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TSX Venture Exchange and Gold

The Venture moved modestly higher last week, enough to push above a downtrend line in place since September, but it’s too early to predict an immediate fresh uptrend until the Index is able to overcome critical resistance at 680.  In fact, buy pressure was actually declining last week as demonstrated by the ADX indicator and that’s generally not a positive sign.

This remains a highly selective market.  The Oil and gas component of the Venture, which makes up a significant part of the Index, remains vulnerable to additional weakness given Crude’s continuing poor fundamentals and weak technicals.  Overall, the Venture always performs best in a market environment that produces a rising Canadian dollar and a declining U.S. dollar.  At the moment, the opposite dynamics are at work.  So those are key headwinds.

This 2-month Venture chart shows the strength of the resistance at 680, a Fib. level which is also the current 20-day moving average (SMA).  Failure to immediately and decisively push through this resistance will give encouragement to the bears and may result in another test of the Venture’s Fib. support at 654 – in other words, about a 4% decline from Friday’s 678 close.

Venture 2-Month Daily Chart

Venture 6-Month Daily Chart

The good news with this 6-month chart is that it’s reasonable to expect the Index to find its footing in the low 650’s on any pullback.  That’s not only a Fib. area, but the downtrend line – which was resistance previously – now represents potential new support.  In TA, a throwback to the downtrend line following a breakout is a common occurrence.  It’s also a healthy one as it can help solidify support.

Bollinger band width is currently near its previous low, so this suggests an increased likelihood of volatility perhaps in the week ahead.  Volatility will take the form of either a sudden move to the upside, or a test of support in the low 650’s.

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 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 enjoyed another solid week, climbing $14 an ounce to close at $1,294.  For a brief period, bullion was above $1,300 for the first time since last August.  Impressively, this came despite a huge run-up in the U.S. Dollar Index as the ECB finally caved in and succumbed to the temptation of the QE drug, the highly potent street variety.  They’ll be addicted to that for quite some time.  The euro zone is fighting obvious deflationary pressures, but different rounds of aggressive QE by the Fed did not spark any inflationary fires in the U.S. as expected.

Gold is attracting a “safe haven” bid during this time of turmoil and a “race to the bottom” in the global currency markets.  The euro probably has a lot further to fall, not to mention other currencies like the loonie and the yen.  The Bank of Canada has lowed its interest rate for the first time in nearly 6 years.

Technically, Gold is up against some challenges around $1,300.  RSI(14) on today’s 6-month daily chart is in overbought territory, though one cannot rule out the possibility of an extended period of overbought conditions like we’ve seen in the U.S. Dollar Index.  In fact, there are some striking similarities between Gold’s move over the last month and the beginning of the greenback’s ascent last summer.  The Dollar Index has been extremely resilient as dips have been minor and brief in duration.  It’ll be fascinating to see how Gold behaves over the coming weeks after a 10% run this month.  It’s up 14.5% since its early November low of $1,130, while the Dollar Index has advanced 8% since that time.  They are moving mostly in tandem, unusual in an historical context.

Gold 6-Month Daily Chart

The nearest support levels for Gold are $1,290 and the low $1,260’s.  Major chart resistance is at $1,340.

After a 7.6% advance the previous week, Silver added another 51 cents or 2.9% last week to finish at $18.29 (updated Silver charts Monday morning).  Copper fell again, losing 7 cents to close at $2.49.  Crude Oil dropped by more than $3 a barrel to finish at $45.59 while the U.S. Dollar Index soared more than 2 points, ending a wild week week at 94.99.

The “Big Picture” View Of Gold