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TSX Venture Exchange and Gold

Reminder:  Canadian and U.S. equity markets are closed Monday for respective holidays in each country.

The Venture added a modest 3 points last week but this compared favorably with the 3% decline in the TSX and the 1.5% drop in the Dow (despite Friday’s big surge, the broader markets were still negative for the week).  The Venture, of course, was aided by another sharp advance in Gold prices, and a solid argument can now be made that the bear market in bullion that began in September 2011 is now over.  As usual, it’ll take the masses a while to figure this out but that’s okay – they’ll be chasing prices much higher later this year and into 2017 when they’ll finally come to the conclusion that a new bull market has started.

The outperformance of the Venture vs. the broader indices over the last several months, despite a further drop in Oil prices, is telling us something, and that’s why we’ve been emphasizing Gold stocks since November when the crowd got it wrong big-time – they were throwing Gold stocks overboard at precisely the wrong time, just before the Fed finally pulled the trigger on an interest rate hike.

Venture Updated Chart

As we stated last weekend, there’s little ambiguity in the Venture chart at the moment as the Index has recaptured the modest momentum it had at the end of 2015 and appears ready to quickly challenge next resistance at 520.  An inverted head and shoulders pattern could be forming as we recently pointed out.  If that analysis proves correct, the right shoulder would emerge on a healthy pullback from 520 or perhaps the next Fib. level just above 530.  Notice how sell pressure (CMF) began to decline in mid-November with buy pressure now building rapidly.

This is important – since late January the Venture has been supported by its rising EMA(8) and EMA(20) which are currently at 506 and 502, respectively.  As long as that continues, the Index will keep edging higher.

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, and last summer’s fresh weakness with the drop below $1,100, is that it has forced producers to become much more lean in terms of their cost structures. Producers, big and small, continue 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 historic 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.

Keep in mind, as well, that in currencies other than the U.S. dollar, Gold performed exceedingly well in 2014 and 2015, and of course is now advancing sharply in greenback terms, too.   The widespread negativity in the American media toward Gold over the last few years is likely going to change dramatically at some point during 2016.

U.S. Dollar Index Update

Any rallies in the Dollar Index are going to be restrained now by a declining 50-day SMA, currently at 98.31.  For the first time since the summer of 2014, the greenback has been knocked off stride and the uptrend is over – at least for the foreseeable future.  Significantly, the Fed has also weighed in on the dollar just recently, making its concerns known about the negative affects of a strong U.S. currency.  That’s giving Gold investors some added confidence.  At the very least we see the Dollar Index testing support around 93 during this first half of the year, a level it hit and bounced off from on a few occasions in 2015.

This new trend in the greenback began after the Dollar Index high of 100.60 in early December.  Keep in mind, the Venture always performs best when the Dollar Index is under pressure.

Gold

Gold has accelerated to the upside in each of the past 4 weeks.  Last week’s $65 jump followed gains of $55, $20 and $9.  If this trend continues, we could obviously see $1,300 this coming week – so much for the collapse below $1,000 that so many pundits were predicting.  Gold has done just the opposite and roared to a new 52-week high last week.

Bullion in 2015 posted its 3rd straight annual loss in U.S. dollar terms for the first time since 1998.  As we’ve been pointing out, however, the bear market that started in Gold in late 2011 reached the long-term average late last year in terms of both duration (47 months) and decline (44%).  A new bull cycle now appears to be underway.

Many factors are powering bullion higher, not the least of which is a broad concern about the health of the global economy and if central banks really know what they’re doing.  Janet Yellen’s testimony before House and Senate Congressional committees last week was rather discomforting.  Politically, there’s no astute economic or foreign policy leadership in the United States which is critical to global stability.  It’s no surprise, then, that Americans are embracing anti-establishment candidates in the run-up to November’s presidential elections.  The world is slipping into chaos during Obama’s final year in office, and Gold and Gold stocks could absolutely soar in the process.  In fact, even though Oil is facing supply and demand problems right now, the possibility exists for a spike in Crude later this year in the event the Middle East descends into all-out war brought on by Russia and Iran.  Both countries took advantage of a weak U.S. Presidency under Jimmy Carter in the late 1970’s – rest assured, they will attempt to do so again before Obama leaves office.  There’s also ISIS and other Islamist terrorist groups to contend with who present a far greater danger to the world than “climate change”.  It will take a Donald Trump or a Ted Cruz to fix the mess and reassert American strength on all fronts.

This 6-month daily chart shows RSI(14) conditions remain in overbought territory at 82%.  Longer-term charts, though, confirm that there has been a MAJOR breakout and pattern change in bullion, so it would not be unusual to see technically overbought conditions for an extended period on shorter term daily or weekly charts.

The next measured Fib. resistance level on this 6-month daily chart is $1,288 while very strong support exists between the October high of $1,192 and previous Fib. resistance at $1,222.  Wisely, given the price momentum we were seeing in Gold, we held off on recommending a short position against the TSX Gold Index but that option is still one we’re considering if the risk-reward ratio becomes more favorable (i.e., if there’s another near-term spike in Gold and Gold stocks).  We will keep our subscribers advised.

Gold 6-Month Daily Chart