TSX Venture Exchange and Gold
If it’s any consolation, the Venture actually slightly outperformed the NASDAQ last week. A major selloff on the broader markets produced a 6.8% decline on NASDAQ, its worst weekly performance in 4 years. The Dow and TSX didn’t fare much better as they tumbled 5.8% and 5.6%, respectively.
The Venture‘s 6.1% decline would have been worse if it weren’t for Gold’s biggest weekly advance since January. Certain high-quality Gold exploration/development plays on the Venture bucked the general market trend, evidence of sector rotation. Integra Gold (ICG, TSX-V) advanced 7.5% to 28.5 cents after announcing a $14.6 million private placement by Eldorado Gold (ELD, TSX) which represents a major endorsement of ICG’s Lamaque Project near Val d’Or, and the team behind it. Five drill rigs will be operational at Lamaque by the end of this month; Kaminak Gold (KAM, TSX-V) rose 14.7% for the week to 78 cents as it continues to prepare a Feasibility Study for its Coffee Gold Project south of Dawson City, Yukon; and Garibaldi Resources (GGI, TSX-V) shot up 25% to 7.5 cents as work began at the promising Grizzly Project in northwest B.C. while drill results are also pending from the company’s La Patilla Gold Property in Mexico where metallurgical testing has also shown exceptionally high Gold recovery rates.
The TSX Gold Index, meanwhile, has been a great place to camp out for the summer since late July. It climbed 7.7% last week (vs. Gold’s 4.5% move) and appears poised for an exceptional August after historically extreme oversold conditions emerged last month.
Venture 39-Week Cycle Chart
Declining short-term moving averages continue to restrain the Venture as minor relief pulses since June have been unable to push above the 10 or 20-day SMA’s. The 1st sign of a turnaround in this market will come only when the Index does climb above those resistance levels, and on increased volume. Fib. support at 550 gave way Friday as all markets got hammered. If there isn’t a sudden reversal Monday, the next estimated Fib. support for the Venture is 515.
Despite current downside risks, we do see a good possibility of this market stabilizing and then rallying within the next several weeks, simply based on its 39-week “cycle”. Interestingly, this also matches with the timeline of the Fed’s next meeting in mid-September – a crucial one, indeed (we doubt the central bank has the courage to pull the trigger on its 1st rate hike in 9 years given the global growth problem and deflationary concerns which are even greater now given the Chinese currency devaluation).
Strangely enough, over the last 15 years, there has been a consistent pattern of trend reversals (in price and RSI) around the end of each 39-week period on the Venture – you can see it quite clearly on the fresh version below, through Friday, which is important to look at and understand.
What this chart suggests is that the Venture will stabilize around the end of this month or early September which could lead to a significant rally/turnaround. That’s when the current 39-week period expires.
Keep in mind, also, that the Venture just experienced its 2nd-worst July on record. Major reversals occurred within 3-5 months following the 2 previous ugly July’s in 2008 and 2002. We could be in the midst of a final capitulation, especially considering that 85% has already been wiped off the value of this market since its all-time high of nearly 3400 in May 2007. This is no time to be panicking, just like it was a very bad time to be dumping Gold producers out of fear a month ago when the TSX Gold Index plunged to a 14-year low.
The vertical blue lines separate each 39-week period on the Venture.
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, and recent weakness with the drop below $1,100, is that it has forced producers to become much more lean in terms of their cost structures. Producers, big and small, continue to make hard decisions in terms of costs, projects, and rationalizing 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 eventually create a supply problem and therefore great opportunities in Gold and quality Gold stocks. 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.
U.S. Dollar Index Update
Our contention for the last several months is that the Dollar Index put in its high for the year during March-April based on what has proven to be, so far at least, a very reliable 9-month daily chart. Fundamentally, a runaway dollar would not be healthy for the U.S. or global economies, so one can be certain the Fed is keeping a close eye on movements in the greenback (the Chinese appear to be, as well, and recently of course fired some critical shots in the latest currency war).
The Dollar Index has now broken below 2 price uptrend lines as you can see in this chart, though the latter breakdown which also coincided with Fib. support at 95.4 requires confirmation Monday.
