TSX Venture Exchange and Gold
For the second week in a row, the Venture managed to escape the worst of a storm that sent major averages in New York and Toronto down by 3.5% and Crude Oil tumbling by another 8%. The Venture lost 10 points or just 1.8%, and closed Friday with a small gain along with the TSX Gold Index.
How Friday evening’s attack on Paris – an act of war by ISIS – impacts markets in the week ahead remains to be seen. France, as it should, will respond ruthlessly and other allies will follow, with the exception perhaps of Canada whose new leadership unfortunately appears to be of a naïve mindset with regard to the threat of Islamist terrorism and issues of national security, or they’re simply too drunk on Climate Change Kool-Aid to think straight (perhaps both, which of course is even worse). Hopefully we don’t have to suffer brutal, simultaneous terrorist attacks like France just experienced to wake up most of our elected representatives in Ottawa. One would have thought that last year’s attack on Parliament Hill would have been enough to send a message that the ISIS ideology is a rapidly spreading cancer that kills.
9/11 changed the world. Friday’s horrific events in France will also have profound implications. In addition, news outlets are reporting that at least one of the French bombers entered the country after posing as a Syrian refugee, yet the Canadian government, pursuing its “sunny ways”, continues to insist it wants to rush in 25,000 Syrian refugees to Canada by Christmas. Coal in our Christmas stockings would be more preferable, but liberals despise coal more than terrorists.
ISIS is not contained, as President Obama has kept insisting, and clearly has a dangerous global reach. Market-wise, one possibility is the immediate emergence of a “risk premium” in Crude Oil which would allow prices to recover after getting hammered the last 2 weeks. Safe haven buying could also come into Gold. It’s conceivable, too, that the U.S. dollar, the best of a bad bunch of global fiat currencies, could gain further favor with investors. It’ll be fascinating to see what unfolds. Military budgets are going up and wars are raging on different fronts. Historically, that kind of environment has generally been positive for Gold and Oil, though Crude of course continues to battle a major supply glut while the demand outlook is not exactly robust due to weak global growth.
Venture 4-Month Daily “Awareness” Chart
The key to making money on the Venture at the moment is to focus on very select opportunities (resource and non-resource) that have the right dynamics to push higher. The Venture has been holding together well enough since the late August low to allow for some profitable short-term trades, as we’ve frequently seen. More broadly speaking, we believe there’s a basket of plentiful stocks that can be accumulated now, and over the next several weeks, for exceptional upside potential from late December through the end of Q1 2016.
Encouragingly, the Venture appears to have found RSI(14) support at 30% on this 4-month daily chart. That’s a level that served as resistance throughout July and August, and it really needs to hold. The early October low of 521 came around the time the RSI(14) bounced off 30%. The Venture closed Friday at 524.
U.S. Dollar Index
The Dollar Index regained technical strength recently after pushing above a descending triangle, fueled by speculation that the Fed will initiate its first rate hike in nearly a decade next month. However, this fresh dollar strength works against the Fed’s mandate to kick-start inflation, American manufacturers will have a tougher time selling their goods abroad, while U.S. companies with international operations will suffer bottom line hits to earnings. It all adds up to a confusing picture and makes the Fed’s job very problematic.
The Venture performs best when the greenback is in neutral or retreat. The amazing move in the dollar since the summer of last year has driven down the price of commodities and has been the key factor in the Venture’s nearly 50% decline during that time.
On this 2-year weekly chart, RSI(14) on the Dollar Index should meet resistance at the 70% level which was support from September 2014 through the end of March this year. A breakout above the spring high would not be a welcome development, and it’s not something the Fed would want to see either.
Gold
Gold started losing momentum during the week of October 19 when buy pressure began decelerating rapidly as shown by the CMF in our 6-month daily chart. This continued into the following week, which is when we decided (Oct. 27) to recommend buying the DUST (3x Gold Miners Bear ETF) as a hedge against a drop to $1,100 or below in bullion. We closed out that position Friday (Nov. 6) for a gain of 60% over just 9 trading sessions. That’s not to say the DUST won’t ultimately head higher, but what we’ve been watching for recently are signs of a bounce in the TSX Gold Index after a steep decline of 20% over just 8 trading sessions (Oct. 28-Nov. 6). The Gold Index started to stabilize last week, staying within a range of 121 to 126, and potentially could move higher this coming week if safe-haven buying comes into Gold following France’s horrific 9/11 moment.
For the week, bullion declined slightly to $1,084. This 6-month daily chart shows oversold RSI(14) conditions that usually mark a favorable time to be a buyer. Sell pressure is also starting to abate.
Gold 2.5-Year Weekly
Gold has traded within well-defined parameters over the last 2-and-a-half years as shown in this long-term weekly chart, with repeated moves between the bottom and the top of the downsloping flag. However, the high in May ($1,232) fell short of the top of the flag, as did the recent run that peaked at $1,192 in early October. At some point, Gold will make a decisive move either above or below the flag – that will be a critical turning point.
Gold is currently closing in on the bottom of this flag which increases the possibility of a near-term turnaround.
Silver, which has fallen for 12 straight sessions, lost another 3% last week after a 5% tumble the week before. Copper fell 7 cents to $2.20. Crude Oil shed more than $3.50 a barrel or 8% to $40.73 while the U.S. Dollar Index fell one-third of a point to 98.80.
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 current weakness, the fundamental long-term case for the metal remains solidly intact based on the following factors (not necessarily in order of importance):
- 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 solid 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.
The initial rise in Gold prices on the back of safe-haven flows after Friday’s terrorist attacks in France has unwound as bullion searches for support…a Fed rate-rise still dominates investor thinking…futures show a 66% chance the policy-setting Federal Open Market Committee will announce a rate increase after its December 15–16 meeting, up from a 50% probability at the end of October…that number, however, has fluctuated wildly in recent months on shifting economic data…
Holdings of the world’s largest Gold-backed ETF, SPDR Gold Shares, fell by another 1.5 tonnes yesterday…the fund has seen outflows of more than 30 tonnes this month, the first monthly decline in its holdings since July…
