TSX Venture Exchange and Gold
The Venture lost 12 points or almost 2% last week, with most of that drop coming Friday when it shed 10 points to close at 628. The Index has hit a new post-Crash low but on relatively weak volume.
As we pointed out at the end of June, the Venture’s breakdown below the uptrend line in place in December was disconcerting and suggested that a test of certain support levels was likely on the way. RSI(14) on John’s 7-month daily chart today is currently at 20% while RSI(2) is at just 3.75%, so we’re already dealing with quite oversold conditions. The Index landed at Fib. support at 628 Friday, and the next 2 Fib. levels to keep an eye on are 609 and 598. It’s reasonable to expect those Fib. areas to be tested – if not over the very near-term, then certainly over the next 6 weeks (by the end of August).
On Friday, we posted John’s 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 that chart which is important to look at and understand. What it suggests is that a cycle low will occur at the end of August into the beginning of September – that’s when the current 39-week period expires.
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.
Venture 7-Month Daily Chart
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 minute 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
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 last week was a breakdown of chart support at $1,150.
Fundamentally, it didn’t actually help that China finally updated its Gold reserves 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.
So where to now for Gold after it closed Friday at $1,133, down $30 for the week after previous weekly drops of $6 and $26? Physical buying will be key to help offset technical weakness and keep Gold at or above the next estimated chart support at 1066. This is likely a time when the “smart money” commercial traders will likely dramatically scale back short positions in anticipation of a Q3 bottom in bullion and a fall rally.
Silver tumbled 78 cents last week to $14.84. Copper was off 3 pennies to $2.48. Crude Oil fell below an important support band ($52 to $54), closing down nearly $2 a barrel last week to $50.78, while the U.S. Dollar Index gained nearly 2 points to 97.96.
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.
From Stansberry Digest A GOOD READ FOR A SLOW SUNDAY also lines up with what Jon has been saying too…
Take a look at this 15-year chart of the TSX Venture Exchange, the bellwether index for junior resource stocks. (the chart wouldn’t post sorry)
We’ve written many times about how cyclical resource stocks are. As you can see, the TSX Venture has huge busts followed by equally impressive booms…
And today, junior miners are poised to boom. As Matt explained in his anecdote, buying a sector near the bottom is scary. The news at the bottom is always terrible. Your emotions will be against you.
But buying amidst extreme pessimism is how you make the greatest amount of money. Remember, Matt made 27 times his money in about one year.(In Kaminack Gold)
We think we have a similar opportunity today. There is “blood in the streets” in junior resources. It’s only a matter of time before they soar off their lows. But even if it takes more than 12 months, you can still make huge money.
Around the office, we often call these companies “stock options that never expire.”
As you may know, a stock option is a type of security that offers massive upside. And we’re not talking about “only 100%” upside. Stock options can return 10, 20, even 50 times your original investment. It’s not uncommon for traders to turn $10,000 into $250,000 with well-placed option trades.
But while buying options gives you the potential to make giant gains, they come with some negatives, too. The biggest one is that options have finite lifespans. For example, you might buy an option contract in January that expires in June. If the outcome you expect doesn’t happen by June (known as the “expiration date”), the value of your option will be worthless, and you’ll lose 100% of the capital you place in the trade.
The best junior mining stocks have the same upside as stock options. It’s not uncommon for professional mining stock investors to turn $10,000 into $250,000 by buying the right junior miner at the right time.
However, these junior miners are actual businesses. They don’t “expire” like option contracts do. The right junior miners have plenty of cash on hand to fund their operations… which allows you to hold these stocks for years and get exposure to their incredible upside potential.
Because the upside of these “stock options that don’t expire” is so great, placing just a small amount of your portfolio in them can produce incredible gains in a resource bull market. Placing just 1% or 2% of your portfolio in these stocks can result in a huge positive change to your overall net worth.
If the global central bank experiment ends badly – and we’re certain it will – the value of paper currencies will continue to plummet. The value of “real money” (gold) will soar. And buying these “stock options that never expire” now, while they are dirt-cheap, will end up looking like a genius move.
Again… the nature of the junior resource market makes it difficult for the average investor. These firms typically don’t have earnings. They don’t pay dividends. You can’t screen for the best ones.
