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TSX Venture Exchange and Gold

It was a particularly light volume week for the Venture given the Canadian and U.S. holidays.  The Index fell 9 points to 671 but remains within a band of strong Fib. support that stretches from 654 to 681.

Markets across the board will be more active this coming week with the potential for increased volatility given the situation in Greece where voters in a critical referendum today have voted a resounding “NO” to the demands of the country’s international lenders, an outcome that could set the country on a collision course with the rest of the euro zone.  It’ll be fascinating to see how this plays out in the political arena and in the markets. 

For the month of June, the Venture fell 21 points or 3% – almost exactly in line with historical averages as you can in the seasonality chart below.  The July-August-September period is typically significantly better than Q2 which is normally the weakest quarter of the year.

While July can be slow, a general turnaround often kicks in by the middle of August, aided by summer exploration results.  There’s no question the junior resource market is in dire need of a success story beyond the one (Uranium) that has been unfolding in the Athabasca Basin.

Venture 7-Month Daily Chart

The Venture’s breakdown below its uptrend line from December is disconcerting, and this increases the possibility of a near-term test of Fib. support at 654 which held in March.  Overall, the Index has been trading in a very narrow range since the beginning of the year but longer-term charts suggest December’s low of 637 was an important cyclical bottom given extreme and record oversold conditions.

The healing process from the 4-month 40% crash late last year, on top of the previous declines from 2011 through 2013, will take time.  That said, investors who are highly selective have found some excellent undervalued opportunities in recent months and more exist.

U.S. Dollar Index

What hurt the Venture and the commodities sector severely from last September through December was the almost unprecedented upside move in the U.S. Dollar Index.  The odds don’t favor a repeat performance during the last half of this year, especially with the Dollar Index having broken its uptrend from last summer with stiff new resistance now in the upper 90‘s.

Thursday’s weaker than expected U.S. jobs report, which also showed lack of wage inflation, supports the theory that the Fed may further delay a rate hike until the 1st half of next year.  Any sudden surge in the greenback, for whatever reason, will only increase the likelihood of no rate hike until 2016 given the negative economic affects of a high dollar combined with poor fiscal policy in Washington.

Gold

Gold settled lower again last week, losing $6 an ounce to finish at $1,168 after a $26 tumble the previous week.

One encouraging aspect regarding this 2.5-year weekly chart is that RSI(14) has continued to climb a gently sloping uptrend since last fall.

Gold continues to meander within a downsloping flag on this chart which has proven to be quite reliable.  A breakout above or a breakdown below this flag would certainly be significant, whenever that occurs.  Important chart support exists at $1,150 and there’s certainly a good chance this level could be tested again in the immediate future.  If it fails, the first line of support is at the bottom of the flag (around $1,100).

On the bright side, seasonality factors are in Gold‘s favor as Q3 traditionally is the metal’s strongest quarter of the year.  The equity sell-off in China has also probably convinced more Chinese, who are already big believers in Gold, that there is safety and real long-term value in the yellow metal.

Silver fell 8 cents last week to close at $15.68 as it continues to hover around strong support.  Copper was unchanged at $2.60.  Crude Oil tumbled $4.13 a barrel to $55.52 (important support is $52 to $54) while the U.S. Dollar Index added three-quarters of a point to 96.19.

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: