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TSX Venture Exchange and Gold

The Venture has posted 5 consecutive weekly gains, though the most robust activity has occurred in non-resource issues.  As expected, the Index tested key Fib. and chart resistance last week at 707 – intra-day Wednesday, Thursday and Friday, actually, and then backed off slightly each time before closing Friday at 703.

The Venture has climbed an impressive 6.8% over the last month (22 trading sessions) since the March 18 low of 658.  A potential acceleration of this uptrend through 707 will likely require additional weakness in the greenback (the U.S. Dollar Index does appear to be in the grips of its first major correction after a record run) as well as continued strength in commodities (the CRB Index is up over 8% since its March low).

While an eventual breakout above 707 seems almost inevitable, exact timing is impossible to predict.  One scenario is an immediate catalyst that brings a surge of buy pressure into the market, giving it the necessary volume and momentum to conquer the 707 wall and take a run at the next resistance which is 750.  Another possibility is a modest retreat from current levels, perhaps to the rising 10, 20 or 50-day moving averages (SMA’s), followed by a fresh wave higher and another breakout attempt.  Importantly, very strong support exists around 680 and this area also held on a monthly closing basis December through March.

Venture 6-Month Daily Chart

The Venture recently broke loose from its 50-day SMA (currently 687) which is also now rising gently.  In addition (not shown on the chart below), the Venture has pushed above its 100-day SMA for the first time since last summer.

Volume and buy pressure (CMF) both need to pick up in order for the Venture to overcome resistance at 707 and climb higher from there.  This will require some fundamental factors to come into play to create fresh excitement and help restore overall investor confidence, especially on the resource side where selectivity remains key.

Venture-WTIC Comparative Chart

The rally in Crude Oil has been very helpful in stabilizing the Venture.  The correlation between the Venture and WTIC has been extremely high in recent months as seen in this 15-year monthly comparative chart, so any additional strength in Crude prices is sure to translate into more gains for the Venture.

On another note, it’s interesting to compare the current pattern in WTIC with the one in late 2001/early 2002 – look how amazingly similar they are.  Sometimes history does repeat itself.  There are many sound reasons to be cautious about Crude, given the current supply-demand dynamics, but the Middle East is like a power keg at the moment and one cannot rule out the possibility of a near-term explosive conflict in that troubled part of the world that somehow disrupts supplies and brings a risk premium back into the Oil market.

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 is that it forced producers (at least most of them) to start to become much more lean in terms of their cost structures. Producers, big and small, have started to make hard decisions in terms of costs, projects, and rationalizing their 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.

Gold

Gold was essentially unchanged for the week, trading slightly on either side of $1,200 before closing at $1,204.  It’s encouraging from a technical standpoint that the yellow metal is managing to hold support at $1,200, but downside risk increases the longer it takes for bullion to push through an important band of resistance between last week’s high ($1,210) and the mid-$1,220’s.

RSI(14) is holding support at 50% and has formed a bullish “W”.  That’s the only obvious clue we see on the 6-month daily chart that points toward the possibility of higher prices in the coming week.  Further technical deterioration in the U.S. Dollar Index would likely give Gold a lift.

Gold 2.5-Year Weekly Chart

This is one of our favorite Gold charts as it gives the “Big Picture” of how this market has meandered within a downsloping flag for the past two-and-a-half years.  Quite simply, resistance is at the top of the flag and support is at the bottom, while RSI(14) – currently at 47% – has moved within a 30% to 60% channel.  At some point, Gold will either break out above the flag or crash below it – right now, it’s roughly in the middle.

Two positive signs – Gold has pushed slightly above its 50-day SMA which is beginning to flatten out, while a %K/%D bullish cross has occurred in the SS indicator.  Bullion’s recovery since mid-March does have a good chance to strengthen toward the top of the flag in the coming weeks.

Silver fell 24 cents last week to close at $16.23 (updated Silver charts in Monday’s Morning Musings as usual).  Copper lost 2 pennies to $2.73.  Crude Oil had another big week, climbing more than $4 a barrel to $56.14 while the U.S. Dollar Index fell nearly 2 points to 97.45.