Instead of earnings or dividend yields, the junior resource sector is all about people. To succeed in this market, you must invest in people with track records of success… people who are working on projects with real potential. Achieving huge returns in this sector isn’t about “what” you know… it’s about “who” you know. If you don’t invest with the right people, you’re guaranteed to lose.
Comment by Greg — July 19, 2015 @ 3:14 pm
how did the Venture do last year from Sept-Dec?
Comment by STEVEN1 — July 19, 2015 @ 4:05 pm
Anyone hear anything on DBV, GGI, Tahltan negotiations? It would be nice to get an update in the form of a NR. Hopefully drilling resumes this week.
Comment by Dan — July 19, 2015 @ 4:07 pm
That was the big breakdown, Steven, as soon as support at 970 was breached, so the drop was from just over 1,000 at the end of August last year to a low of 637 in December, almost a 40% drop…it would be highly unusual to have another September-Dec. period that was similar back-to-back…we’re seeing a July that’s different than last year, we’ll probably see an August that’s different, and a Sept.-Dec. period that’s different…
Comment by Jon - BMR — July 19, 2015 @ 4:10 pm
Dan forget the drilling until minimum August….My opinion only !
Comment by Guy Delisle — July 19, 2015 @ 5:03 pm
Chad Day makes the news in the Globe & Mail, DBV, GGI etc.
“Flexibility is key if First Nations and companies want to reach a deal”…
Comment by Andrew — July 19, 2015 @ 5:14 pm
any explanation for Gold…..low 1080???? : Jul 19, 2015 21:52 NY Time
Bid/Ask 1103.40/1104.40
Low/High 1080.50 / 1134.30
Change -29.90 -2.64%
Comment by STEVEN1 — July 19, 2015 @ 5:53 pm
I like the title ¨FLEXIBILITY¨ !
Comment by Guy Delisle — July 19, 2015 @ 5:55 pm
So now the story has gone national…..all we need is this to be settled on friendly terms and DBV will have a big audience watching up coming drill results.
Comment by D4 — July 19, 2015 @ 5:58 pm
In April, just eight months after they manned the barricades to stop Red Chris, the Tahltan voted overwhelmingly in favour of a co-management agreement between the Tahltan and Imperial.
I want to understand during this eight month Imperial continuous to work on RedChris ????
Comment by Guy Delisle — July 19, 2015 @ 6:01 pm
Guy, one of the big opponents of Red Chris who found strong support among some of the Tahltan was author Wade Davis, who stated the following about Red Chris: “It will result in the inundation of a pristine lake, Black Lake, with roughly 200 million tons of toxic waste rock, and the generation of perhaps 300 million tons of rock that will be spread across the plateau, all of which will drain will eventually into the nine headwater lakes of the Iskut River, the largest and most important tributary of the Stikine.”
The point of the above is that you’re always going to get this “noise” from the exploration stage to the development stage – no major discovery in B.C. has become a mine without the kind of noise we’re seeing around the Hat and the Sheslay district. Yes, despite Wade Davis’ campaigning, despite the blockades at Red Chris, despite some pretty fierce opposition, the Red Chris is now in production with an agreement with the Tahltan.
Comment by Jon - BMR — July 19, 2015 @ 6:11 pm
Ok Thanks Jon !
Comment by Guy Delisle — July 19, 2015 @ 6:18 pm
Gold may hit 1066 befour you blink again, wow!
Comment by Tombc — July 19, 2015 @ 6:57 pm
Chad Day’ s comment in the Globe and Mail in post # 6 by Andrew is totally ridiculous. He states the drill rig was shut down because it was now in a sacred area ; but it is in the same area as holes 1 to 5 were drilled over a year ago . I wonder if it’s now sacred because of the higher mineralization ? Takes a lot of gall to make a statement like that .
Comment by Les — July 19, 2015 @ 7:04 pm
Wow , gold just blew through 1100 to hit 1080 and bounced back to 1105 . We now have a new low that goes back quite a while , 1000 next support.
Comment by Les — July 19, 2015 @ 7:15 pm
If you can put a comments on the Globe and mail was good !
