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TSX Venture Exchange and Gold

It was another rough week for most Venture stocks as the Index fell through important support, hitting an intra-day low Thursday of 1124 (4 points above another support level) before rebounding somewhat to close Friday at 1145.  That was still a 41-point drop for the week.  The question is, was Wednesday/Thursday a capitulation moment – coinciding with a sharp sell-off in Gold?  There is no question that negative public sentiment toward Gold at the moment, and Gold stocks in general, is at extreme levels, and this has taken its toll on the Venture.   As we pointed out the other day, the RSI(14) for both Gold and the TSX Gold Index hit 13-year lows on some long-term charts – quite incredible, actually, and additional evidence that bearishness has reached extreme levels.  In this business, when the crowd is going in one direction only, it’s usually wise to move quickly in the opposite direction.

Below is an updated 3-month daily Venture chart from John.  Support is at 1120 while resistance is in the mid-1160’s.  A test of that area is likely in the near future.  Failure to push through that resistance could result in a re-test of last week’s low.  Investor patience is critical.  When this Index finally breaks out of its slump that started in March, 2011, the move to the upside could be explosive as the technical picture reverses.  The catalyst for that could be a major discovery and/or a powerful turnaround in Gold and Silver.

Gold

Gold took another beating last week, losing $28 to close at $1,581 after falling as low as $1,555.  But as John showed in a long-term chart a few days ago, bullion could drop to $1,500, or even slightly lower, and such a development would still keep the 12-year-old bull market cycle technically intact.  In fact, $1,500 would only be a 22% correction from the summer 2011 high of just over $1,900.  Investors have to keep these pullbacks in perspective.  In 2008, Gold corrected 30% in another classic example of the crowd running in the same direction.  That quite normal “dip” was an incredible buying opportunity, and Gold stocks became an absolute steal.

One lesson we’ve learned in examining the Gold market is to keep a very close watch on what the commercial traders are doing.  When they aggressively ramp up their short positions, it’s best to get on the defensive as bullion is likely headed for a drop.  This occurred last September which is one reason we suggested investors take a look at the HGD (double short TSX Gold Index ETF) which at the time had been beaten down severely and was extremely oversold around $8.  The opposite is now the case – the HGD became extremely overbought this past week, and the latest COT chart for Gold is at its most bullish for a over a year as the commercial traders have dramatically reduced their short positions.  In otherwords, Gold is close to a major turnaround.  It could still dip a little more – even test $1,500 – but the point is that Gold is nearing a bottom if it hasn’t hit one already.  That’s why the HGU (double long TSX Gold Index ETF) is starting to look very attractive.  As always, perform your own due diligence.

Another bullish contrarian sign last week – the world’s biggest Gold-backed ETF, the SPDR Gold Trust, experienced its largest one-day outflows since August, 2011.  Many investors simply fled the sector following the Federal Reserve’s meeting that revealed a growing dissension among some of its members over the central bank’s bond-buying program.

Below is a 2-year weekly Gold chart update from John.  Don’t expect a dramatic reversal to the upside just yet.  But one is definitely in the cards in our view.

Silver fell 54 cents last week to close Friday at $28.76.  Copper tumbled 19 cents to $3.53.  Crude Oil fell $2.59 a barrel to $93.13 while the U.S. Dollar Index climbed a full point to 81.47, just beneath important resistance.

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.