TSX Venture Exchange and Gold
While the broader equity markets continue to push higher, with the S&P 500 surpassing its closing high of 1565.15 last week and recovering all its losses from the financial crisis, the Venture continues to struggle and fell for the 8th consecutive week to close the month of March – the first time in 13 years the Venture has fallen each week during both February and March. While the Dow recorded its best first quarter performance in 15 years, the Venture posted its second-worst Q1 in 13 years with a decline of 10% (only Q1 in 2008 was worse with a nearly 13% loss, but that was mostly the result of a steep broad market sell-off in January).
Sentiment levels regarding the Venture closely parallel those of Gold which has posted back-to-back quarterly losses for the first time since 2001. Almost no one is left to turn bearish on Gold, and the same could probably be said of the Venture. That’s not to say both couldn’t drop a little lower from current levels (Gold has excellent support around $1,550 while the Venture has strong support in the low 1090’s and also in the 1020’s at the summer 2009 low). But a recovery during this second quarter seems likely, especially considering historical trading patterns (the average gain in the HUI in the month of May between 2001 and 2012, for example, has been nearly 7%).
Below is an updated 5-year weekly Venture chart from John. The down trendline must be broken before investors will have confidence that a true reversal or a sustained move to the upside is underway. In the meantime, the Index may simply “crawl along the bottom” for a while longer or we could even see a capitulation move down to 1027 support. The RSI(14) divergence with price is a positive sign and gives us hope that a turnaround is not far off. Patience is the key. Keep in mind that out of the deepest despair the biggest up-legs are formed. While there’s a lot of junk on the Venture and several hundred companies that should simply disappear, there are also legitimate opportunities that could post big percentage increases this year from current depressed levels. The trick, of course, is to separate the wheat from the chaff.
Gold
Gold continues to show little conviction one way or the other at the moment, hovering around the $1,600 area. For the week, bullion declined $11 an ounce to close the month and the quarter at $1,598. The support band between $1,550 and $1,600 is quite strong, aided in part by physical buying out of Asia and emerging markets. It’s actually encouraging that Gold is holding above $1,550 in the face of the selling pressure that kicked in very early this year after a long period of steady buying pressure.
Silver fell 47 cents to close at $28.30. Crude Oil posted its fourth straight weekly gain, climbing $3.78 a barrel to $97.23 – its highest level since mid-February. Copper fell to important support at $3.40 while the U.S. Dollar Index gained more than half a point to 82.98.
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), a Fed balance sheet now in excess of $3 trillion and expanding at $85 billion a month, 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. In the current environment, it’s hard to imagine Gold dropping below key support around $1,500.
