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TSX Venture Exchange and Gold

The Venture challenged resistance last week but once again reacted at 707, finishing down 5 points for the week at 698.  Resistance is strong but so too is support, and the longer-term chart that we’ll post tomorrow clearly gives more weight to the possibility of a breakout as opposed to a collapse below the levels that have been tested since the beginning of the year.

As we mentioned a week ago, while an eventual breakout above 707 seems 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, perhaps to the 680 area that has held on a monthly closing basis December through March, followed by a fresh wave higher.  In the Venture’s favor at the moment is that the U.S. dollar is in the midst of a cooling off period – its surge from last summer to the middle of March took its toll on commodities and the Venture.

Venture 5-Month Daily Chart

Keep in mind that last week’s minor retreat came after 5 straight weekly advances by the Venture, and a climb of nearly 7% over just 22 trading sessions.  So after a modest pullback, which is healthy, the Index should be well-positioned to muster the strength to overcome the resistance it has been grappling with.  The rising 20-day moving average (SMA) is 693 while the nearest Fib. support is 680.

U.S. Dollar Index Update 

The greenback is clearly in a consolidation phase, catching its breath after a long, hard run, and that’s good news for the Venture given the strong inverse relationship between the two.  Temporarily at least, the Dollar Index has formed a top at the 100 level (also Fib. resistance on this 9-month daily chart) and RSI(14) has also fallen below 50% which underscores the current technical weakness.  The Dollar Index is overdue to test its uptrend support (dotted line), and a deeper correction this quarter to somewhat lower levels is certainly a strong possibility.

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 ended at its lowest level Friday since mid-March, falling $24 for the week to $1,180 as it wasn’t able to gain traction above $1,200.  This will be an important week for Gold given the Fed meeting Tuesday-Wednesday as well as initial Q1 GDP numbers Wednesday, just ahead of the release of the Fed statement.  And of course we’re coming into month-end – how bullion settles Friday will likely set the tone for how May will start.

Going back to 1996, Gold has finished higher for the month of April nearly 60% of the time – only September (68%) has been better in that respect.  So history is on bullion’s side going into the final 5 trading days of the month.  Gold is currently down $3 an ounce this April.

Below is an update of 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 42% – has moved within a 30% to 60% channel.  At some point, Gold will either break out above the flag or crash below it.  At the moment it’s trading in the lower half of its range but near very strong support at $1,150.

Silver fell for the 4th straight week, losing 48 cents to finish at $15.75 (updated Silver charts in Monday’s Morning Musings as usual).  Copper was flat at $2.73.  Crude Oil enjoyed another good week, climbing $1.28 a barrel to $57.42 while the U.S. Dollar Index lost more than half a point to 96.86.