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TSX Venture Exchange and Gold

Based on historical data going back 15 years, and the way the Venture has traded since October in relation to the commodity sector, there’s a high probability in our view that last Thursday marked the December low at 510 in a healthy re-test of the August 24 all-time low (intra-day) of 509.  That means there is no time to waste in terms of pouncing on the best opportunities in the market right now as the Venture is clearly signaling that it’s going to rally significantly through December, January and February in a fashion that’s at least consistent with historical averages.

Check the bottom of this report for 50 companies (top 50 opportunities) to consider (Venture and TSX) at a highly favorable point in the market. 

As expected, Gold has started to recover out of unusually oversold conditions in November, brought on by the growing belief that the Fed will act on December 16 to raise interest rates for the first time in nearly a decade.  Given the “window” that she now has, and the risk of losing all credibility in the markets, Fed Chair Janet Yellen must pull the trigger at the upcoming FOMC meeting.  This should actually be positive for Gold and the commodity complex because it will remove a key dynamic – speculation of a pending rate hike – behind the record run in the U.S. dollar over the last year-and-a-half.  Everyone who has wanted to sell Gold and commodities simply because the Fed is finally going to start raising interest rates (very modestly and gradually) has already done so.  Friday’s $25 jump in Gold was an indication of that after the metal hit a 5.5-year low of just under $1,045.

“There is a good chance that the dollar has at least temporarily topped,” commented Adrian Day, president of Adrian Day Asset Management.  “The modest rate hike expected from the Federal Reserve is not meaningful for Gold and has been more than discounted in any event,” he added.

Bill Gross, former leader at PIMCO’s $270 billion Total Return Fund, made this call back on November 6:  “100 percent that they go in December and then try to tamp it down with mild, gradual language that will keep the dollar from strengthening even further.”

In what may have been an example of central bank coordination with regard to currencies and policy announcements, Mario Draghi dealt the dollar bulls a blow Thursday, and prevented the greenback from breaking out, when he announced an ECB decision that fell short of expectations on the stimulus side.  There’s still a monetary policy divergence between the ECB and the Fed, but it’s not as wide now as many traders had expected.  The euro enjoyed its biggest one-day percentage gain Thursday in nearly 7 years, giving Yellen some extra room to make her move.

Given obvious weakness in the U.S. manufacturing sector, plus stubbornly low inflation, the Fed can’t be keen on the possibility of seeing the greenback explode further to the upside.  So Yellen will finally get a rate hike out of the way but will likely use language that will attempt to keep the dollar in check.

Venture 4-Month “Awareness Chart”

Repeatedly, the Venture has successfully tested RSI(14) support at 30% since the end of September, even in the face of major selling pressure in commodities from mid-October through the end of November.  All the more reason to believe that support at the August low will hold.  What’s also encouraging is that the Venture strongly out-performed commodities during the last 2 months, a divergence that typically indicates a near-term pattern change.

The Venture “December-January” Effect

This table below is important as it shows that 40% of the time since 2000 (6 years out of 15), the Venture’s December low has occurred during the first 8 days of the month.  On average in those 6 years, the high the following month came January 13.

Keep in mind, the Venture has posted average monthly gains for December, January and February of 4.5%, 4.3% and 4.4%, respectively, going back 15 years.  There’s no better 3-month period for this Index, so now is the time to be positioned to take advantage of that seasonal strength.

Dollar Index 9-Month Daily Chart

Dollar bulls suffered a setback last week, but they may not give up without a fight.  What’s important to watch for is whether the Dollar Index can hold support at 98.  The key range at the moment is from 98 to chart resistance at 100.

The long trade in the dollar has proven to be very profitable since the summer of last year, thanks to speculation on the timing of the first rate hike in nearly a decade, but what happens when the news is out?  Many traders/investors may decide to cash in their chips and go to a different table, especially if Yellen delivers a rate hike but couches it with dovish language.

The Dollar Index faces very strong RSI(14) resistance at 70% as shown on the chart below.  During its latest move, the Index wasn’t able to overcome that resistance, perhaps a sign of weakening momentum.

Gold

Gold enjoyed its first weekly advance since October, climbing $29 an ounce.  Most of that gain came Friday when bullion shot up $25 to close at $1,086.

