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TSX Venture Exchange and Gold

The Venture declined for the 3rd straight week, falling 8 points to finish near strong support at 682.  The upcoming Fed meeting Tuesday and Wednesday will prove to be critical to all markets and will include a post-statement news conference from Janet Yellen.  Notably, her last news conference came at the March policy meeting and that’s when the greenback finally cooled off, commodities reversed, and the Venture started an 8% move to the upside that lasted for a month.  Impossible to say if history will repeat itself in this case, but the Venture’s overall risk-reward ratio continues to look favorable.

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.  This support, as you can see in the chart below, is now more solid than ever.

A key market to watch, of course, is the U.S. Dollar Index which rallied during the last half of May – certainly not unexpectedly after it sold down to temporary support.  It has since pulled back again.  The Dollar Index faces strong resistance in the upper 90’s given the double top pattern that formed in March and April, in addition to some other bearish indicators.  As long as a weak to neutral trend continues in the greenback over the coming months, the risk factor is limited at current levels for the Venture given the inverse relationship between the two. 

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 into the high $2.60‘s.  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, looking ahead through 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 this year.  Non-resource issues of course have performed the best.

6-Month Daily Venture Chart

What’s encouraging about this chart is that strong sell pressure through most of May has been replaced by weak buy pressure, and this pattern is typically a prelude to gains in the Index.  In addition, the Index is now resting at Fib. support and an uptrend line from last December’s all-time low.  Going into the summer, the Venture’s current technical posture is such that the chances of a breakout above 707 exceed that of a breakdown below key support defined by the Fib. band between 654 and 680.

Exact timing of a breakout, however, is the issue, and what would the catalyst be?  The junior resource market needs a confidence boost from higher commodity prices and/or discovery excitement.

U.S. Dollar Index Update

The Dollar Index clearly lost momentum as soon as it fell below an uptrend line in late April going back to the start of last summer’s rally.  As expected, the Index rallied back to the top of the uptrend line (98) where it reacted at fresh resistance.  A declining 50-day SMA, currently just above 96, is applying further downward pressure on the Index.  Ultimately – and this may take a few months to play out – the Dollar Index may have to test Fib. support around 88 before it commences a possible new uptrend.  Much will hinge on Fed policy and how the U.S. economy behaves.

The current consolidation in the Dollar Index is a healthy development given the record run it made over such a short period.  Technically very overbought RSI(14) levels peaked in early-mid March.  A mirror image of that could unfold at some point during the second half of this year.  There is still no shortage of greenback bulls, just like there was no shortage of Gold bulls even a year after the metal hit an all-time high.

Gold

Gold rose the first week in a month, adding $9 an ounce to finish at $1,181.  On the 20-year monthly chart we updated recently, bullion finished May at its uptrend support line going back to the beginning of the bull market in 2001.

On this 2.5-year weekly chart, which has also proven to be a very reliable guide, Gold appears destined to test the $1,150 support.  Notice that the right hand of the downsloping flag forms a bearish descending triangle with the base at $1,150.  Thus, the $1,150 area is critical.  If $1,150 fails, the first line of support is at the bottom of the flag.

Encouragingly, RSI(14) has continued to climb a gently sloping uptrend since last fall and is very close to support.  However, this chart paints a mixed (confusing) picture for the near-term given the bullish uptick in the RSI(14) whereas the SS %K is moving lower.

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.

After a 52-cent fall the previous week, Silver tumbled another 69 cents last week to close at $15.96.  Copper slipped a penny to $2.68.  Crude Oil gained $1 a barrel to $59.94 while the U.S. Dollar Index slipped one-and-a-half points to 94.91. 

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: