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TSX Venture Exchange and Gold

The Venture Exchange climbed for the third straight week, posting a gain of 12 points to finish at the technically important 1240 level where the Index is again fighting a down trendline in place for nearly two years.  Friday’s market action was evidence that the Venture is about to overcome this down trendline imminently.  Gold was weak Friday, down more than 1% intraday, and Copper slid a nickel, yet the Venture managed to close unchanged for the day at 1240.   RSI(14) is climbing and the trend is bullish as shown by the ADX indicator with the +DI having crossed significantly above the -DI for the first time since mid-August in John’s 7-month daily chart (see below).  Volume does need to increase but we suspect it will this coming week given the bullish technical signs we’re seeing.  Once the Venture moves through 1240, the next major resistance is around 1260 where the 100 and 200-day moving averages converge.  Folks, this market has turned. You can see it just by examining the chart over the last eight months (extreme negative sentiment, the basing pattern, the double bottom, etc.).  Yes, the train is finally moving in the right direction albeit very slowly at the moment.  That will change in due course as the Venture crosses key technical levels.  Continued patience is important, but getting positioned now in quality companies that are going to be aggressive in 2013 should reap huge rewards as the year progresses.  Don’t make the mistake of waiting until everyone has jumped on the bandwagon.  Get in ahead of the crowd.

Global Markets On The Move

The technical similarities in recent years between the Venture Exchange and China’s Shanghai Composite are quite remarkable, as John’s comparative charts have shown, and the Shanghai recently broke out of its down trendline which was also in place for nearly two years.  So that’s another reason we’re so hopeful regarding the Venture at the moment.

Investors this past week poured the most money into equity funds in more than five years, as global shares surged and a compromise deal on the U.S. “fiscal cliff” boosted confidence.  Net inflows into equity funds monitored by EPFR Global (they track fund flows and asset allocation data) hit $22.2 billion in the week to January 9 – the highest since September, 2007, and the second highest since comparable data began in 1996. Record inflows into emerging market and world funds drove much of the expansion.  The figures capped a week during which global equity indices hit multi-year highs, encouraging speculation about a “great rotation” this year out of safe, recession proof assets such as government bonds and into equity markets.  “It has certainly got something of that look about it,” said Cameron Brandt, EPFR research director.  “It is broadly based with strong flows into equities from retail investors and into actively managed funds.  It has a different feel to it than other recent spikes in flows into equities.”

After a strong start to the year, the S&P 500 hit a five-year high this past week.  In London, the FTSE 100 ended the week at 6122, taking it to levels last reached in May, 2008.  Its 3.8% surge over the first full trading week marked the best start of any year since 1999.  The FTSE All-World index finished at 231, its highest level since May, 2011.

Gold

Gold was up $6 for the week to close at $1,663, putting it right in between strong Fibonacci support at $1,648 and resistance at $1,672 (the EMA-20 and a down trendline in the 6-month daily chart).  RSI(14) has been trending higher since mid-December and other indicators (SS and ADX) are encouraging, so we believe the likelihood of an upside breakout significantly exceeds the risk of a move in the opposite direction below support.  Strength in the Venture suggests there are good things in store for Gold as the first quarter continues.

Chinese Gold imports from Hong Kong almost doubled in November on a month-over-month basis as expectations of an economic recovery and more attractive prices spurred Gold purchases. Mainland China purchased 90,764 kilograms, including scrap and coins, compared with 47,478 kilograms in October.  Meanwhile, the U.S. Mint sold a massive 3.9 million ounces of Silver in the first few days of 2013, already surpassing the entire December total of 1.64 million ounces.

Japan announced a $117 billion fiscal stimulus plan a few days ago and pressure is being exerted on the Bank of Japan to do more quantitative easing and set an inflation target above 2%.  These actions show the global easing cycle is far from over, a bullish factor for Gold and commodities in general.

Silver gained 22 cents for the week to close at $30.44 (John will have his usual short-term and long-term Silver charts Monday morning).  Copper closed down a penny at $3.64.  Crude Oil gained another 47 cents to finish at $93.56 while the U.S. Dollar Index got hammered, losing almost a full point to close at 79.55.  Support is at 79 but a crash through 79 at some point during this first quarter is appearing increasingly likely given the bearish head-and-shoulders top that has been forming in recent months and is nearly complete.

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 keep the euro zone intact and to kick-start the global economy.  It’s hard to imagine Gold not performing well in this environment.