diluted shares.
Comment by Jon - BMR — May 21, 2012 @ 6:31 am
Jon
“I would hope the company would just let them expire and that would further tighten the share structure and bring down the number of fully diluted shares”.
Realistically, Whats the chance of that happening?
Comment by Greg — May 21, 2012 @ 7:08 am
Hi Greg, sorry but I’m not quite understanding your question…..those 25 cent warrants will either be exercised or not by the end of June…..if they are, we can assume the stock price will be above 25 cents……that would be great but at this point we have no way of knowing if overall market conditions will allow for that by the end of June…….if they aren’t exercised, and are allowed to expire, that’s not such a bad thing either as a warrant “overhang” is removed from the market and the total # of fully diluted shares decreases……as simple as that….
Comment by Jon - BMR — May 21, 2012 @ 7:59 am
Jon
rbw could extend the time period to exercise the warrants? right?
Comment by Greg — May 21, 2012 @ 8:09 am
Can they lower the price that they are exercised at too?
Comment by Greg — May 21, 2012 @ 8:10 am
Yes, there are provisions in the rules to extend and lower warrant exercise prices…but…..would this be the best thing for RBW to do? I don’t think so. There are a lot of warrants outstanding at the moment, including nearly 4 million at 25 cents from the Feb. financing, so if these other 25 cent warrants expire at the end of June, this just tightens up the share structure and removes some “overhang” in the market. Sets up some bullish conditions for the summer.
Comment by Jon - BMR — May 21, 2012 @ 8:48 am
Thanks Jon
Comment by Greg — May 21, 2012 @ 10:25 am
I would think they would extend the expiry, but thats my 2 cents worth.
Comment by dave — May 21, 2012 @ 8:04 pm