All signs (technical, sentiment, short positions, etc.) have been pointing toward a turnaround in Gold and Gold stocks, which is why we recently encouraged subscribers to take a contrarian view and go long on the double-leveraged HGU around the $3 level ($15 post-consolidation).  The smart-money commercial traders gave a screaming buy signal on Gold by dramatically reducing their net short positions, while the metal last week also hit the bottom of a downsloping channel on this 2.5-year weekly chart – consistently a major buy signal since late 2013.

It’s certainly possible we haven’t yet seen the final low for Gold in this cycle.  However, for now at least, short-term momentum is in bullion’s favor, and a test of chart resistance at $1,150 appears likely over the next month or two.  Some backfilling could occur in the days ahead, after Friday’s sharp advance, but a bullish trend has started.

Gold 6-Month Daily Chart

This 6-month daily chart demonstrates very well the extent of oversold conditions that emerged in November, and how sell pressure is rapidly declining.  Important Fib. levels range from $1,080 to $1,160.

Last week’s $1,045 low should definitely hold going into 2016, given bullion’s current technical posture, so the risk-reward ratio at the moment is deemed to be highly favorable.

Silver jumped 35 cents last week to close at $14.55.  Copper added 2 pennies to $2.10.  Crude Oil slipped nearly $2 a barrel to $40.14 on supply concerns, while the U.S. Dollar Index fell nearly 2 points to finish at 98.25.

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 current weakness, the fundamental long-term case for the metal remains solidly intact based on the following factors (not necessarily in order of importance):

Gold, headed for its first weekly advance since October, has traded between $1,057 and $1,090 so far today after touching a nearly 6-year low yesterday just beneath $1,050…as of 10:00 am Pacific, bullion is up $22 an ounce at $1,084…Silver is 47 cents higher at $14.55…Copper is up 2 pennies at $2.10…Crude Oil has lost $1 a barrel to $40.02 while the U.S. Dollar Index has added more than one-third of a point to 98.41 after yesterday’s steep decline…

Holdings in Gold-backed exchange-traded products fell for an 11th straight day yesterday, underscoring the extent of the oversold conditions, dropping 2.7 metric tons to 1,470.79 tons according to data compiled by Bloomberg…assets are at the lowest level since February 2009 – a bullish contrarian sign…

This morning’s U.S. employment report clears the way for the Federal Reserve to raise short-term interest rates by a quarter-percentage point at its December 15-16 policy meeting, ending 7 years of near-zero rates…the jobs numbers came in right as expected by Wall Street analysts – a robust monthly 211,000 increase in payrolls in November, with upward revisions to previous months, and an unemployment rate steady at 5%…Fed officials projected in September the jobless rate would finish the year at 5%, meaning their forecast is on target and setting the stage for them to initiate the first rate hike in nearly a decade, even though inflation remains subdued and below the central bank’s target…speculation of a rate hike has been a huge “overhang” in the Gold and commodities markets since the summer of last year, and a boon for the U.S. dollar…getting this first rate increase out of the way will set the stage for improved sentiment in the commodity space going into year-end and through Q1…

Crude Oil Output

News reports are saying that OPEC has agreed to roll over its policy of maintaining Crude production in order to retain market share and raise its output ceiling…OPEC had been widely expected to stick with its year-old policy, despite pressure from poorer members of the cartel for a cut in output to prop up prices…OPEC supply rose in November to 31.77 million barrels per day (bpd) from 31.64 million in October, according to a Reuters survey, based on shipping data and information from sources at Oil companies, OPEC and consultants…looks like business as usual from OPEC – production cuts will need to come from outside the cartel with attention turning back to U.S. producers…

In today’s Morning Musings…

1.  The “Saudi Arabia of Lithium” – Bacanora Minerals’ (BCN, TSX-V) Sonora Lithium Project…

2.  A long-term chart demonstrating why a big rally is brewing in the Venture…

3.  Updated U.S. Dollar Index and euro charts after yesterday’s important trading action…

Plus more…to view the rest of today’s Morning Musings, login with your username and password, or click here to gain full access to this and other exclusive BMR content and features…

Gold has traded between $1,048 and $1,064 so far today…as of 10:15 am Pacific, bullion is up $7 an ounce at $1,060…Silver is 7 cents higher at $14.04…Copper is flat at $2.08…Crude Oil has surged nearly $2 a barrel to $41.69 while the U.S. Dollar Index has tumbled 2 points to 98.05 due to a stronger euro and an ECB policy decision that disappointed the markets by not being robust enough on the stimulus side…the greenback came very close to its March high this morning before a sharp pullback on the ECB news…

Holdings in the SPDR Gold Trust, the largest exchange-traded product backed by the metal, dropped 2.4% yesterday to 639.02 metric tons, data on the fund’s website show…that was the largest single-day tumble since January, 2011 – another bullish contrarian sign that Gold bugs are throwing in the towel…assets are at the lowest since September 2008…

Gold imports by India, the world’s second-biggest consumer, more than doubled in November as a slump in global prices to a 5-year low stoked demand amid the peak festival and wedding seasons…overseas purchases last month climbed to 101 metric tons from 45 tons in October, according to a Bloomberg report…in the 8 fiscal months through November, however, imports dropped 22% to 655 tons from 841 tons a year earlier…

Newmont Mining (NEM, NYSE) expects all-in sustaining costs (AISC) for production of Gold to remain under $1,000 an ounce through 2020, the company said late yesterday.  “We expect to keep our all-in sustaining costs below $1,000 per ounce and maintain profitable production of between 4.5 and 5 million ounces of Gold per year over the next 5 years,” said Gary Goldberg, President and CEO…

Euro Surges As Super Mario Disappoints

The euro surged to a 1-month high and stock markets in Europe got hit hard after the European Central Bank served up a package of stimulus measures today that fell well short of many investors’ expectations…the central bank cut interest rates slightly and extended its bond-buying program by 6 months…for investors, the ECB’s moved marked a major disappointment from a central bank whose offerings had typically surprised them on the upside…today, it was felt that ECB President Mario Draghi’s actions didn’t match his rhetoric…he also made it easier for Fed chair Janet Yellen to initiate a rate hike in 2 weeks…

Yellen Further Prepares Market For U.S. Rate Hike

Yellen reiterated her outlook on the U.S. economy today…she said that the economic data since October is consistent with the central bank’s expectations of an improved labor market, adding that the Fed has almost achieved its goal of full employment…she also said that drags on inflation will diminish next year, but of course we’ve heard that from the Fed repeatedly the last few years…inflation, by the Fed’s preferred measure, has run below its target for 42 consecutive months…

Yellen spoke in front of Congress today after stating in a speech yesterday that she’s “looking forward” to the day when the central bank raises rates…futures markets now put a 75% probability on a quarter-point rate increase at the Fed’s December 15–16 meeting…Yellen’s comments since yesterday have done little to diminish those expectations…

“On balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market,” Yellen said in her speech yesterday.   “Continuing improvement in the labor market helps strengthen confidence that inflation will move back to our 2% objective over the medium term.

“I don’t need unanimity. I think we have to tolerate some dissent,” Yellen added in reference to a possible rate hike.  “I wouldn’t try to stifle dissents, and I would even expect some at critical junctures.” Rather than complete unanimity, she said she wanted “a certain degree of consensus.”

In today’s Morning Musings…

1.  Electra Stone (ELT, TSX-V) aims to cash in on the growing demand and increasing prices for B.C. nephrite jade…

2.  Integra Gold (ICG, TSX-V) ramps up at Lamaque South, 100,000 m of drilling planned for 2016…

3.  A Venture company that stands to benefit from the “infrastructure trend” in Canada…

Plus more…to view the rest of today’s Morning Musings, login with your username and password, or click here to gain full access to this and other exclusive BMR content and features…

Gold has traded between $1,050 and $1,070 so far today, touching a new 5-year low…as of 11:00 am Pacific, bullion is down $14 an ounce at $1,055…Silver is off 14 cents at $14.02…Copper is down 3 pennies at $2.08…Crude Oil has tumbled $1.65 a barrel to $40.20 while the U.S. Dollar Index has added one-fifth of a point to 100.03…

