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TSX Venture Exchange and Gold

Venture Updated Chart

It was a stellar week for the Venture which jumped 20 points to 531 on increased volume as the Index climbed above its 100-day moving average (SMA) for the first time since April of last year.  This action, overall, is very bullish as the Venture also continues its new trend of outperforming the broader equity markets.  For the week, the Venture was up 3.9% (despite slightly lower Gold prices) vs. a 3.5% gain for the TSX and a 2.6% advance in the Dow.

How the Venture handles a Fib. resistance band between 531 and 554 over the near-term will be interesting to see.  Gold above $1,200 is clearly giving the Venture a boost, and bullion is showing no signs of surrendering very strong new support.  Technically, the Venture’s RSI(14) has pushed into overbought territory at 74% on this 6-month daily chart but the Index is showing momentum and Gold’s RSI(14) recently surged well into the 80‘s before pulling back.

Going into the final 6 trading sessions of February, it wouldn’t be surprising to see the Venture challenge Fib. resistance in the mid 550’s.  The rapid increase in buy pressure is impressive, and +DI /-DI are moving sharply in opposite directions.

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 last summer’s fresh 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 performed exceedingly well in 2014 and 2015, and of course so far this year the metal has been shining against the greenback, too.   The widespread negativity in the American media toward Gold over the last few years is likely going to change dramatically at some point during 2016.

U.S. Dollar Index Update

Any rallies in the Dollar Index are going to be restrained now by a declining 50-day SMA, currently at 98.16.  For the first time since the summer of 2014, the greenback has been knocked off stride and the uptrend is over – at least for the foreseeable future.  Significantly, the Fed has also weighed in on the dollar just recently, making its concerns known about the negative affects of a strong U.S. currency.  That’s giving Gold investors some added confidence.  At the very least we see the Dollar Index testing support around 93 during this first half of the year, a level it hit and bounced off from on a few occasions in 2015.

This new trend in the greenback began after the Dollar Index high of 100.60 in early December.  Keep in mind, the Venture always performs best when the Dollar Index is stable or under pressure.

Gold 6-Month Daily Chart

Gold took a breather last week but what was really encouraging was the powerful display of support around $1,200.  Bullion fell for the first time in 5 weeks, losing $12 an ounce to close Friday at $1,226.  Gold continues to flow into global exchange-traded funds with the total for 2016 already exceeding the exodus from all of last year.

Bullion in 2015 posted its 3rd straight annual loss in U.S. dollar terms for the first time since 1998.  As we’ve been pointing out, however, the bear market that started in Gold in late 2011 reached the long-term average late last year in terms of both duration (47 months) and decline (44%).  A new bull cycle now appears to be underway, confirmed in our view by the breakout above a long-term downsloping channel around $1,200.

Many factors are powering bullion higher, not the least of which is a broad concern about the health of the global economy and if central banks really know what they’re doing.  Janet Yellen’s testimony before House and Senate Congressional committees recently was rather discomforting, especially when she mused about potential negative interest rates.

Politically, there’s no astute economic or foreign policy leadership in the United States which is critical to global stability.  It’s no surprise, then, that Americans are embracing anti-establishment candidates in the run-up to November’s presidential elections.  The world is slipping into chaos during Obama’s final year in office, and Gold and Gold stocks could absolutely soar in the process.  In fact, even though Oil is facing supply and demand problems right now, the possibility exists for a spike in Crude this year in the event the Middle East descends into all-out war brought on by Russia and Iran.  Both countries took advantage of a weak U.S. presidency under Jimmy Carter in the late 1970’s – rest assured, they will attempt to do so again before Obama leaves office.  There’s also ISIS and other Islamist terrorist groups to contend with who present a far greater danger to the world than “climate change”.  It will likely take a Donald Trump to fix the mess and reassert common sense and American strength on all fronts.

Gold 6-Month Daily Chart

This 6-month daily chart shows RSI(14) conditions have unwound from above 80% to 69%.   It would not be unusual to see very elevated RSI(14) levels for an extended period given the fact that longer-term charts confirm that there has been a MAJOR breakout and pattern change in bullion.  The trend is in Gold’s favor – go with the trend.

The next measured Fib. resistance level on this 6-month daily chart is $1,288 while very strong support exists between the October high of $1,192 and previous Fib. resistance at $1,222.  Wisely, given the price momentum we were seeing in Gold, we held off on recommending a short position against the TSX Gold Index but that option is still one we’re considering if the risk-reward ratio becomes more favorable (i.e., when there’s another near-term spike in Gold and Gold stocks).  We will keep our subscribers advised.

Silver retraced 43 cents last week to $15.32 (updated charts in Tuesday’s Morning Musings).  Copper added a nickel to $2.09.  Crude Oil rose slightly to $29.44 while the U.S. Dollar Index rallied two-thirds of a point to 96.59.

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 a new multi-year price low in late 2015, the fundamental case for the metal remains solidly intact based on the following factors (not necessarily in order of importance):