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TSX Venture Exchange and Gold

The Venture lost another 35 points last week to close at 1186 but selling abated during the last half of the week.  Bears are quickly running out of time to drive the Index below critical support as tax-loss selling winds down and the Venture approaches a period of seasonal strength during the final trading week before Christmas.  The Venture may also get some support from the FMOC meeting this week when the Fed may announce new easing measures which could amount to an expansion of its balance sheet.  If the “Fiscal Cliff”, tax loss selling and a host of other factors can’t drive the Venture to a new 52-week low in December, then a major shift in psychology could occur with the market coming to the conclusion that the lows for this cycle have been put in and the chances of an upside breakout (a move through the down trendline in place since 2011) are greater than another breakdown through support.

RSI(2), shown below on John’s 7-month daily chart, closely resembles the pattern witnessed when the market bottomed in late June.  Sellers’ exhaustion once again appears to have set in, so we’re anticipating that critical support will hold which should be bullish going into 2013.

Gold

Gold continues to bounce around and some of the recent volatility may have been due to year-end fund liquidation and squaring of positions as seen last year at this time.  Gold dipped below $1,700 during the week but closed Friday at $1,704 to trim its loss to just $11 for the week.

Traders will be focused on the FOMC meeting this week.  The Federal Reserve is expected to maintain its bond buying at $85 billion a month after a meeting on Tuesday and Wednesday, replacing the expiring “Operation Twist” with purchases of longer-term Treasurys funded by new money creation.  The central bank is also expected to reiterate its open-ended commitment to maintain this “quantitative easing” until it sees a substantial improvement in the labor market outlook.  Fed Chairman Ben Bernanke will speak to the media Wednesday afternoon to explain the Fed’s decision.

Central banks continue to be active buyers in the Gold market.  The Bank of Korea announced it increased Gold reserves 20% last month to diversify investments, boosting holdings for the fourth time since June.

“We retain a positive view on Gold as the physical market has responded to lower prices while central bank buying continues,” Barclays stated.  They also noted that lower Gold prices appear to have stimulated interest from India and China.

John’s 6-month daily chart shows a very strong support band between $1,675 and $1,700.  RSI(14) is showing increasing up momentum.  Overall, we’re looking at a bullish scenario here, not a bearish one.

Silver fell 33 cents last week to $33.11 (John will have updated short-term and long-term charts tomorrow).  Copper was unchanged at $3.62.  Crude Oil dipped nearly $3 a barrel to $85.93 while the U.S. Dollar Index briefly fell below 80 during the week but recovered to close up one-fifth of a point at 80.41.

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.