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TSX Venture Exchange And Gold

The 680 area continues to provide exceptional support for the Venture which snapped a 4-session losing skid Friday to close the week at 691.  The loss for the week was 8 points despite slight gains in Gold and Oil, and a half point drop in the U.S. Dollar Index. There was a political explanation for the Venture’s under-performance.

The election of an NDP majority government in Alberta Tuesday clearly had a significant negative impact on the Canadian energy sector, and the Oil-sensitive Venture felt the affects as well.  Just a temporary blip?  We’ll see.  The Alberta NDP would be wise to tread very carefully on policy issues, especially since they weren’t elected on the basis of their left-wing ideology but more out of disgust with the sense of arrogance and entitlement shown by the Progressive Conservatives.

Venture 5-Month Daily Chart

The Venture has been stuck in a 28-point range between support at 680 and resistance at 708 for the last 26 trading sessions.  Ultimately over the coming few weeks, or the next couple of months, the Venture will take the path of least resistance which we speculate will be a breakout to the upside based on numerous indicators including the bearish trend in the U.S. Dollar Index.  Further gains in the CRB Index are also likely between now and the end of the summer, as John has shown in recent charts, and Copper is looking very interesting as well from a broad perspective.  So the Venture’s upside potential as this quarter progresses exceeds its downside risk, a very different scenario than the one that existed last September when the Index simply fell apart technically.  Yes, the resistance just above 700 is frustrating but the Venture has also been building a strong base over the last 5 months, and its 100-day moving average (SMA) has also reversed to the upside which is always a positive sign.

Sell pressure in this 5-month daily chart is the strongest we’ve seen since the end of December, yet the Venture has managed to hold support at 680 (the critical Fib. cluster of support is between the 650’s and 680).

U.S. Dollar Index Updated Chart

John called this one bang-on – the Dollar Index topped out, temporarily at least, at 100.71 in mid-March and also hit the minimum support level of 94 after the right shoulder of the H&S pattern fell below the neckline last last month.  The Index is also now below its uptrend support line (now resistance) that goes back to last summer.  A bounce back up to 96 or 97 could certainly occur in the near future, but a reaction around that area is very likely.

It’s conceivable that the Dollar Index could retrace to the 88 level by the end of the summer which would jive with charts that suggest commodity prices and the euro will both continue to trend higher over the next few months.  This would have positive implications for the Venture.

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

It was a relatively uneventful week for Gold which continues to drift slightly below resistance at $1,200.  Bullion finished up $10 for the week at $1,188.  RSI(14) at 45% is exactly in the middle of its range over the past year, though encouragingly it’s climbing an uptrend line on this 2.5-year weekly chart.

Bullion continues to consolidate within a downsloping channel.  It had 2 moves to the top of the channel during 2014 (mid-March and early July).  Another test of the top of the channel came in late January, and it last hit the bottom of the channel in early November.

Silver posted its second straight weekly gain, adding 30 cents to $16.40.  Copper finished unchanged at $2.90.  Crude Oil briefly topped $60 a barrel (strong band of resistance between $60 and $65) and closed 21 cents higher for the week at $59.47.  The U.S. Oil rig count fell for the 22nd straight week to 668, compared with 1,528 at the same time last year.  The U.S. Dollar Index, meanwhile, lost nearly half a point to 94.79.

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: