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TSX Venture Exchange And Gold-Silver

The Venture Exchange appears to have put in a double bottom after sliding as low as 1163 last Tuesday and rebounding modestly as the week progressed, closing at 1191 Friday.  While that was still a 5-point loss for the week, the Venture is positioned for a very significant breakout in the coming days – a move above its daily EMA-20 (currently at 1193), as Gold has just done, which has provided key resistance for the Venture since this brutal downtrend took hold in the spring.  Below is John’s updated chart for the Venture.

New uptrends in Gold and Silver, fueled by clear indications of pending aggressive action from the European Central Bank and QE3 from the Federal Reserve, will give the Venture Exchange the lift it needs in our view to break out of a five-month malaise (fresh technical strength in the Canadian Dollar is also a bullish sign for the Venture).  Continued positive drill results from numerous companies as well as potential fresh discoveries over the summer could ignite a rally of significant (even historical) proportions.  What has happened over the last several months is like taking an elastic band and stretching it as far as it can go – it’s now ready to snap, so be prepared.  Sentiment levels have been extremely low and there is plenty of cash on the sidelines waiting to pile in at just the right time.  That’s when aggressive bull moves are born.

Europe is set to move toward a new round of joint bond buying to ease borrowing costs in Spain and Italy as German Chancellor Angela Merkel and French President Francois Hollande pledged yesterday to do “everything” to protect the euro.  They echoed European Central Bank President Mario Draghi’s vow Thursday to defend the euro as he urged (or warned) investors not to bet against him.  Draghi pledged to do “whatever it takes to preserve the euro and, believe me, it will be enough.”

Those are powerful words from a central bank president who must know he has the firepower at his disposal to back those words up, otherwise that statement would end up being counterproductive and the market would be like a shark smelling blood.   The French newspaper Le Monde reported that the ECB is preparing a plan to buy bonds in the secondary market in the coming weeks to be followed by purchases in the primary market by government-financed bailout funds.

Meanwhile, a front page story in the Wall Street Journal several days ago, written by ace reporter Jon Hilsenrath, was widely believed to be leaked from the Fed to prep the market for potential Fed policy actions as soon as this coming week or – at the very latest – by the beginning of September.  The Fed is growing increasingly impatient with economic growth, though it’s in a damned-if-it-does, damned-if-doesn’t position.  Expect a bit of a twist to this third round of “quantitative easing”, a drug that commodities and the Venture Exchange particularly enjoy.

It’s important to note, however, that while the Fed may be able to help give the U.S. economy a modest jolt, if indeed Ben Bernanke pulls another rabbit out of the hat, three are still three dragons that need slaying before the American economy can really start to gain traction – the Tax Cliff Dragon, the Regulatory Dragon, and the Obamacare Dragon.  Each is choking the U.S. economy and hopefully all three can be dealt with appropriately in November which means Americans will have to elect a new President.  Would another Ronald Reagan step forward, please?

Gold and Silver

It was a hugely significant week for Gold and Silver as the prospect of more monetary easing worldwide gave both a major lift.  Gold gained $40 an ounce to close at $1,624 while Silver jumped 46 cents to finish at $27.79.

On Thursday, Gold broke above the down trendline resistance in place since March.  This was confirmed Friday by another surge in volume.  It has also moved above both its daily EMA-20 and weekly EMA-20.  We’re now about to enter a period of seasonal strength for Gold (August and September).

Silver is also headed higher and John will update that chart Monday morning.

Copper was unchanged for the week at $3.43.  Crude Oil fell $1.70 to $90.13 while the U.S. Dollar Index ran into resistance at 84 and finished the week down nearly a point at 82.61.

The fact the greenback is now looking bearish is another bullish sign for commodities, though dollar strength the last couple of months has not been able to depress the Gold price – a pattern witnessed in other periods just before a major run in Gold.  Below is an updated U.S. Dollar Index chart from John.

Mineweb has reported that Hong Kong’s largest Gold storage facility, which can hold about 22% of the bullion now in Fort Knox, will open in September to meet rising demand from banks and the wealthy. Hong Kong is emerging as a very important center for Gold, especially because it acts as a doorway to China. The current list of hubs include New York, Zurich and London, but there is a growing demand to set up an Asian hub for physical Gold storage as wealth departs socialist countries.

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 that won’t end anytime soon (inflation is greater than the nominal interest rate even in parts of the world where rates are increasing), money supply growth, 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.  Massive central bank intervention appears increasingly likely to prevent a breakup of the euro zone and to kick-start the global economy.  It’s hard to imagine Gold not performing well in this environment.