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TSX Venture Exchange and Gold & Silver

The Venture Exchange enjoyed another strong week, thanks to an open-ended QE3 program unveiled by the Fed, and hit its highest level in nearly four months by closing at 1318.  For the week, the Venture gained 41 points or 3.2% on increased volume (very important) and once again outperformed the broader equity markets (the Dow was up 2%, the S%P advanced 1.9%, the Nasdaq rallied 1.5% while the TSX climbed 1.9%).    The Venture has a lot of catching up to do.  It’s only posting multi-month highs while the Dow and the S&P are at multi-year highs which underscores the extent of destruction that was inflicted upon the speculative junior resource sector during the 2008 Crash.

With Q3, combined with stimulus from other central banks around the world including of course the ECB, and the growing likelihood of an Obama victory in November, the fundamentals going forward into 2013 are highly supportive of commodity prices and potentially massive gains in Gold and Silver.    The U.S. Dollar, meanwhile, is in serious trouble, technically and fundamentally.  This is all great news for the Venture Exchange which of course is very commodity sensitive and has a strong inverse relationship with the greenback.

The Venture has started what we believe is going to be, at the very least, a multi-month uptrend with the 10 and 20-day moving averages (SMA’s) providing support as they did during QE1 and QE2.  So watch for occasional pullbacks to these SMA’s, currently at 1272 and 1255, respectively, and treat any weakness accordingly.  The primary trend now is up.

Between now and the end of October, it seems reasonable that the Venture Exchange will challenge the 1500 level – a 14% advance from Friday’s close – where it will meet resistance (likely temporary) in a declining 300-day moving average.  The 1,000-day SMA is also parked at 1500.  But what’s particularly interesting about this market is that the 1,000-day has flattened out and should reverse to the upside by sometime next month.  That would be a highly significant and bullish technical development considering the 1,000-day has been in decline now for four years.

Below is an updated CDNX chart from John (4-month daily) that paints a picture for the week ahead.  If the bulls have enough strength to immediately take this market through resistance at 1325, which they probably do, then that area will immediately become new support as the Index pushes higher to initially test early May resistance around 1360.  The declining 200-day SMA is at 1400.  Bottom line:  The primary trend is very bullish and the possibility of a massive move to the upside can’t be ruled out over the coming months.  There is still a lot of cash sitting on the sidelines waiting to come into this market.  One or two very significant new discoveries, combined with some takeovers and higher commodity prices, would pour high-octane fuel on the fire.  The risk-reward ratio with the Venture is more attractive now than it has been since the summer of 2010.

Gold

Christmas came early for resource investors Thursday as Fed Chairman Ben Bernanke delivered the gift that will keep on giving – QE3 with a new twist, open-ended and linked to sustained improvement in the labor market.  For many traders and investors, this was surprisingly aggressive as previous rounds of so-called quantitative easing had set ending dates.

The fact that the Fed’s decision came less than two months before the U.S. elections was hardly a coincidence in our view and shows how manipulative the Fed has become.  Obama got elected in 2008 thanks in large part to a plunging stock market and a financial crisis in September and October.  He’ll likely get re-elected this November thanks in part to a rising stock market fueled by the Fed’s actions (the Republicans have also run a horrible campaign – Romney simply can’t sell the conservative message – and that could also result in the Democrats regaining control of both houses of Congress as they did in 2008).  This is significant for Gold because Democratic control in Washington, led by the most liberal American president in history, is not going to focus on shrinking the size of government which means the debt is going to continue to pile up until another economic crisis hits that forces historical change.

Below is John’s 6-month daily Gold chart that shows temporarily overbought conditions, so we do expect bullion to pause when it meets the resistance band between $1,800 and $1,900.  The $1,730 area is now new support.  Ultimately, however, look for Gold to push past $2,000 an ounce by early 2013 at the latest.

As long as the Fed keeps printing money faster than rabbits can make bunnies, Gold is going to continue to climb and climb.  Below you can see the strong correlation since 1984 between the rising U.S. monetary base and Gold’s growing value.

Gold jumped $36 for the week to $1,771.  Silver added $1 to close at $34.68.  Copper gained a whopping 23 cents to finish at $3.80.  Crude Oil jumped $2.58 to close at $99 while the struggling U.S. Dollar Index fell by more than a full point to 78.83.

John will update his long-term Silver chart, with a Fibonacci target level of $78, on Monday morning.

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.  QE3 has arrived, and massive central bank intervention is now taking place 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.