TSX Venture Exchange and Gold
After backing off immediately Monday and Tuesday from a level just below critical resistance, the Venture stabilized over the next 3 sessions and closed Friday at 692. For the week, the Venture was down 11 points and for the month, which is normally one of the softest of the year, the Index was off only 4 points. Interestingly, despite the dramatic late 2014 sell-off and the challenges the junior resource market has faced since, the Venture has been able to hold critical support at the 680 level on a monthly basis (updated long-term chart in Monday’s Morning Musings).
The Venture has managed to stay at or above its gently rising 100-day SMA since early April. A key market to watch, of course, is the U.S. Dollar Index which rallied during the last half of May – certainly not unexpected after it sold down to temporary support. The Dollar Index faces considerable resistance in the upper 90’s given the double top pattern that formed in March and April, in addition to some other bearish indicators.
Some strength in the CRB Index over the next few months seems likely, as John has shown in recent charts, and Copper (a reliable leading indicator) is looking very interesting as well from a broad perspective, despite its recent pullback. Crude Oil probably found its bottom in the low $40’s while resilience in Gold producers suggests a 3-year correction in the yellow metal may indeed have ended last November. So the Venture’s upside potential as this quarter progresses, and looking ahead to Q3, definitely appears to exceed its downside risk, a very different scenario than the one that existed last September when the Index simply fell apart technically, driven largely by the collapse in Crude prices. Yes, the resistance just above 700 is frustrating but the Venture has also been building a strong base during the first 5 months of this year. Non-resource issues of course have performed the best.
6-Month Daily Venture Chart
What’s encouraging about this chart is that sell pressure, dominant for the month of May, has been replaced by weak buy pressure, and this pattern is typically a prelude to gains in the Index. RSI(14) has stabilized. As we pointed out last weekend, the Venture’s current technical posture is such that the chances of a near-term breakout above 707 are better now than they were in mid-April. Exact timing of a breakout, however, is the issue, and what would the catalyst be?
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 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 declined for the second straight week, falling $18 an ounce to $1,188. On the 20-year monthly chart, as we’ll show Monday morning, bullion is currently resting right at its uptrend support line going back to the beginning of the bull market in 2001.
Below is one of the most reliable charts we’ve produced for Gold – the 2.5-year weekly. During this period, bullion has repeatedly tested the top and bottom of a downsloping flag, with RSI(14) hovering within a channel from 30% to 60%. Encouragingly, RSI(14) has been on a very gradual uptrend since the metal’s November low of $1,130.
Historically, June is one of Gold’s most challenging months of the year – but this is also followed by the strongest 3-month period which is July-August-September.
Silver fell 42 cents last week to close at $16.65. Copper lost another nickel to $2.74. Crude Oil was up slightly to $60.30, thanks to a strong Friday session, while the U.S. Dollar Index added nearly a full point to 96.99.
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, 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.
In a research note from UBS, Thursday, commodity analysts Edel Tully and Joni Treves said that Swiss Gold exports fell to 143.92 tonnes in April, a decline of 36% from the previous month but a rise of 30% compared to April of 2014…they noted that the decline in Gold exports also coincided with Hong Kong trade data as Gold exports from the island to mainland China dropped to 46.64 tonnes, down 25% from March and off 29% from the previous April…turning to India, UBS said they estimate that India imported 81.09 tonnes of Gold last month, down 38% from March but twice the amount of Gold imported last year…they added that last month’s import data is in line with the average over the past 10 years…the analysts noted that the drop in Gold imports and exports is more a reflection of seasonal factors than underlying fundamental weakness…
