TSX Venture Exchange and Gold
It was another rough week for the Venture which is now in unchartered territory, 45 points below its December low with roughly estimated Fib. support levels at 595, 576 and 547. For the week, the Venture slipped 39 points or 5.9% vs. a 3% decline in Gold, a 3.1% drop in the TSX and a 2.9% slide in the Dow.
While the Venture is certainly vulnerable to further declines – the Index is on an 8-session losing skid – keep in mind that RSI conditions are more extreme now than they were at the December low (RSI-2 is almost at “0“, for example on today’s 7-month daily chart). Investors are always skittish about trying to catch a falling knife, however, and would prefer to see that knife hit the floor first.
Actually, history shows that the best thing that could happen to this market right now – and Gold for that matter – would be a headline-producing, panic-driven, dramatic capitulation sell-off of 10% or more in a single day. In other words, enough of this fooling around – let’s just get this over with as quickly and possible and move on. That’s why the 2008 Crash was a blessing in disguise – a potential long-term bear market was compressed into just several months, and then it was “game on” again.
The key breakdown for the Venture came in late June when support at the uptrend line from the December low was breached. Important Fib. support at 646 and 628 also gave way. The Venture has now lost 76% of its value following its early 2011 post-Crash high of 2465, but there is hope on the horizon as you’ll read below.
There Is Hope – The Venture’s 39-Week Cycle Chart
Recently, we posted John’s updated 39-week Venture cycle chart. Strangely enough, over the last 15 years, there has been a consistent pattern of trend reversals at the end of each 39-week period on the Venture – you can see it quite clearly on this fresh version, through Friday, which is important to look at and understand.
What this chart suggests is that a cycle low will occur around the end of August into the beginning of September – that’s when the current 39-week period expires. More extreme RSI(14) levels probably need to occur here before we see a bottom in the market, so that lends credence to the argument that we’ll see additional weakness before a reversal.
The vertical blue lines separate each 39-week period.
What event could happen in September or early fall that could turn this market around and enable it to perform very differently than it did last year from September through mid-December? We’ll find out soon enough, but if the Fed were to finally get a rate hike out of the way, this would at least remove the anticipation of one which has been pressuring the U.S. Dollar to the upside since the summer of last year and hurting commodities as well. Or perhaps the situation in China will grow worse, impacting global financial markets in general and causing central banks, even the Fed, to really open the floodgates of stimulus. In any event, something big appears to be on the horizon – be prepared.
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 current weakness, 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 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.
U.S. Dollar Index Update
Does the U.S. Dollar Index have to put in a triple top for 2015? Perhaps. A runaway dollar would be dangerous, so we can’t believe for a second that the Fed would want to see a breakout in the Dollar Index through the 100.71 high it hit in March. This would actually be counter-productive to the Fed’s desire to jump-start inflation, and would generally impair the U.S. economy.
One of the reasons for the economy’s disappointing performance during the 1st half of 2015 was the delayed affect of the impact of the record surge in the dollar during the 2nd half of 2014. It’s reasonable to expect the Dollar Index to run into fierce resistance in the high 90‘s as we’ve been stating, after it retraced to Fib. support around 93 in May and then retested that level a month later. The correlation between the greenback and the Venture is very high, so an extended period of Dollar weakness – even for just 6 months or so – would give the junior resource market some much-needed relief. Perhaps that’s what we’ll see beginning in September.
Gold
Some are calling it “manipulation” – a huge sell order dumped into the Gold market at a very strategic time last Monday, just as the Shanghai Gold Exchange opened while it was a holiday in Japan. Bullion crashed through critical support and fell nearly $50 an ounce to $1,080 in just 2 minutes before stabilizing.
For the week, Gold was off $34 an ounce as it recovered some lost ground Friday with an intra-day reversal – a significant day, or just a short-covering bounce?
As Gold prices slumped to a 5.5-year low, holdings of the world’s biggest Gold-backed exchange-traded fund, the SPDR Gold Trust, have fallen to their lowest level since 2008. Yes, those holdings could drop even more, but one should view that information from a contrarian point of view. Remember, holdings peaked in December 2012 – those who interpreted that bullishly got clobbered severely.
Technically, Gold has been consolidating within a downsloping flag since the middle of 2013, consistently testing resistance at the top of that flag and support at the bottom of it. That trend continues, and what we also saw this past week was Gold touching the bottom of the flag while RSI(14) is now at a support level.
Gold has hit the bottom of the flag on 3 occasions now since the end of 2013 – the previous 2 rallies following those events resulted in gains of 18% and 13.6%, respectively. Will history repeat itself?
A close below the flag would virtually ensure a test of the $1,000 level.
Fundamentally, it didn’t actually help that China finally updated its Gold reserves a week ago Friday which showed a 57% increase to 1,658 tonnes since the country’s last update in 2009. This took some speculation out of the market and the actual number, while it showed steady accumulation of Gold by China since 2009, was disappointing to many observers who were expecting a current reserve figure north of 2,000 tonnes. Interestingly, despite the tonnage increase, Gold now accounts for 1.65% of China’s total forex reserves, against 1.8% in June 2009 according to a report from Reuters. The United States, the biggest official sector Gold holder, holds nearly 73% of its reserves in Gold.
