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TSX Venture Exchange and Gold

It was a volatile week in global markets, dominated by events in China and Greece.  This weighed on the Venture which fell 30 points or 4.5% to close at 641.  Technical pressure increased after Fib. support in the low 650‘s did not hold.  The Index started to stabilize Thursday and Friday, as Chinese markets rebounded and concerns regarding Greece eased,  but overall volume for the week was low.  There’s a strong correlation between the Venture and Crude prices, so the 11.5% drop in WTIC over the past 2 weeks has not helped the junior resource sector.

Venture 7-Month Daily Chart

As we mentioned last weekend, the Venture’s breakdown below its uptrend line from December was disconcerting, and as a result we saw a quick test of the important 654 Fib. support which failed, followed by a test of the December low which so far has managed to hold.  SS (Slow Stochastics) is at an extreme level, consistent with the March and December lows in the Index.  Stabilization this week will be important.  Beneath 637, there is chart support at 628 which we’ll show in a long-term view of the Venture tomorrow.

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 of these certainly 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.

The Dollar Index bounced around last week but once again ran into resistance above 97, though it did close Friday above its 50-day moving average (SMA), currently 95.45.  SS shows up momentum is weakening.  Our contention remains that the Dollar Index formed an important double top for 2015 during the March-April period.

Fundamentally, the U.S. economy cannot afford another dollar surge at any point during the rest of this year (the affects of last year’s surge are still rippling through the economy), and such an event would definitely postpone a Fed rate until sometime in 2016.

Gold

Gold settled lower again, losing $5 an ounce to finish at $1,163 after previous weekly drops of $6 and $26 an ounce, respectively.

One encouraging aspect regarding this 2.5-year weekly chart remains the fact that RSI(14) continues to climb a gently sloping uptrend since last fall.

Overall, 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, which was tested and held last week.  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 (it generally starts to gather momentum in August).  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.

Keep in mind, Gold continues to perform very well in currencies other than the U.S. dollar.  We’ll have an update on that tomorrow.  This is a good environment for Canadian Gold producers who are benefiting from a low loonie and weak Oil prices.

Producer Hedging Update

The global Gold producer hedge book contracted by 800,000 ounces (2.6 metric tons) in the 1st quarter of 2015, according to a report put out this month by the GFMS team at Thomson Reuters and Societe Generale.

This occurred after 1.45 million ounces (45 tons) of net hedging in the final quarter of 2014, the report said.

Overall, the global hedge book remains small compared to at one time, standing at 6.21 million ounces (193 tons) at the end of the Q1.  Back around 2000, it was in the neighborhood of 3,000 tons.

During Q1 2015, 29 companies were net de-hedgers, with 16 adding to their delta-adjusted hedge positions. The largest de-hedger was Polyus Gold (the largest Gold producer in Russia and one of the top 10 Gold miners globally by ounces produced) through deliveries against the large hedge position entered into last year, the report said.

Silver Holds Up, Copper and Oil Tumble

During the week, Silver briefly fell slightly below $15 an ounce but recovered to end the week around strong support at $15.62.  Copper tumbled 9 cents to $2.51, thanks to troubles in China.  Same with Crude Oil as it slipped another $3.42 a barrel to $52.81 (important support band between $52 and $54).  Over the past 2 weeks, WTIC has lost 11.5%. The Dollar Index was off marginally to 95.78.

The “Big Picture” For 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: