TSX Venture Exchange and Gold
The 2nd half of 2015 continues to play out much differently for the Venture than last year’s 2nd half. In fact, the Index enjoyed its best October in 4 years, albeit the gain was a modest 3.2%. Still, this compares very favorably with last year’s 15.3% plunge in October.
Broader equity markets, especially on the U.S. side, enjoyed more spectacular returns in October with the Dow up 8.5% (1379 points) while the NASDAQ roared ahead 9.4%. The TSX sputtered along, rising only 1.7%, Gold enjoyed a respectable month by finishing 2.4% higher, while Crude Oil rose 2.9%.
A strong support area for the Venture is around 540 and that was evident again this past week as the Index slipped as low as 538 intra-day Friday but closed the session up 2 points at 542. For the week, the Venture was off 9 points as Gold came under some pressure after falling below $1,160.
Venture 4-Month Daily “Awareness” Chart
How November plays out for the Venture will prove to be very interesting. Entering this new month the Index has a few technical factors in its favor including a potential reversal in the RSI-14 (bullish “W”) while the %K (SS indicator) is reversing to the upside from a low “W”. In addition, though it’s not shown on this particular 4-month daily chart, the Venture’s 20-day moving average (SMA) is trending higher while the 50-day has flattened out and could be ready to turn north this coming week. Resistance at 560 is strong. We’re confident that wall will come down by year-end – the only question is timing.
The key to making money near-term will be to focus on very select opportunities (resource and non-resource) that have the right dynamics to push higher. The Venture is holding together well enough in order to allow for some profitable short-term trades. More broadly speaking, we believe there are numerous situations that present exceptional opportunities looking out over the next several months. The best time to accumulate is during the early stages of a trend reversal, and we believe that reversal started August 24.
We have reason to believe the Sheslay district will soon provide much-needed exploration excitement for the Venture. We’ll elaborate on that in our BMR Pro subscriber Sunday Sizzler Report.
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 this summer’s 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 historic 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.
Keep in mind, as well, that in currencies other than the U.S. dollar, Gold has been performing exceedingly well. So don’t get fooled by the widespread negativity in the American media toward Gold at the moment. Bullion in Canadian dollars, for example, is in a major bull phase (above $1,500 CDN), and certain high-quality Canadian Gold producers have given investors tremendous returns over the past year or two – and still represent great value.
U.S. Dollar Index 9-Month Daily Chart
The Dollar Index staged a sudden reversal the week of October 19 when the euro took a beating following comments by ECB President Mario Draghi that strongly suggested the central bank would expand or extend its QE program by December. While a weak currency helps the euro zone, a strong greenback is a problem for both the U.S. economy and the Fed. Ironically, the higher the dollar goes on euro weakness or speculation of possible Fed tightening, the less the chance becomes of a near-term rate U.S. rate hike as the high value of the dollar is hurting corporate earnings and adding to deflationary pressures throughout the American economy.
An important part of the Fed’s mandate is to get inflation back to a 2% target level, and the surge in the greenback since the summer of last year has greatly complicated that task for the Fed. In addition, according to the Fed’s own research, the greatest impact of the higher greenback has yet to be felt (the “lag” effect). We doubt the Fed has the courage to hike rates until at least well into next year – perhaps even not until after the November 2016 elections.
The Dollar Index cooled off slightly last week despite the Fed’s policy statement that indicated a rate hike was still a possibility before year-end. Fresh economic data confirmed the U.S. economy is still in slow-motion.
Technically, despite strength in October, we still see problems ahead for the dollar as we’ve been stating for several months since the March high of 100.71 and the spring double top. Two uptrend support lines were broken, and resistance at 98 has been relentless since late May.
The Dollar bulls have been stampeding on a false promise by the Fed to hike rates. To add insult the injury, the U.S. is losing prestige on the international stage. We still hold the view that the greenback will be pressured in the coming months, and that would certainly be supportive for Gold, Crude Oil, and the Venture.
Gold 6-Month Daily Chart
Gold posted a modest gain for October, though bulls were disappointed the yellow metal couldn’t hold support at $1,160. For bullion to avoid another test of $1,100, the $1,130 area (previous Fib. resistance) does need to hold. For the week, Gold was off $22 at $1,142.
On John’s 6-month daily chart, you’ll note that RSI(14) hit resistance recently at 70%, which is why we expected a modest pullback. Interestingly, the sudden change in the CMF (buy pressure to significant sell pressure) with RSI(14) plunging below 50% is a sign that Gold has a little further to go on the downside before turning higher again.
Gold 2.5-Year Weekly Chart
Gold has traded within well-defined parameters over the last 2-and-a-half years as shown in this long-term weekly chart, with repeated moves between the bottom and the top of the downsloping flag. However, the last move higher in May (above $1,200) fell short of the top of the flag, as did the run to $1,192 in early October. At some point, Gold will make a decisive move either above or below the flag – that will be a critical turning point.
Demand from China is robust and that’s a major fundamental factor underpinning Gold which we believe is the Ultimate Currency.
Silver lost 27 cents last week to finish at $15.54 (updated Silver charts Monday). Copper fell 3 pennies to $2.32. Crude Oil held critical support and added $1.66 a barrel to close at $46.39 while the U.S. Dollar Index eased off slightly to 96.92.
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 weakness this past summer, 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.
U-K based Capital Economics remains quite bullish on both Silver and Gold. 
As we mentioned yesterday, Chinese demand for Gold is finishing the year on a strong note and should limit any price pullbacks…based on figures to date, it looks as if withdrawals from the Shanghai Gold Exchange for all of 2015 will likely reach 2,600 tons or more – a huge new record, probably over 400 tons more than that of the previous record year of 2012 when 2,181 tons were withdrawn from the SGE…