Comment by Guy Delisle — July 19, 2015 @ 7:27 pm
Good action, Les, mostly technical selling. Just $14 off the $1,066 support.
Comment by Jon - BMR — July 19, 2015 @ 7:44 pm
John, Jon. If you have not done so already, perhaps you may wish to contact the writer (Mark Hume, email according to G&M site: [email protected] ) for the article in the Globe and Mail and offer him some of the facts of the matter. In particular, the Tahltan Drilling Service company information and the previous ties to them with the TCC etc.
You guys certainly seem to have the most knowledge of the matter and you can certainly point him in the right direction if he wishes to verify anything.
Comment by Andrew — July 19, 2015 @ 7:53 pm
Thanks, Andrew. No worries. All the facts aren’t out yet. When they are…
Comment by Jon - BMR — July 19, 2015 @ 8:03 pm
Good plan Andrew , including the drilling being done on not so sacred ground for holes 1 to 5 over a year ago. Hope the Globe and Mail will print both sides of what’s going on. It would be good publicity.
Comment by Les — July 19, 2015 @ 9:10 pm
good morning bmr boys I bring to your attention the latest news releas from heron resources(HER TEXCH) july 19 2015 “EXCELLENT DRILLING RESULTS CONTINUE AT WOODLAWN- KATE LENS EXTENSION:20.5m @ 20.7%ZnEq” regards walter emond
Comment by walter emond — July 20, 2015 @ 12:20 am
Comment 6 newspaper article… Chad is so inconsistent! Can he pick a reason for blockading DBV and stick with it… One day it’s the sacredness of the Sheslay, then it’s the River, then it’s improper consultation, then it’s moose hunting ground… Getting tired of this guy! The previous Tahltan leader was much better, it’s a shame she lost the election.
Comment by Concerned Citizen — July 20, 2015 @ 2:36 am
Yes, Chad Day is very inconsistent! Hopefully all the facts come out soon. The Tahltan people and readers of these articles are only getting one side of the story. The longer it take to get the other side of the story the hard it will be to change the sentiment in DBV’s favour imo!
Comment by D4 — July 20, 2015 @ 4:13 am
Like it or not this gets solved one way…communication and negotiation…period!
Comment by Jamie — July 20, 2015 @ 5:06 am
El Chapo escaped from prison, maybe him or one of his goons and take care of this little problem for us.. Haha just kidding…kind of :/
Comment by Sam — July 20, 2015 @ 6:51 am
I agree Jamie. I hope DBV comes to the table with a generous offer to the Tahltan people. Otherwise this could drag on for a while. I was thinking of buying more shares but the million dollar question is whether the current low of 9 cents will hold. My guess is that we could be a few weeks to a month before this gets resolved. Guess I’ll put in a few lower bids and watch closely this week.
Comment by Ted — July 20, 2015 @ 6:53 am
Ted although it doesn’t matter much now, I would have thought the much better strategy would have been for Chad to wait until the deposit is proven up and sold to a major before causing a disturbance. At least then he would know for sure what’s at stake, not to mention he would at least then be negotiating with the major who planned on putting the deposit into production and who had the deep pockets. I am not holding my breath for a quick resolution either. If this proves to be really about their dispute with the province as has been implied here, the time frame is anyones guess.
Comment by Jamie — July 20, 2015 @ 7:43 am
Janie – reelection of Chad Day is coming soon and a more important part of his timetable .
Comment by Les — July 20, 2015 @ 8:38 am
I hope Annita McPhee wins the election. And I hope the Sheslay mess becomes the reason for losing his re-election.
Comment by Concerned Citizen — July 20, 2015 @ 9:26 am
If memory serves me correct. I believe the TCC changed the terms of office for the Executive members from 2 years to 3 years. So 2017 is the next elections for these members. I will try to find the TCC publication where I read this information but I think it was in one of their past newsletters.
Comment by Andrew — July 20, 2015 @ 10:19 am
Is anyone else getting bummed out about being in the dark regarding news on this mess ( DBV ect ). Or what is the next step or approach will be . Sitting on the fence with buying more or just having a fire sale and walking away or just not looking at anything for 6 months
Comment by T — July 20, 2015 @ 11:37 am