Silver fell a dime last week to $14.74. Copper tumbled 9 cents to $2.39. Crude Oil fell below an important support level ($49 to $50), closing down $3 a barrel last week to $47.97, while the U.S. Dollar Index lost half a point to 97.20.
The “Big Picture” For 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 fresh weakness now, the fundamental long-term case for the metal remains solidly intact based on the following factors:
- Growing geopolitical tensions, fueled in part by the ISIS and al Qaeda, and a highly dangerous and expansionist Russia under Vladimir Putin, have put world security in the most precarious state since World War II;
- Weak leadership in the United States and Europe is emboldening enemies of the West;
- Currency instability and an overall lack of confidence in fiat currencies;
- Historically low interest rates/highly accommodating central banks around the world;
- Continued strong accumulation of Gold by China which intends to back up its currency with bullion;
- Massive government debt from the United States to Europe – a “day of reckoning” will come;
- Continued net buying of Gold by central banks around the world;
- Mine closings, a sharp reduction in exploration and a lack of major new discoveries – these factors should contribute to a noticeable tightening of supply over the next couple of years.
Interestingly, Martin Armstrong predicted two years ago that his computer models, economic and geo political, crossed the base line at the same time frame indicating a market crash about mid September. He has an amazing track record of being bang on. Richard l
Comment by richard l — July 25, 2015 @ 10:16 am
Jon, interesting write up today. It will be interesting to see what happens in the next 30 days. As for DBV, hopefully it gets resolved soon. I hear that winter sets in early in that part of B.C. like around late September. If they don’t resolve quick, DBV will not have enough time to finish hole #24 and #25. Of coarse, your looking at next spring. Probably the same thing in Labrador. This is why EQT wants to press forward now. They want to drill a 4,000 to 5,000 meter program. The money they obtain next week will allow this.
Lets hope this bear market ends soon here and lets get DBV up and running again.
Comment by dave — July 25, 2015 @ 10:26 am
Dan – TA on EQT. .08 is now showing stronger support than .07 did the day before. We have 2 solid white candles in a row. The RSI just crossed 50 and the MACD did its crossover after forming a “w”. The bottom bollinger band has reversed and curled up. This should also trigger those investors that only trade off TA and know nothing about fundamentals. Yummy
Comment by dave — July 25, 2015 @ 11:02 am
Dave- you have been told many times that winter drilling at the HAT is not an issue so I don’t know why you keep saying that…..maybe its because you’re out of shares and might want back in at a lower price???? Farshad has also confirmed that winter drilling is possible in the Valley. During your DD of DBV you probably missed the fact that they winterized the camp and intended on winter drilling last winter but for some reason they stopped drilling on 20 Dec for the holiday break and never resumed drilling. My opinion for not resuming after the holidays was because the Dr was analyzing data and core first prior to making a plan of attack and didn’t want to rush things!
With easier access to the site and lost time due to illegitimate claims by Chris Day, I’m pretty sure DBV will drill during winter once they resume. I heard that they plan on adding a few rigs after things settle.
Comment by D4 — July 25, 2015 @ 11:07 am
Dave- hole 24 was finished btw. I doubt drilling will only resume next spring. I look forward to you being a shareholder of DBV again so that the optimism returns…..
Comment by D4 — July 25, 2015 @ 11:17 am
D4 – I have been told many times that DBV could drill through the winter ???? I don’t recall being told by anybody that DBV could drill all winter long. I have not done a lot of DD on DBV.
Second – I might be out of shares????? – I posted on this site that I bought DBV the day after it resumed, but sold it the next day after realizing this could drag on, so obviously you should know that I don’t have any shares nor do I want any right now. I guess you missed reading some of my posts. If and when DBV gets this thing ironed out, I will be a buyer. Now, it doesn’t matter whether I get the shares at .04, .08, .12, or .20. I will buy if and when the time is right.
Comment by dave — July 25, 2015 @ 11:57 am
D4 – I just made a phone call, are you absolutely SURE hole 24 is done? I’m off on some business. See ya’ll later.
Comment by dave — July 25, 2015 @ 12:07 pm
Dave- its not the first time that you mention that winter sets in early in Northern BC and Jon told you that The Sheslay lies low and is sheltered by the Valley which makes drilling during winter possible (if Jon doesn’t remember either I do). I believe others also mentioned it.
If one doesn’t own shares, why continue to add to the pessimism during a time when shareholders are in the dark and are worried of their investment?
On occasions, there have been times when I could have said negative things on your picks as some of them I have crossed paths with but I don’t as I believe that everyone here is responsible for their own actions and like I say…..DD is key! If someone buys one of your picks and becomes one of the bag holders when the traders sell they have nobody to blame but themselves! You are a trader and one day you might recommend a stock and a few days later you sell but unfortunately at times you become publicly pessimistic on it.
In the end, we are all here for one reason…..to make money! People may disagree on things others say and have differing opinions and investment strategies but we all have a common goal. Hopefully the Sheslay all helps us achieve it!
