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TSX Venture Exchange and Gold

Last Wednesday, we noted how an RSI(14) breakout had just occurred above a Venture downtrend line in place since early July.  This was a bullish development and also coincided with increasing buy pressure as shown by the CMF.  These very positive signals were early indications of a pending Index breakout which is exactly what occurred Friday after the Venture closed up 3 points at 1005 (the gain for the week was 9 points).  As suspected, the 990 area was the bottom of the mini-pullback that started in early July, continuing the series of higher lows we’ve seen throughout the year.

A critical turning point during the week came Thursday when the Venture slipped intra-day to 992 as Gold fell sharply, but then reversed late in the session to finish up 5 points at a monthly closing high of 1002.  With the Venture behaving like this, there’s no way Gold is about to fall out of bed.

This 6-month daily chart shows the breakout above the downtrend line and Fib. resistance at 1001.  Don’t let any possible choppy trading/consolidation fool you Monday-Tuesday – this market is showing all the signs of finishing the month on a very powerful note.

Venture 5-Year Weekly Chart

It has been critical in the frustrating recent weeks to understand the Venture’s primary trend and the key support and resistance areas.  Staying focused on the “Big Picture” and not acting imprudently or impatiently in any market is the key to making money.  Below is the updated 5-year weekly Venture chart with a Gold comparative.  Note the string of higher lows the Venture has made since bottoming at 859 in June of last year.

RSI(14) on this 5-year weekly chart has recently been testing the uptrend line (very healthy) around 50% which continues to hold as support after serving as resistance since mid-2011 (major trend change).  A modestly overbought condition in the RSI that emerged in March when the Index hit 1050 has gradually unwound to this new support.

The Q2 decline that took the Venture to superb support at 968 May 20 came on light volume, and accumulation (CMF indicator) remains steady and strong – the most extended period of healthy accumulation we’ve seen, actually, in a few years.  This is a very bullish dynamic, and includes a recent +DI/-DI crossover.  Those who gave up on this market during the 8% retreat from 1050 made a profound miscalculation.  Astute investors have a great chance to cash in big over the next two to three months in particular before the possibility of a more substantial correction during Q4 or very early in 2015.

The Seeds Have Been Planted (And Continue To Be Planted) For The Next Big Run In Gold Stocks

There’s no better cure for low prices than low prices. The great benefit of the collapse in Gold prices in 2013 is that it forced producers (at least most of them) to start to become much more lean in terms of their cost structures. Producers, big and small, have started to make hard decisions in terms of costs, projects, and rationalizing their their overall operations. Exploration budgets among both producers and juniors have also been cut sharply. In addition, government policies across much of the globe are making it more difficult (sometimes impossible) for mining companies to carry out exploration or put Gold (or other) deposits into production, thanks to the ignorance of many politicians and the impact of radical and vocal environmentalists (technology has made it easier for groups opposing mining projects to organize and disseminate information, even in remote areas around the globe). Ultimately, all of these factors are going to create a supply problem – think about it, where are the next major Gold deposits going to come from? On top of that, grades have fallen significantly just over the past decade.

Gold

Much to the frustration of the bears, Gold is stubbornly holding important support around $1,280 despite strength in the U.S. dollar.  Geopolitical tensions, highlighted by the extremely serious ISIS situation in Syria/Iraq (ISIS is far more dangerous and sophisticated than al Qaeda, and has essentially declared war on the United States and the West – the potential ramifications are immense as ISIS must be destroyed), plus accelerating Russian belligerence toward Ukraine, appear to have put a strong floor underneath the price of Gold.  We’re also quickly approaching the traditionally bullish month of September when physical demand from Asia almost always kicks in.  In this environment, it makes no sense for Gold to collapse – and as mentioned above, the Venture is telling us that Gold is more likely to surprise to the upside than the downside.

For the week, Gold was off $24 an ounce to $1,281.

A key resistance band exists between $1,320 and $1,330.  A sustained breakout above that area is critical in order for Gold to gain serious traction.

Gold 6-Month Daily Chart

Silver fell 15 cents last week to finish at $19.40.  Copper gained 7 pennies to $3.20.  Crude Oil fell $3.70 a barrel to $93.65 while the U.S. Dollar Index surged nearly a point to 82.33, just slightly below Fib. resistance at 82.40.

The “Big Picture” View Of Gold

As Frank Holmes so effectively illustrates at www.usfunds.com, the long-term bull market in Gold has been 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, has had a huge impact on bullion and will continue to support prices.   Despite Gold’s largest annual drop in three decades in 2013, the fundamental long-term case for the metal remains solidly intact based on the following factors:

• Growing geopolitical tensions, fueled in part by the ISIS terrorist group and a highly dangerous and expansionist Russia under Vladimir Putin, have put world security in the most precarious state since World War II;
• Weak leadership in the United States and Europe is emboldening enemies of the West;
• Currency instability and an overall lack of confidence in fiat currencies;
• Historically low interest rates
• Continued strong accumulation of Gold by China which intends to back up its currency with bullion;
• Massive government debt from the United States to Europe;
• Continued net buying of Gold by central banks around the world;
• Flat mine supply and a sharp reduction in exploration and the number of major new discoveries.

Deflationary concerns around the globe and the prospect of Fed tapering had a lot to do with Gold’s plunge during the spring of 2013 below the technically and psychologically important $1,500 level, along with the strong performance of equities which drew “momentum traders” away from bullion.  The June 2013 low of $1,179 was the bottom for Gold.  Extreme levels of bearishness emerged in the metal last year.  With the long-term bull market remaining intact, we expect new all-time highs in Gold as the decade progresses.  Inflationary pressures should eventually kick in around the globe after years of ultra-loose monetary policy and the reluctance of central banks to increase interest rates.