The dollar trade is still very crowded. Many investors simply jumped on the bandwagon given the greenback’s momentum that was so powerful late last year into early this year. So far, they’ve been relatively slow in jumping off but that could change in the not-too-distant future.
RSI(14) has continued to trend lower, as expected, and appears certain to test support this coming week at 30% (it’s currently at 34%, a week ago it was 45% and a week earlier it was 55%).
Nearest Fib. support ranges from approximately 92.6 to 94. For now, the most likely immediate to near-term scenario is a test of either of those levels, a minor rally out of temporarily oversold conditions, followed by a fresh plunge that could lead to a new yearly low.
Ultimately, what we perceive as a growing possibility (though not a certainty) over the remainder of the year for the U.S. Dollar Index is a test of base support at 88. That’s definitely not a mainstream view but the chart supports that kind of consolidation potential following the record advance that started during the summer of last year.
Gold
It was a bad week for equity markets but Gold glistened with a gain of $46 an ounce or 4.5% to finish at $1,160. On Thursday, our separate post on Gold (“Gold’s Revenge“) featured John’s updated 2.5-year weekly chart for bullion which shows a real possibility for a climb up to around $1,250 within the next couple of months. That particular and popular chart has been extremely reliable over the last couple of years, and it’s looking very bullish once again while the U.S. Dollar Index is doing just the opposite – its technical internals continue to deteriorate.
Gold 6-Year Monthly Chart
Below is a monthly chart for Gold going back 6 years, providing a broader perspective on what’s happening at the moment. Again, note the very strong support at the bottom of this downsloping channel or flag, and the bullish engulfing reversal pattern in late July at approximately $1,070.
The SS indicator has reversed higher, also from support, and has plenty of room to advance further. Same with the RSI(14). Expect Gold to push above its still-declining MA(10) on this monthly chart, currently $1,183, as we’ve seen on several other occasions since the beginning of 2014. We’ll see what happens from there – $1,200 will be a very important test.
If RSI(14) can overcome critical resistance at the 50% level, then Gold could gain some serious traction. The RSI/price divergence is bullish – RSI(14) appeared to bottom in the spring of 2013 when Gold collapsed to $1,180, and has stayed above that level over the last 2+ years despite last month’s new low in Gold. Something quite significant could be unfolding here.
Interestingly, open interest in Gold hit its highest all year on Friday, a sign that investors are nervous and looking for a place to put their money.
Silver edged another 11 cents higher to close at $15.35 for its 4th straight weekly advance. Crude Oil, under continued pressure, fell $1.89 a barrel to $40.29 for its 8th consecutive weekly decline – the mid-$30’s, as John’s charts have been predicting, are likely on the way. Copper shed 4 more cents to $2.29 while the U.S. Dollar Index tumbled more than a full point to 94.80.
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 3 decades in 2013, and fresh weakness now, the fundamental long-term case for the metal remains solidly intact based on the following factors (not necessarily in order of importance).
- 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 solid 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.
Note: John and Jon both hold share positions in GGI.
Heard a rumour (unconfirmed) today that we might be seeing a positive news release shortly from DBV (finally)…hopefully the rumour is true. Let’s get back to drilling boys!
Comment by Steve A. — August 23, 2015 @ 9:46 am
Jon: weren’t you guys saying that the 1st Q and the 2nd Q and the 3rd Q were going to be terrific for the Venture??? now, the 4th Q? One would believe from the ‘depressed’ levels of 500+ pts, it can only get better…….not to discredit you in any way, but if you read your posts again, it’s all there unfortunately……
Comment by STEVEN1 — August 23, 2015 @ 10:41 am
Steven, a matter of interpretation, perhaps. We’re not saying the 4th quarter is necessarily going to be “terrific” (good chance for a turnaround, though), nor did we say any previous quarter was going to be “terrific”. John’s charts have really been the best guide for the Venture, and they have been very accurate. Keep in mind we consistently pointed out the need for a breakout above 707 resistance for this market to push higher earlier in the year. We also clearly identified the support levels, and warned about the recent breach of the uptrend line from the December low. So it’s critical to keep a close eye on the charts and examine them carefully for constant guidance.
The Venture is in unchartered territory at the moment – very oversold conditions, more weakness is likely, but there are valid reasons to believe that better times are ahead soon, indeed possibly beginning before this 3rd quarter is over given the Venture’s 39-week cycle pattern. Technically, everyone knows what to look for based on John’s charts. We can’t tell the market what to do. The market will tell us. No one has a crystal ball. However, one thing that’s quite obvious is that conditions right now are really the mirror image of the extreme overbought conditions that existed in late 2010/early 2011. That’s important for investors to understand. Doesn’t mean we’re at a bottom just yet, but the Venture will come out of this, and perhaps explosively. Exact timing is the question.
You’re right in the sense that the breakdown below the December low was not something we anticipated was likely after that strong sell-off from September into December, and the gradual recovery that was building early in the year. But we’ve also consistently warned about the vulnerability of Oil prices, and that has been a major drag on the Index. In all probability, as John’s charts are still showing, Oil prices are headed even lower.
Money can be made in all kinds of markets, and our focus isn’t just the Venture. But even on the Venture, some select situations have done extremely well recently, and we’ve been able to highlight some of those to the benefit of our readers. We’re also now seeing some sector rotation on the Venture, so some of the top Gold plays are beginning to outperform. Selectivity remains key. Look for what’s working on the Venture, and why.
Markets are volatile and challenging, but there are still opportunities galore. I will predict this – I believe we will have the buying opportunity of a lifetime on the Venture before this year is out, and probably a powerful finish to 2015. Prepare for it.
Comment by Jon - BMR — August 23, 2015 @ 11:29 am
I’d love to see serious Chinese gov spending on infrastructure. Use those monstrous foreign exchange reserves to kick-start the economy.
DBV is joining GGI on the ground shortly? Guy called it.
Comment by Concerned Citizen — August 23, 2015 @ 11:40 am
Wall Street Journal reports that China is preparing to flood the banking system with liquidity to boost lending, according to officials and advisers to the central bank.
Comment by Jon - BMR — August 23, 2015 @ 12:56 pm
Think we will hear something from the sheslay this week to!
Comment by Martin — August 23, 2015 @ 1:17 pm
There’s nothing more the Venture could use right now, Martin, than a major discovery. If you look across the country, on a district scale, the Sheslay area provides a truly phenomenal opportunity, and what a powerful scenario it would be if DBV and GGI are both drilling at the same time in the near future. Out in Labrador, of course, Equitas is gearing up for drilling, and that’s another key situation. NexGen is going hard at Rook 1, ICG now has $27 million and will have as many as 10 rigs operating at Lamaque near Val d’Or for its winter program (5 by the end of this month/early September). So there are some situations that are exciting and may provide some much-needed spark for the market. Remember this – when it’s the darkest, that’s when the light can shine most brightly.
The markets can do whatever they want tomorrow and in the days ahead. If there’s a further big sell-off on the broader markets, and that’s certainly possible given some of the indicators, perhaps that will hasten a final low on the Venture. We’ll see. Interesting week ahead.
Comment by Jon - BMR — August 23, 2015 @ 1:38 pm
Pardon my ignorance but if eqt’s property is near voisey bay, why didnt’ inco find what eqt is drilling for?
Comment by tony T — August 23, 2015 @ 2:22 pm
Excellent question, Tony, and that’s one we posed for Kyler last week – you can go back on the interview to hear his full answer. Like in many cases, this involved a lot of miss-steps, bad luck, market conditions, Inco/Vale focusing on other jurisdictions, etc. Keep in mind, historical EM airborne surveys over the area only went to depths of about 70 meters, so improvements in technology are now giving a better look at the next slice of rocks underneath a cover of younger rocks that may have been masking deposits. EQT is the first junior since Voisey’s Bay to have such a large land package, which is a consolidation of under-explored properties held by about 9 other companies.
It’s true that it makes little sense Voisey’s Bay can be the only deposit there—–the cluster model over a broader area makes more sense and that’s typically what is seen elsewhere at other Nickel camps.
