TSX Venture Exchange and Gold
Despite a major surge (2.3%) in the U.S. Dollar Index, a 4.5% plunge in Crude Oil, a 5% drop in the Gold price, and a 9% decline in the TSX Gold Index, the Venture managed to escape that storm last week with only limited damage as it shed just 8 points or 1.5% to 534. That still puts the Index below support at 540 on a closing basis for the first time in over a month. We’ll see if it can quickly recapture that level or if a triple bottom is in the works.
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 over the last 2-and-a-half months in order to allow for some profitable short-term trades, as we’ve frequently seen including last week. 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. We’ll conduct a review of some of those immediate and short-to-medium term situations in our Sunday Sizzler Report later today.
Venture RSI(14) support at 30% on this 4-month daily chart is very strong as it served as resistance throughout July and August. The early October low of 521 came around the time the RSI(14) bounced off 30%.
U.S. Dollar Index 2-Year Weekly Chart
The Dollar Index has regained technical strength which is surprising and probably not a good thing since this will work 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. The Dollar Index had broken above a descending triangle just prior to Friday’s jobs report, and jumped by more than a full point Friday to close the week about only 1-and-a-half points below its March high of 100.71.
Was that jobs strength (way above estimates, but largely attributable to the services sector) just an anomaly after a series of disappointing monthly reports? We’ll find out in early December when the Labor Department issues the November numbers. President Obama bragged about the October jobs surprise, of course, during his sickening Keystone XL pipeline speech from the White House Friday when he once again delighted in tarnishing the image of the Canadian Oil industry (his liberal friends at CNN introduced his address by twice referring to the “tar sands”) and also lectured Americans about the best way to create jobs (Keystone “is not the way to create jobs“, he actually stated). What planet is this President from? By rejecting Keystone, he has also defied the will of the American people and their elected representatives in Congress. How so many Canadians can sit back and accept how this President has consistently bashed their Oil industry with lies and half truths is beyond us.
It’s important to keep in mind that U.S. manufacturing generated no gains in October. Largely as a result, the sector’s absolute employment levels are now lower than in January, a 10-month stretch that qualifies as a recession. So behind the mainstream media’s “headline numbers”, and CNN’s cheerleading, there are inherent weaknesses in the U.S. economy.
The Venture performs best when the greenback is in neutral or retreat. The amazing strength of 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.
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 head higher, but what we’re watching for now are signs of a bounce in the TSX Gold Index after a steep decline of 19% over just 8 trading sessions.
Technical weakness has been pushing Gold lower. Physical buyers need to step up to the plate to turn this market around, and they will probably be looking to do so in the coming days with Gold less than $20 from its July multi-year low.
For the week, bullion was off a whopping $53 an ounce or 5%. Markets are forward-looking – the current price must have almost completely factored in a U.S. rate hike by now. We’re not sure if we’ll see this, but it might actually be healthy if Gold were to have a sudden wash-out to $1,000 an ounce with an intra-day hammer reversal.
Gold 2.5-Year Weekly Chart
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 does open up the possibility of a brief fling with $1,000 an ounce.
Silver tumbled in tandem with Gold last week, falling 5.1% to close at $14.74. Copper lost a nickel to $2.27. Crude Oil was off $2.10 a barrel to $44.29 while the U.S. Dollar Index added more than 2 points to finish at 99.15.
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 weakness this past summer, 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.
U.S. employers in October surprisingly hired at their strongest pace of the year while wage growth showed signs of picking up, indications of labor-market vigor likely to reassure Federal Reserve officials as they weigh raising interest rates in December for the first time in nearly a decade…non-farm payrolls rose a seasonally adjusted 271,000 in October, the Labor Department reported this morning (way above the consensus estimate of around 185,000)…in just the last hour, President Obama took advantage of this “anomaly” to officially reject Keystone and lecture Americans on the best way to create jobs…the unemployment rate, obtained from a separate survey of U.S. households, fell slightly to 5.0% in October, the lowest reading since April 2008 and down from 5.1% the prior month…October’s robust job growth and the revisions bring the average monthly job gains in the past three months to 187,000…
