BullMarketRun.com

TSX Venture Exchange and Gold

It was an ugly week for the markets and the CDNX led the decline, dropping a staggering 12% to 1546.  The only good news is, the CDNX has hit extremely oversold levels and based on John’s chart Thursday we’re expecting a reversal to the upside beginning as early as Monday.  All asset classes were hit hard last week (Copper fell below key support) though the U.S. Dollar Index continued to climb.  The Dow was off 6.4%, the Nasdaq declined 5.3% and the TSX dropped 6.5%.

In retrospect, the unusual decline in the CDNX last March actually likely signaled the start of a bear market.  That’s becoming more clear now given the trading patterns in the CDNX over the last six months.  Major bull market corrections in this Index typically last anywhere from one to several months.  We are now into the seventh month.  Last week’s action showed that August was no accident or a final “capitulation”.  And while extreme oversold levels should allow for a move back up this coming week, the final quarter of the year could be rough with the 300 and 500-day moving averages unlikely to be able to continue to rise.  The current action in Copper is confirming a worse than expected global economic slowdown if not in fact a recession.  Protection of capital, as always, is critical.  And remember – fortunes are born when there is blood in the streets.  A final capitulation in the markets has likely not yet occurred but could during the fourth quarter.

Gold

There was an interesting, albeit ridiculous, article concerning Gold in Saturday’s Globe and Mail (“Gold Is For The Fool – If You Are Looking For Safety”).  It was written by David Berman and from the sounds of it, he may have been buying Gold at $1,900 an ounce recently and is now whining that it’s not acting like a “true safe haven”.  Berman showed that he has no understanding of the Gold market or even technical analysis for that matter,  but he nonetheless has been given the platform to mislead people in Canada’s so-called national newspaper.

It was obvious last month from a technical perspective that Gold had become extremely overbought and that the next major push to the upside, through $2,000 an ounce, could not occur until after a substantial correction and consolidation.  John provided some logical downside targets which included approximately $1,600.  Yesterday, of course, Gold scared many as it fell $100 an ounce at one point before closing down $79 at $1,657.  Despite a nearly (and much-needed) $300 drop since the September 6 all-time high of $1,922 on the Spot Market, Gold remains the ultimate currency and the best safe haven there is for long-term investors.

Gold’s overbought condition has been unwinding significantly as this consolidation phase continues, a phase that potentially could carry on for several more weeks.  So patience is the key.  Gold likely hasn’t bottomed out just yet but you’ll notice in John’s chart below (2.5-year weekly chart) how the RSI has dropped very close to support.

Silver got hammered last week and closed Friday at $30.93 (John is working on a new Silver chart which we’ll be posting later today or tomorrow morning at the latest).  Copper plunged through an important support band between $3.60 and $3.78 and closed at $3.30.  Crude Oil fell to $79.85 while the U.S. Dollar Index finished at 78.31.

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 (inflation is greater than the nominal interest rate even in parts of the world where rates are increasing), 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.  It’s hard to imagine Gold not performing well in this environment.  The Middle East is being turned on its head and that could ultimately have major positive consequences for Gold.

What’s also driving Gold is the weakness of the United States, brought on in no small part by one of the most ineffectual Presidents the nation has ever been saddled with.  America has lost its way and the recent S&P downgrade is both a real and a symbolic reflection of that.  Since the summer of 2009, the U.S. economy has produced a net total of just two million jobs while federal spending has gone through the roof.  Throughout its incredible history, the United States has demonstrated an amazing resiliency and the ability to bounce back from major economic, social and political troubles.  It will do so again but this will take time and a real Commander-in-Chief in the White House by November, 2012.  By then Gold will have climbed another 50% or more.