BullMarketRun.com

TSX Venture Exchange and Gold

The Venture Exchange continues to outperform the broader equity markets, which is a positive sign, but volume at the moment is still short of where it needs to be in order propel the Index through an overhead resistance band between 1350 and 1365.  We believe, however, that it’s just a matter of time before an upside breakout occurs given the Venture’s much-improved technical health.  Investor patience is critical.  For the week, the CDNX lost less than 1% (9 points) to close at 1301 while the TSX was off 1.5%, the Dow fell 2.1% and the Nasdaq tumbled 2.6%.  Strength in Gold and Silver obviously aided the Venture while another friendly takeover (Andina Minerals Inc., ADM) again highlighted the fact there’s a lot of inherent value in this market.

The Venture’s low for the year – in fact, the low for this cycle – was put in early this summer at 1154.  Though most investors don’t recognize it, the Index in our view is now in the very beginning stages of a new bull market – an argument that a lot more people should begin to accept by the first quarter of next year.  Below is a 2.5-year weekly comparative chart that shows how the CDNX continues to threaten to push above a down trendline that has been in place since early 2011.  The rising 50 and 100-day moving averages (SMA’s) are providing excellent support at the moment, and at some point between now and the end of the calendar year this market should gather the strength to convincingly bust through resistance.  The recent reversal to the upside in the 1,000-day SMA constitutes a major long-term trend change that cannot be ignored, and this is one important reason why the Venture has held up so well over the last month or so despite significant pullbacks in the broader markets and a $130 correction in the price of Gold.

CDNX “Hugging” The Down Trendline – When Will The Breakout Occur?

Below is the same chart but over a shorter time frame – notice how the Venture in September started to outperform both Gold and the CRB Index, and how that trend has intensified over the past month or so.  This is a very bullish scenario going into year-end and the beginning of 2013.  One of our big concerns in March, 2011, was when a long trend of out-performance by the Venture (against Gold, the CRB, and the broader equity markets) had reversed.  That was a major red flag.  The opposite is occurring now, and the underlying technical health of the Venture is so much better.  The slow upward progression over the last several months is hugely positive and a strong indication of “smart money” jumping in and accumulating.  Most retail investors get it wrong at both major ends of a cycle – they are almost all very bullish at the top (late 2010, early 2011) and very bearish at the bottom (May-June-July, 2012).  In the early stages of a major trend change, like we’re witnessing now, there is often a lot of denial.

Last week’s U.S. elections mean more of the same:  Democrat Bill Clinton boldly declared that the “era of big government is over”.  President Obama is a different kind of Democrat, and the implications of that are that the U.S. debt problem isn’t going to be solved anytime soon which is bullish for Gold and bearish for the greenback.  The lack of sensible policies out of Washington (Obama’s first major mistake was introducing Obamacare when he should have remained focused on job creation and economic growth) has created a dysfunctional fiscal and regulatory environment that has hampered the private sector’s normal ability to fire up the engines of economic growth.  The private sector has also been “crowded out” by an increasing government share of the economy, and Obama’s rhetoric has been interpreted as anti-business which has has created division and uncertainty.  This has forced the Fed to use monetary tools (for example, “QE to infinity”) to a far greater extent than it normally would to help prop up the equity markets (to create the “wealth effect”), spur job creation and boost the housing market.  Will Obama change course, or be forced to change course, in his second term?  Only time will tell but his instincts are clearly to have government play a bigger role in American society at a time when government really can’t afford to.

We’ll see what happens over the next 6-7 weeks in terms of a potential resolution to the immediate problem of the “fiscal cliff”.  In all likelihood, some sort of compromise will be worked out (the road to a solution will probably be bumpy) that simply kicks the debt can a little further down the road.  Gold will love that, and the equity markets will march forward as Bernanke and other central bank leaders around the world keep the liquidity taps turned on full blast.  At some point this debt bomb is going to explode in ways we can’t even begin to imagine, but in the meantime there are some great money-making opportunities.

Gold

As expected, Gold reacted well to the Obama victory and ended a string of weekly declines with a powerful move to $1,731 – a gain of $54 for the week. Gold has gone through a lengthy period of consolidation following its all-time of just over $1,900 in September, 2011, and we believe the technical indicators are pointing toward much higher prices over the next several months – especially once bullion is able to clear the $1,800 area which it has not been able to do so far this year.

Below is a 6-month daily Gold chart update from John.  Gold broke above its EMA-20 last week which is now reversing to the upside.  The recent move from $1,800 down to the $1,660’s (very close to the rising 200-day SMA) was a normal Fibonacci retracement and nothing to panic about as we stated at the time.  Gold has major technical and fundamental support, and the primary trend remains strongly bullish, which is exactly what the Venture Exchange is telling us at the moment.

Silver climbed $1.72 last week to close at $32.63 (John will have updated short and long-term Silver charts tomorrow morning as usual).  Copper fell a nickel to $3.43, despite some bullish economic data out of China.  Crude Oil gained $1.21 a barrel to $86.07 while the U.S. Dollar Index was up by half a point to 81.07 (it is now within a strong resistance band between 81 and 81.50).

Gold imports by China from Hong Kong climbed 30% in September from a month earlier as central banks across the world took steps to prop up their economies, boosting demand for bullion as a haven. Mainland China bought 69,712 kilograms of Gold including scrap and coins, compared to 53,508 kilograms in August. Gold is in the 12th year of a bull run as investors seek to hedge against weaker currencies, government debt and the threat of inflation.

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.