Comment by D4 — July 25, 2015 @ 12:15 pm
Dave- Think about it…..why would they stop a hole move the rig and then start a new one if they weren’t finished it? The only reason I can think of is they were racing to try to get as many short holes in before the kid showed up at the site as everyone pretty much expected it to happen at some point. I also heard a “rumour” of what depth hole 24 was drilled to and it is my assumption that they are done drilling it unless they decide to go back like they might do with H23 at a later date. Hole 25 as per the PR confirms Dr Raziques theory/model so far. What next? Do they drill deeper to see the depth of the mineralization or do they move another 1 km NW to finish confirming Dr Razique’s theory? I think they will do another big step out and continue to confirm the model of a 3×4 km footprint and then focus on the where the heart of the system is imo. First, we have a temporary obstacle to get through…..
Comment by D4 — July 25, 2015 @ 12:29 pm
D4, have you heard anything about the releasing the result of the remainder of hole 23? The longer it goes on the stranger it gets, unless DBV have told the lab to hold the results back as they do not want Chad Day to know what is in the ground?
Comment by Tom UK — July 25, 2015 @ 12:35 pm
D4 – your interpretation of me being pessimistic on DBV might be a little twisted. I understand you have a large position and you are hurting, and I feel for you. I have said things like “this is not good”,”” if it breaks .08 it could go to .04″”. Comments of this nature are not pessimistic. They are possibly to be factual based on the environment that the company is in and what I see POSSIBLY coming.
Now, I’m sure that I simply forgot that Jon posted here that DBV could drill all winter, so forgive me. I read posts quickly and don’t retain everything, and DBV is your blood right now, so you do retain everything Jon says about it. That’s fantastic news that they can drill in the winter. All the more reason I will buy once this gets resolved, even if the price is .20.
I am not down on DBV, I KNOW its not a pump and dump, and I don’t need to waste my time doing DD on it, someone is up there doing it for me.
My comments are not of pessimism but as I said before, calling it how I see it at the moment. I believe it was Theodore that made the comment should we sell at .08 and buy at .04, jokingly of coarse. I would never advocate buying or selling to anyone, case in point EQT, I simply put the info out of what I know and where I think something is headed. Just this morning, I have seen something that was not for my eyes to see yet. But I didn’t ask for it, so it doesn’t make anything I’m doing illegal. You have to understand that I have been dealing with Canadian mining stocks since 1991. My contacts are extreme.
If I say to watch one, I have not bought it, I merely am saying to watch it. I publicly stated on this board that I bought EQT at .07.
DBV is going to be fine, its not going anywhere and the situation will get resolved, and I am very confident that you will be in the green on this one down the road.
Now – on to making money. I have to leave at 5pm eastern. Hope you have a good weekend D4
Comment by dave — July 25, 2015 @ 12:44 pm
Tom UK- I have heard a few “rumours” but since I can’t get a good enough confirmation I will not post about it. I did hear though that visuals were very good so we just need to confirm it from the lab.
Comment by D4 — July 25, 2015 @ 12:51 pm
Tom UK – your not getting it. Chad Day KNOWS what is in the ground. See ya’ll tomorrow.
Comment by dave — July 25, 2015 @ 12:56 pm
They have winterized the camp at the Hat and are capable of drilling as long as it isn’t -30 , long term weather history says they do get cold snaps but not for months , the big problem is excess snow. If they get this squabble put to rest they can still drill to the end of December just like last year. Weather permitting they could drill all winter.
Comment by Les — July 25, 2015 @ 1:48 pm
Jon: i didn’t quite understand the headline ‘Something big appears to be on the horizon – be prepared…’……what in particular are you referring to? the 39 week lows?
Comment by STEVEN1 — July 25, 2015 @ 4:29 pm
Steven1 and StevenA: I believe the Week In Review update describes how something big could be in the works with the market, the potential for wild volatility between now and September. Interesting how Gold hit the bottom of the downsloping channel this past week. That support must hold – we could see a rally off this right away, we’ll see.
Yes, Chad opened a major can of worms beginning with his May 21 letter and then the blockade and second letter. As we’ve stated already in Morning Musings, John and I continue of course to hold our positions in both DBV and GGI, forgot to reference that in this separate piece today. Fixed, thank u.
Comment by Jon - BMR — July 25, 2015 @ 5:25 pm
Jon and BMR
THANKS FOR ALL THE UPDATES ESPECIALLY ON THE WEEKENDS, APPRECIATE IT VERY MUCH!
Comment by Greg — July 25, 2015 @ 6:10 pm
It has been a busy weekend, Greg, you’re welcome.
Comment by Jon - BMR — July 25, 2015 @ 6:36 pm
Keep an eye on fnc.v. They received samples from Pangang Steel Group ( major steel producer in China) to apply fnc’s metallurgy process to their ore to see if they can get better extraction. They’ll also apply this process to their blast furnace slab. Many believe they will be successful. Results in 3-4 months. Company is also awaiting results on their 500 tonne gold bulk sample. They could hit grades of 1oz per tonne.
Comment by tony t — July 26, 2015 @ 11:23 am