The Venture Exchange and Gold
As summer officially began, it was a light volume week for the Venture as it dipped 5 points to close Friday at 679. For the month, the Index is currently off 1.9% but that’s not surprising considering that June has been the weakest month of the year for the Venture going back to its inception with an average decline of 2.6%. So in fact, June 2015 has been slightly better than normal entering the final two trading sessions of the month. July can be slow, but by the middle of August is when this market usually “turns a corner” – one way or the other. And there’s no technical evidence to suggest that the last four months of this year will be anything like the final four months of 2014.
There will be individual success stories in July in both the resource and non-resource sectors. One of our favorites, NexGen Energy (NXE, TSX-V), hit another new all-time high Friday of of 86 cents as the company ramps up drilling at its emerging world class Uranium discovery in Saskatchewan’s Athabasca Basin. There are other areas of the country we’re watching very closely and we’ll expand on that Monday. British Columbia will be a key jurisdiction to watch with rigs turning or about to turn in central and northern parts of the province.
Interestingly, despite the dramatic late 2014 sell-off and the added difficulties the junior resource market has faced since, the Venture has been able to hold critical support (Fib. and chart) around 680 on a monthly basis. Note the uptrend line from the December low. We predict that the band of Fib. support between 654 and 681 will hold.
So the Venture’s upside potential, looking ahead through Q3, definitely appears to exceed its downside risk, a very different scenario than the one that existed last September when the Index simply fell apart technically, driven largely by the collapse in Crude prices and the record rise in the greenback. Yes, the resistance just above 700 is frustrating but the Venture has also been building a strong base this year. Non-resource issues of course have performed the best since last September. But quality resource stocks could pick up strongly over the last half of 2015.
U.S. Dollar Index
A key market to watch, of course, is the U.S. Dollar Index which faces strong resistance in the mid-to-upper 90’s given the double top pattern that formed in March and April. As long as a weak to neutral trend continues in the greenback over the coming months, the risk factor is limited at current levels for the Venture given the inverse relationship between the two.
The Dollar Index clearly lost momentum as soon as it fell below an uptrend line in late April going back to the start of last summer’s rally. As expected, the Index rallied back to the top of the uptrend line (98) where it reacted at fresh resistance. This could take a few months to play out, but the Dollar Index may ultimately have to test Fib. support around 88. Much will hinge on Fed policy and how the U.S. economy behaves. The Fed appears reluctant to act on an interest rate hike this year.
Technically, a repeat of last year’s dramatic rise in the Dollar Index over the final months of the year simply doesn’t appear to be in the cards. Fundamentally, the U.S. economy simply can’t afford another greenback surge.
A key piece of data coming up is the non-farm payrolls report for June on Thursday, a day earlier than usual given that Friday is the U.S. holiday (Canadian markets of course are closed Wednesday).
Gold
Gold faces strong resistance at the moment between $1,200 and $1,210, as we’ve been pointing out, so last week’s $26 tumble to $1,174 was no big surprise. On the bright side, seasonality factors will soon be in Gold‘s favor as Q3 traditionally is the metal’s strongest quarter of the year.
On this 2.5-year weekly chart, which has proven to be a very reliable guide, Gold continues to meander within a downsloping flag. A breakout above or a breakdown below this flag will really be significant. Important chart support exists at $1,150 and there’s certainly a good chance this level could be tested again. If it fails, the first line of support is at the bottom of the flag (around $1,100).
Encouragingly, RSI(14) has continued to climb a gently sloping uptrend since last fall.
Silver fell 33 cents last week to close near support at $15.75. Copper added 4 cents to $2.60, and could get some help in the coming week from today’s interest rate cut by China’s central bank – its 4th reduction since November to prop up a slowing economy. Crude Oil added 26 cents to $59.65 while the U.S. Dollar Index climbed a point-and-a-half to 95.40.
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 3 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 and al Qaeda, 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/highly accommodating central banks around the world;
- 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 – a “day of reckoning” will come;
- Continued net buying of Gold by central banks around the world;
- Mine closings, a sharp reduction in exploration and a lack of major new discoveries – these factors should contribute to a noticeable tightening of supply over the next couple of years.
Jon: any comments: TSX Venture Bear Market Now 1,000 Days and Counting at Visual Capitalist web site (June 19, 2015).
Comment by STEVEN1 — June 28, 2015 @ 8:17 am
It’s merely stating a fact, Steven, but often it takes a year or more following the actual end of a bull market, or the actual end of a bear market, before most investors wake up to the fact that the bull market or bear market is really over. Seeing stuff like this is what you would normally expect during the bottoming out/capitulation phase, so it’s actually very encouraging from that standpoint. Common sense tells us there are incredible opportunities at the moment – far less risk in high-quality, knocked-down juniors than there is in high-flying biotech plays, for example. You run with the herd, you get burned, just like many got burned running with the herd in the mining/exploration sector in late 2010/early 2011.
The bottom line is that the world still needs metals – more than ever, in fact. We’re coming up to a period of shrinking Gold supply and supply deficits in other metals given the extent and breadth of the downturn since early 2011. That’s hugely bullish and will drive the next bull market.
Speaking of metals, we just posted the first excerpt of our discussion with Dr. Razique on the Hat Property. If his model is correct, and there’s an enormous amount of data backing it up, the Hat has multi-billion tonne potential.
Comment by Jon - BMR — June 28, 2015 @ 8:25 am