U.S. companies created 217,000 new private-sector jobs last month, handily beating expectations (the strongest report since June), according to numbers released by payrolls processor ADP this morning…today’s report, however, underlined how the manufacturing sector is struggling (only 6,000 new jobs)…the services sector enjoyed the biggest gains, adding 204,000 jobs…the Labor Department will provide November’s non-farm payrolls report on Friday…

Federal Reserve Bank of Atlanta President Dennis Lockhart said today that with the economy growing and inflation depressed due to “temporary” factors, the case to raise rates later this month is looking solid…while officials still have 2 weeks to collect data ahead of their next gathering, “absent information that drastically changes the economic picture and outlook, I feel the case for liftoff is compelling,” Lockhart said…this “is a much anticipated meeting, and there is a chance it will be historic in character.  The economy doesn’t require emergency treatment anymore.” 

Lockhart added that a rate rise right now would be “a vote of confidence” in the economic outlook that should encourage consumers and businesses to spend, invest and hire…he said that after rates start going up, the path is likely to be “rather gradual”, which means subsequent increases in borrowing costs are likely to be slow and small in nature…

A rise in U.S. inventories for the 10th straight week added to global Oil glut concerns today, and investors discounted the possibility of OPEC cutting output at this week’s meeting…the U.S. Energy Information Administration reported stockpiles increased by about 1.2 million barrels in the week through November 27, bringing total American storage to 489.4 million barrels, near a modern day high…

In today’s Morning Musings…

1.  How the TSX Gold Index is gearing up for a powerful rally…

2.  How to plant some seeds now to cash in on an emerging drone company opportunity…

3.  A look at the two Venture volume leaders today, Graphene 3D Lab (GGG, TSX-V) and Ashburton Ventures (ABR, TSX-V)…

Plus more…to view the rest of today’s Morning Musings, login with your username and password, or click here to gain full access to this and other exclusive BMR content and features…

Gold has traded between $1,064 and $1,074 so far today…as of 9:15 am Pacific, bullion is flat at $1,065…Silver is up slightly at $14.08…Copper has added 2 pennies to $2.11…Crude Oil is relatively unchanged at $41.51 while the U.S. Dollar Index is off one-quarter of a point at 99.96…

Get ready for a strong finish to the year in Gold…the COT structure has not been this bullish in more than a decade…significantly, the smart money commercial traders have dramatically reduced their net short positions according to the latest available data…this isn’t surprising…money managers, typically the most bearish or the most bullish at precisely the wrong times (at key turning points), are showing extreme levels of bearishness at the moment – and they’re about to be caught with their pants down…this may not happen immediately, but certainly within the next 2 weeks and that’s why we went aggressive on Gold and quality Gold stocks recently which included a bullish call on the double-long HGU…it closed at $15.74 yesterday ($3.15 pre-consolidation)…

The U.S. Mint’s sales of American Eagle coins surged in November, with Gold nearly tripling month-over-month and Silver already reaching a new annual record as bullion prices fell to multi-year lows, data released yesterday showed…the mint sold 97,000 ounces of American Eagle Gold coins in November, up 185% from October and 62% higher from a year ago, after selling out of most of the 2015-dated coins as falling bullion prices attracted buyers…

Gold lost a whopping 6.8% in November – highly unusual considering that November has been the 3rd-best month of the year for bullion going back to 1996 with an average gain of 1.7%…last month was unique in the sense that traders dumped Gold on the growing sense that the Fed will initiate its first rate hike in a decade at its upcoming meeting December 15-16…so a hike has already been “baked into” the Gold price, the yellow metal has become quite oversold, and conditions are ideal for a strong December rebound even if the Fed decides to hike rates…

Gold is also approaching one of its best months of the year – January…the 2016 Chinese New Year falls on February 8, 11 days ahead of 2015…expect strong Chinese buying leading up to New Year celebrations…

In today’s Morning Musings…

1.  A big volume day in Discovery Ventures (DVN, TSX-V) as the company prepares for a bulk sample test at Willa…

2.  A “big picture” update on Equitas Resources (EQT, TSX-V), technically and fundamentally…

3.  Tracking the leveraged opportunity in the HGU…

4.  The S&P 500‘s interesting December history…

Plus more…to view the rest of today’s Morning Musings, login with your username and password, or click here to gain full access to this and other exclusive BMR content and features…