BullMarketRun.com

TSX Venture Exchange and Gold

Note: Monday Morning Musings to be posted at 4:00 am Pacific, 7:00 am eastern

Friday’s action in the Venture – a modest 11-point loss – was actually quite encouraging on a day when Gold suffered one of its worst sessions of the year, the TSX Gold Index plunged 4.4%, while the broader equity markets were all down sharply.  Several months ago the same scenario would have resulted in an ugly day for the Venture which underscores how much this market has changed recently with the bulls having wrestled control from the bears.  For the week, the Venture was actually up 9 points as it closed at 1310, 10 points above its rising 50-day moving average (SMA) which has been providing impressive support.  Over the last four weeks, the Venture is down just 35 points or 2.6% vs. a $104 drop (5.8%) in the price of Gold, a 4.9% pullback in the Nasdaq and 3.8% decline for the Dow.  The Venture is out-performing other markets and that’s very bullish.

The Venture chart looks good.  RSI(14) recently broke above a down trendline and should find support right around the 50 level.  Buying pressure remains solid, and up volume has been greater than down volume.  And it’s always a positive sign when the Venture is outperforming the price of Gold as it has over the last number of weeks.  What that tells us is that Gold’s current weakness is only temporary and the primary trend is up.  The Index has very strong support from 1250 to 1300.  There is also an important resistance band between 1350 and 1365.  Ultimately, markets always take the path of least resistance.  Our belief is that the Venture this month will break out to the upside and this uptrend that started over the summer will accelerate and really gain some traction come January.  The 1,000-day SMA has reversed to the upside, ending a four-year decline, and the significance of this cannot be overlooked.

Below is John’s updated 6-month daily chart for the Venture.  The upcoming week is going to be critical, especially with Tuesday’s presidential elections.  The stage is set for a major fresh push to the upside which would include a confirmed breakout above a down trendline that has been in place since early 2011.  Alternatively, if overall markets head south, the Venture has varying levels of support between 1250 and 1300.

Gold

It was another rough week for Gold, although bullion was doing well up until Friday.  A moderately better-than-expected U.S. jobs report Friday morning (non-farm payrolls increased by 171,000) sent the U.S. Dollar Index soaring by more than half a point with Gold tumbling through support at $1,700 and finishing down $38 for the day at $1,677.  This was a classic overreaction to one piece of economic data, and technical factors in both Gold and the Dollar Index triggered major moves in each.  The U.S. economy needs to generate at least 200,000 new jobs each month for an extended period in order to bring the unemployment rate down significantly, which is why there’s no end in sight to the Fed’s easing measures (Bernanke has made this clear).  The market should understand this but a re-election of President Obama on Tuesday should pound that message home.

Besides the U.S. elections, there will be plenty of news for Gold bugs to chew on over the next week.  Mexico is hosting a Group of 20 meeting of finance ministers and central bank governors beginning this weekend.  There are central bank meetings in Australia, Britain and the ECB in the coming week, and China’s 18th party congress starts Thursday.  It will set new policy directions and elect new leaders for the next five to 10 years.

The fact Gold climbed all the way to $1,800 recently and then corrected was no surprise to John, our technical guru, who predicted the breakout and also made it clear that Gold had become technically overbought in September (commercial traders also built up large short positions) and needed to cleanse that condition.  The three major Fibonacci support levels he identified were $1,700, $1,670 and $1,646.  So the downside from current levels appears limited.  Physical buying, short covering, and technical support are all good reasons to believe that Gold is very close to putting in a bottom before a year-end rally.  The general consensus is that an Obama re-election will be immediately bullish for Gold and bearish for the greenback, which makes Friday’s action even more perplexing given that state polls in battleground areas give Obama the edge going into Tuesday.

Elsewhere around the globe, euro zone unemployment rose to the highest level (11.6%) since records began for the series in 1995, Japan’s industrial production fell 4.1% in September, and Brazil industrial production fell 1% in September, worse than expected.  Expect central banks around the world to continue to print money faster than rabbits can make bunnies, and that’s bullish for Gold.

Below is an updated 6-month Gold chart from John that shows RSI(14) has plummeted to 31%.  Some more weakness is possible, but again the downside from here is limited.  Only a Romney victory in our view could create a scenario in which Gold temporarily became heavily oversold and collapsed below the $1,640 support (good news for the U.S. economy, it seems, is bad news for Gold).

Silver plunged $1.35 an ounce Friday but finished down just 18 cents for the week at $30.91.  It has a strong support band between $30.50 and $31, and John will update the short-term and long-term Silver charts as part of Monday’s Morning Musings.  Copper was off 6 pennies for the week at $3.48.  Crude Oil declined $1.42 a barrel while the U.S. Dollar Index jumped just over half a point to 80.56 but faces a stiff resistance band beginning at 81.

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.