Exploration, and how a lot of deposits are initially overlooked, is a funny business. Utah Mines was very active on the Hat Project half a century ago, but never drilled a hole. They missed a key area during trenching by just tens of meters.
Probe’s discovery in Ontario – that area was previously written off as not even being prospective for the type of deposit PRB found. So many examples.
Comment by Jon - BMR — August 23, 2015 @ 2:40 pm
emerging markets going down money in countries being devaluade the gold deal of the year is rpx.in ontario watch this stock it will be the greatest gainer of the year and possible buy out in the 3 to 5 dollar range i was right on pure energy it will go to over one dollar buy end of september and watch for the news on rpx. do not miss this 9 gold mines in a row all bought out in 1980s drill program startind early sept…
Comment by tony roma — August 23, 2015 @ 3:40 pm
Jon
What about NAN that company use to get mentioned a lot on here
What’s up with them and their nickel exploration?
Comment by Greg — August 23, 2015 @ 3:42 pm
Glad you brought that up, Greg. NAN has a good Nickel project in Greenland, and the stock has been holding in a narrow band most of this year. We’ve been keeping an eye on it. They started a 6,000 m drill program at the end of June and initial results are expected any day now, actually. Best to wait for results on this one and see what they come up with. NAN was on fire until August last year when they disappointed the market with results. Project still has excellent potential, and NAN has a current market cap of $36 million.
EQT is different in the sense that this ground is being drilled systematically for the first time, and it’s so close to Voisey’s Bay. It’s an exciting swing for the fences, and we’ll elaborate more on that by tomorrow.
Comment by Jon - BMR — August 23, 2015 @ 3:55 pm
China has announced it’s now allowing pension funds managed by local governments to invest in the stock market for the first time, potentially channeling hundreds of billions of yuan into the country’s equity market. It’s bad enough these guys suckered their citizens into buying an overbought market at 5,000 with their paychecks, now they want to play with their pensions. They won’t allow shorting, they’re screwing with this, screwing with that…what if the investment world were to lose complete confidence in these guys and just start to pull out on masse?
Here’s something else tonight: The head of a Chinese exchange that trades minor metals has been captured by angry investors in a dawn raid and turned over to Shanghai police, as the investors attempted to force the authorities to investigate why their funds have been frozen.
Comment by Jon - BMR — August 23, 2015 @ 5:04 pm
Jon
Do you see the, gold, silver stocks selling off along with the Dow and the rest of the global markets. It appeared that was the case on Friday…
Comment by Greg — August 23, 2015 @ 6:29 pm
Gold was up Friday, Greg; the TSX Gold Index did lose some ground Friday but still finished the week performing better than the metal. Great gain last week for the Gold Index – nearly 8%.
Gold has a lot going for it right now. Anything’s possible in volatile global conditions. You will have a flight to safety in Gold, potential short covering as short positions are still massive, and some who may have to sell Gold for liquidity purposes. Gold bounced around wildly in the fall of 2008, then took off for a sustained major advance. It’s the most valuable currency there is, and it’s going to flex its muscles in a big way again vs. the U.S. dollar. Against all other currencies, Gold has performed exceptionally well since the beginning of 2014.
China’s market down hard in Monday’s early trading, nearly 8%. We’ll see if the rescue team can lift it back up to critical support (3400) by the end of the session.
Comment by Jon - BMR — August 23, 2015 @ 6:34 pm
Jon
Gold was up Friday but the gold silver stocks were all down along with the 500 point drop in the Dow
That’s what concerns me…
Thanks
Comment by Greg — August 23, 2015 @ 6:51 pm
Silver of course has more of an industrial use than Gold, Greg, but it still posted its 4th straight weekly advance. Most Silver is also produced as a by-product of Gold. Not a lot of Silver-only stocks or producers out there. Obviously they’ll lag behind the Gold stocks if Silver is not keeping up in price, but it’s hard not to be bullish on the whole works right now IMHO looking out over the next 12 months.
Comment by Jon - BMR — August 23, 2015 @ 7:03 pm
Woah Shanghai Composite -8.70%
Pension funds??? Where’s that juicy stimulus package Chi gov?
Comment by Concerned Citizen — August 23, 2015 @ 9:49 pm