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TSX Venture Exchange and Gold

Have you noticed a very curious and different pattern between how the Venture has performed since July this year vs. the same period last year?  And how the U.S. Dollar Index pattern has also been so different?

In July of this year, the Venture tumbled 11.5%, one of its worst July’s on record.  In August it crashed another 14.3% to an intra-day low of 509 on “Black Monday” the 24th before recovering impressively to close the month at 559 (still a 5.9% loss for August).  Through the first 13 trading sessions of September, the Venture has declined a modest 1.6%.

In 2014, the Venture fell 2.5% in July, gained 2.2% in August and lost 5.8% through the first 13 sessions of September.  We know what happened from mid-September last year to mid-December – the Venture broke down technically and sold off sharply, more than 30% as commodities, especially Crude Oil, cratered.

The U.S. dollar has also behaved very differently since the beginning of July this year than it did from July to mid-September last year.  In September 2014, the Dollar Index was in serious breakout mode.  It’s now under pressure with the technical internals continuing to deteriorate.

The point is this:  The Venture is in a much different pattern now than it was at this time last year.  That’s great news for the bulls who may finally get the upper hand in the near future with a continuing trend suggesting that the final few months of 2015 will not resemble the same period last year.  The bears’ grip on this market is loosening.

Friday’s Trading

Amazingly, Friday’s trading was like a repeat of exactly 2 weeks ago when the Dow plunged 272 points, the TSX lost 118 points, and the Venture essentially held steady, losing just 1 point.  Yesterday, the Dow fell 290 points, the TSX surrendered 140 points, and the Venture lost just 1 point to finish at 550, a 3-point advance for the week.

This kind of Venture resilience in the face of broader equity market weakness is a very positive sign.  Commodities are on a much more stable footing than they were at this time last year, and that’s giving the Venture some much-needed support.

Once again, the Fed has “chickened out” on raising rates.  Janet Yellen was the dollar bulls’ biggest ally from the middle of last year to the spring of this year.  She’s now their achilles’ heel.

Venture “Awareness Chart”

As soon as the Venture can break loose from its EMA(8) and EMA(20), currently 550 and 553, respectively, that’s when this market will gain fresh momentum and traction.  The Venture would then be expected to challenge the next Fib. resistance on this 4-month daily chart which is 586.

Other key takeaways from this updated “awareness” chart:

1.  RSI(14) has climbed out of oversold conditions which it had been trapped in since the beginning of July.  It’s currently at 43% – near-term resistance at 50%, new support at 30%;

2.  The recent bearish trend (ADX indicator) has weakened dramatically since the August 24 low – what to watch for here is a potential +DI bullish cross over the near to short-term;

3.  The SS indicator is showing increasing up momentum, a factor in the bull’s favor;

4.  Fib. support at 515 has held – on a monthly basis, Fib. support around 560 also held in August.  One cannot rule out the possibility of a double bottom at the 515 Fib. level, but a close above 560 by the end of September is probably more likely and such an event would have bullish implications for October.

More than ever, the Venture and the junior resource market in general urgently need a fresh grassroots discovery in Canada.  Two of the best near-term possibilities in our view are in Labrador and northwest British Columbia – Equitas Resources‘ (EQT, TSX-V) Garland Nickel Project near the Voisey Bay’s mine, and Garibaldi Resources‘ (GGI, TSX-V) Grizzly Central area in a district where a second deposit has already been found and more appear to be a virtual certainty.  First-ever drilling at Garland and Grizzly Central are coming up.

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 recent 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 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

The U.S. Dollar Index continues to meet resistance at the 96 level and is looking increasingly weak.

The consistent position we’ve maintained over the last several months is that the Dollar Index hit its 2015 high during March-April based on what has proven to be, so far at least, a very reliable 9-month daily chart.  Fundamentally, a runaway dollar would not be healthy for the U.S. or global economies, a factor the Fed obviously took into account when it updated its policy statement Thursday.

Dollar Index support has been strong around the 93 level as expected up to this point.  However, the Dollar remains a crowded trade.  The potential exists for a serious unwinding of the greenback over the next few months after the record run that started in the summer of last year.  This could mean a drop to about 88 (base support) on the Dollar Index which would be very supportive of commodities.

Gold Update

September is traditionally Gold’s best month of the year, and after a slow start to this September the yellow metal finally kicked into gear last week with a gain of $31 an ounce to $1,140.  The Fed’s further delaying of a rate hike hurt the dollar and gave bullion a boost.

John’s 6-month daily chart shows how bullion has pushed through some important Fib. levels and could be on its way to challenging resistance again around $1,160.  Support held around $1,100 which was encouraging to see.  The 50-day SMA is flattening out just below $1,120 – appears poised to reverse higher by the end of this month or the beginning of October.

Silver shot up 56 cents or nearly 4% last week to close at $15.18.  Copper eased off 6 cents to $2.38.  Crude Oil bounced around before closing the week up 20 cents at $44.98 while the U.S. Dollar Index finished relatively unchanged at 95.15 after rallying half a point Friday.

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 fresh weakness now, the fundamental long-term case for the metal remains solidly intact based on the following factors (not necessarily in order of importance).

Note:  John and Jon both hold share positions in EQT and GGI.