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TSX Venture Exchange and Gold

The Venture Exchange held critical support this past week, dipping as low as 1166 but recovering intra-day Thursday and again Friday to close the week at 1184.  The loss from the previous Friday was just 2 points.  Sellers’ exhaustion has once again set in with this market.  If the bears couldn’t take this Index to a new low last week in the face of tax-loss selling pressures, “fiscal cliff” worries and weakness in Gold (an overall climate of negativity), then indeed we have seen the bottom in the Venture for 2012 and a much healthier market should begin to emerge going into year-end and the start of 2013.  In fact, we saw the first evidence of this Friday as the Index climbed 10 points.  As we stated recently, once traders and investors have the perception that the Venture has found a bottom – for six months it has stayed above the 3-year low of 1154 set in late June, successfully re-testing that low this month – then market psychology could change dramatically very quickly.  We saw the same thing in the opposite way in March, 2011, when astute investors came to the conclusion that the Index had made an important top at nearly 2500 after more than tripling in value since late 2008.

Below is an updated 7-month daily chart from John – notice how buying pressure has increased in each of the past 4 sessions.

Gold

Gold continued to bounce around last week with some large funds locking in profits for the year, keeping resistance around the EMA-20 which is currently at $1,713.  Concerns over the “fiscal cliff” have also helped to keep Gold in check.  As Duetsche Bank reported, if the fiscal cliff talks were to fail, “this would result in a further decline in money velocity within the country which would be an offset to the growth in money supply implicit in the Fed’s QE announcement.”

The surprise from the Fed Wednesday was the elimination of its pledge to keep rates low through mid-2015 with numerical thresholds on unemployment and inflation expectations (which potentially of course come before or after 2015).   The Fed also planted the seed regarding the removal of stimulus, saying that it would do so in a balanced way.  This could be construed as slightly more hawkish than the market expected. For now at least, however, the current QE program is on pace to “print” $1 trillion per year until the economy improves.  “Operation Twist” was revenue-neutral.  The actions the Fed announced Wednesday are not – its balance sheet will be expanding by a further $45 billion each month $85 billion in total) until the unemployment rate falls to 6.5% (not likely anytime soon) or inflation unexpectedly starts taking off (also not likely anytime soon).

Barclays Capital said Friday it is forecasting an average price of $1,815 an ounce for Gold in 2013.  Analysts said they were lowering their prior forecast but “we retain a positive view on the Gold market.”  Gold has been hurt by profit-taking lately as year-end approaches and amid uncertainty about the fiscal cliff.  Investor interest has diverged, Barclays said, pointing out that holdings of Gold by exchange-traded products remain around record highs but tactical positioning among futures traders has weakened.  “Positives are that physical demand has responded to prices at one-month lows; central bank buying continues; and, in our view, a number of price triggers are stacked in Gold’s favor over the forthcoming months,” Barclays said.  “In line with our economists’ expectations, the FOMC converted Operation Twist into open-ended purchases of long-term Treasury securities at a rate of $45 billion per month, meaning the Fed balance sheet will expand at a rate of $85 billion per month. Beyond the fiscal cliff negotiations, uncertainty over the U.S. debt ceiling lingers, and in Europe our economists expect the Spanish government eventually to request a precautionary program.”

Below is an updated 6-month Gold chart from John who expects the yellow metal to continue to trade in the support band between $1,675 and $1,700, perhaps through the end of the month.

Sales of American Eagle one-ounce Gold bullion coins more than tripled in November of this year, from 41,000 ounces sold in November 2011 to 131,000 ounces.  The U.S. Mint also reported that total Gold sales increased 132% from 59,000 ounces in October 2012 to 136,500 Gold ounces in November 2012.

Silver suffered some minor technical damage last week, falling 80 cents to $32.31 (John will have updated short and long-term Silver charts Monday morning).  Copper gained 3 pennies to $3.65 on positive economic news out of China.  Crude Oil jumped 80 cents to $86.73 while the U.S. Dollar Index tumbled nearly a point to 79.56.

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.