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TSX Venture Exchange and Gold-Silver

Friday was a critical day for the Venture as it held support at its rising 20-day moving average, as technical indicators suggested it would, and then powered higher to close the week and the month on a very strong note.  The Index climbed 23 points Friday, aided by a surge in both Gold and Silver, to finish at 1241.  While the Index was still 11 points down for the week, it is extremely well positioned from a technical standpoint to push higher this week and bust through resistance around 1250.  The recent overbought condition has been cleansed and the 50-day moving average (SMA) is ready to reverse to the upside, ending a five-month decline.  RSI(14) found support at 50 and is turning higher.  For the month of August, the Venture posted a gain of 58 points or 4.9%, significantly outperforming the Dow, S&P, the Nasdaq and the TSX.  More volume still needs to come into the Venture but we anticipate September will be a much more active month.  Below is an updated 4-month daily chart from John.

In a highly anticipated speech on monetary policy Friday, Federal Reserve Chairman Ben Bernanke argued that the Fed’s easy-money policies were helping the weak economy and laid the groundwork for more action.  The combination of near-term policy responses expected from both the Fed and the European Central Bank (the ECB meets Thursday) should be bullish for commodities and stocks in general, and bearish for the U.S. Dollar which closed at a 3.5-month low Friday.  Meanwhile, more stimulus measures are likely coming from China where the official factory PMI (purchasing managers’ index) fell to a lower-than-expected 49.2 in August from 50.1 in July in official data released yesterday.  The official PMI dipped below 50, which demarcates expansion from contraction, for the first time since November, 2011, in the latest sign that the world’s second-biggest economy is struggling against global headwinds.

Gold

Don’t be wrong – stay long.  That’s the message for Gold investors after the yellow metal initially fell Friday, at the beginning of Bernanke’s speech, and then staged a powerful reversal to close the session up $36 an ounce at $1,692 (for the week, Gold was up $21).   Given the right dynamics (aggressive global central bank action, an Obama victory in November), Gold could easily challenge or surpass its all-time high during the fourth quarter.  John’s first major target, as he has been stating for several weeks now, is $1,730 as shown in the 6-month chart below.  The recent significant rise in commercial short positions cannot be overlooked and suggests a pause around the $1,730 level to unwind overbought conditions.

Gold inventories held in ETFs have been on the rise with nearly 38 tons of accumulation in August just in the U.S.’s most widely traded product, marking the biggest inflow since November. Gold held in ETFs now exceeds Italy’s national reserves of Gold which are the third largest in the world.

Meanwhile, Gold smuggling in India may be up as much as 10-fold based on seizures of undeclared Gold coming into the country at airports. The rise in the import duty on Gold from 2% to 4% earlier this year has evidently not stymied the desire to acquire Gold in India. Weakness in the rupee has sent the local Gold price to new highs.  This would typically soften the demand for Gold in anticipation of a pullback, but demand still appears to be strong.

Silver is rising much faster than Gold and jumped 4% in value Friday, gaining $1.30 an ounce to $31.74.  That was a gain of 92 cents for the week.  Short-term, Silver is in overbought territory but what’s important now is that it has new support between $30.50 and $31.  As we’ve been mentioning recently, a powerful Wave 5 move now appears to be underway in Silver which should ultimately take it well beyond the $50 an ounce all-time high.

Copper was up 2 cents last week to $3.43.  Crude Oil gained 46 cents to $96.47 while the U.S. Dollar Index closed down one-third of a point at 81.25 (critical support is at 81).

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.