TSX Venture Exchange and Gold
The Venture squeaked out a 1-point gain last week to close at 1293 but there are signs the coming week could bring a convincing breakout through the 1300 area, allowing the Index to start gaining some important traction. Markets overall could flip into “risk-on” mode given weekend developments in the euro zone (the $125 billion bailout of Spain’s banks plus movement on the euro bond issue), as well as China, and this would certainly be helpful for the Venture which technically appears poised to move higher.
A reversal to the upside in the 20-day moving average (SMA) for the Venture appears imminent (within the first 3 trading sessions of the coming week). The last time this occurred was in early January and this was followed by a powerful move that took the Index to a high of 1696 by the end of February. The 20-day has been in decline since early March and we know what has happened since then – a painful 28% drop from February 29 to the May 16 low of 1215.
John’s latest CDNX chart is quite interesting. What it shows is that the Index is currently in a 3-Wave “corrective phase” with a short-term Fibonacci target of 1402. That would be a nearly 10% move from current levels which is a healthy advance that will send some stocks significantly higher than that. The question is, what happens if and when the Venture makes it to the 1400 level? The simple answer is that we’ll have to wait and see and evaluate the situation at that point. It’s quite possible that this A-B-C corrective phase could turn out to be Wave 1 of a 5-Wave Motive Phase. But it’s premature to predict that at this time.
Historically, there is an extremely high correlation between a positive first quarter for the Venture and a positive year overall. So the fact the Venture posted a first quarter gain tells us, based on historical trading, that a major rebound is very possible after a rather horrible April and May in particular. In addition, the similarity between the current market and 2005 continues to be striking. The CDNX bottomed in mid-May, 2005, and climbed 40% from its spring low to its closing 2005 level. A similar 40% move this year would take the Venture to – interestingly – the 1700 resistance area by the end of the year. What we’re saying is that while there is risk, there are also plenty of reasons for optimism. And Gold and Silver are looking strong as well.
Gold recovered strongly on Friday from an intra-day low of 1565 after a sell-off that started Thursday when Fed Chairman Ben Bernanke refused to dispense the drug of quantitative easing just yet – Bernanke was speaking to a Congressional committee and was keeping his cards close to his chest. We do believe the Fed will make an easing move at its meeting June 19-20 as the window will start to close soon after that with the U.S. election season swinging into full gear.
The downtrend in Gold since March appears to be over, from a technical point of view, and the COT structure (commercial traders’ very low short positions) strongly supports that interpretation (in addition, the performance of the TSX Gold Index in recent weeks clearly shows a bullish new uptrend in Gold is forming). As long as central banks around the world continue to flood the system with liquidity, as they are doing and will have to continue to do, the outlook for Gold has to be considered bullish.
John’s 2.5-year weekly chart shows how Gold has been forming a strong base. A test of the 200-day SMA and the downtrendline since August of last year is in the works.
Gold finished down $31 for the week at $1,595. Silver, which is also looking very bullish, lost 15 cents to $28.53. Copper fell 4 pennies to $3.30, its sixth straight weekly decline. Crude Oil edged up 87 cents to $84.10 while the U.S. Dollar Index softened by a third of a point to 82.44.
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. Massive central bank intervention appears increasingly likely 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.