BullMarketRun.com

TSX Venture Exchange and Gold

The Venture posted its 5th straight weekly gain on another increase in volume as it added 7 points to close Friday at 538.  The Index continues to be supported by rising short-term moving averages (the EMA-8 and EMA-20 are currently 530 and 519, respectively).  As long as this continues, so will the upward momentum.  Keep in mind, though, that this market is trading within a band of Fib. resistance up to the mid-550’s (a critical area) that may take a while to overcome.  All indications point toward an eventual major breakout above this resistance but exact timing is very uncertain –  potentially, such an event may not materialize for several months.

The bullish activity since late January, concurrent with rising Gold prices, is a sign of a much better 2016 shaping up for the Venture.   At some point this year, tremendous upside momentum could build in the Index as soon as the 200-day SMA (currently 560) is cleared and reverses to the upside.

The Venture’s RSI(14) has pushed further into overbought territory at 76% on this 6-month daily chart due to current momentum.  Gold’s RSI(14) recently surged well into the 80‘s before pulling back.  At some point, the Venture’s RSI(14) on this chart will retrace to at least the 60% level which is previous resistance.  A pattern that appears to be under construction is a bullish inverted “head-and-shoulders”.  The right shoulder has yet to form.  Any pullback must be understood in that context.

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

The Dollar Index has been in a short-term uptrend since mid-February since touching the 95.42 Fib. support.  Not surprisingly, it has rallied back to its 50-day SMA where resistance should be expected.  The broader picture for the greenback is not so positive, and we see little threat of a breakout through the 100 level – repeated attempts over the past year have failed.  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 has given 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.

Keep in mind, the Venture always performs best when the Dollar Index is stable or under pressure.

Gold

Gold traded within a range between about $1,200 and $1,250 last week before settling $4 lower at $1,222 for its 2nd consecutive weekly loss.  However, bullion is still up $104 or 9.3% for February in its best monthly performance since January 2012.  Holdings in Gold-backed exchange-traded products have risen sharply since the start of the year and net inflows continued last week despite a significant upside move in the greenback.

The Gold market will have plenty of fresh U.S. economic data to chew on in the coming days.  The Institute for Supply Management issues its manufacturing survey on Tuesday and service-sector survey on Thursday. Other data will include the ADP report on private-sector jobs growth and the Federal Reserve’s “Beige Book” report Wednesday, then weekly jobless claims, productivity, unit-labor costs and factory orders on Thursday. The all-important non-farm payrolls report is due out Friday.

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.  Gold could even drop as low as $1,150, in the vicinity of its rising 50 and 200-day SMA’s, and that still wouldn’t change the very bullish outlook for 2016.

The world is slipping into increasing political and economic chaos during President 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 even 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 powerful new President to fix this mess and reassert common sense and American strength on all fronts.

Gold 6-Month Daily Chart

What was interesting last week in Gold was the breakout above a bullish pennant followed by a throwback to the top of that pennant which also coincides with Fib. support at $1,222.  Monday’s trading to finish the month, and the following few days, will therefore be quite interesting and important in terms of setting the tone for March.  A quick move to $1,300 can’t be ruled out – neither can a correction to the next Fib. support at $1,160.  The primary trend, however, is unquestionably bullish.

Silver had a disappointing week, falling another 65 cents to $14.67 after a 43-cent loss the previous week (updated charts in Monday’s Morning Musings).  Copper added another nickel to $2.14.  Crude Oil jumped more than $3 a barrel to $32.84 while the U.S. Dollar Index surged 1.5 points to 98.09.

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):