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TSX Venture Exchange and Gold

Reminder:  Canadian markets are closed for tomorrow’s civic holiday.  U.S. markets are open.

A glimmer of hope appeared over the final few trading sessions of a miserable month of July for the Venture as the Index held Fib. support at 580 with extreme oversold conditions beginning to abate.

While Gold suffered its 6th straight weekly loss (its longest weekly losing skid since 1999), the Venture snapped a 5-week losing streak with a tiny gain of 2 points after a mid-week plunge as low as 580.  That support was tested 3 times during the week and held.

For the month, the Venture was off a whopping 77 points or 11.5%, making July 2015 the 2nd worst July since 2002.  Only the 2008 plunge of nearly 16% was more dramatic than what Venture investors just experienced for this July on an historical basis.

Venture 7-Month Daily Chart

A key breakdown for the Venture came in late June when support at the uptrend line from the December low was breached as you can see in John’s 7-month daily chart.  Important Fib. support between the high 620‘s and the mid-640‘s also gave way.  With the drop to 580, the Venture has lost as much as 76.4% of its value following its early 2011 post-Crash high of 2465.

At the very least, a “relief” rally could be underway but what’s really needed for confirmation of this is a push through Fib. resistance around 610.  Pay attention to the short-term (10 and 20-day) moving averages.  This market has not traded above those since late May, for more than 2 months, so the 1st sign of a potential turnaround will be a move above these SMA’s.  If they continue to provide resistance, the market will once again retreat to lower levels – as simple as that. 

While a Gold rally could quickly develop, Crude Oil is looking weak and appears destined to test its March low.  So that’s a factor working against the Venture at the moment.

Hope In The Form Of The Venture’s 39-Week “Cycle”

We do see a good possibility of a significant turnaround commencing on the Venture within the next 4 to 6 weeks, simply based on its 39-week “cycle” pattern.  Interestingly, this also fits within the timeline of the Fed’s next meeting in mid-September – a crucial one, indeed.

Strangely enough, over the last 15 years, there has been a consistent pattern of trend reversals at the end of each 39-week period on the Venture – you can see it quite clearly on the fresh version below, through Friday, which is important to look at and understand.

What this chart suggests is that a cycle low will occur around the end of August into the beginning of September – that’s when the current 39-week period expires.

The vertical blue lines separate each 39-week period.

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 recent 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 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.

U.S. Dollar Index Update

The Dollar Index picked up strength at just the right time last week as RSI(14) touched important support at the uptrend line since mid-May and then immediately reversed higher as opposed to breaking down.  In addition, the index found support at the rising 50-day SMA just above 96.

Does the U.S. Dollar Index have to put in a triple top for 2015?  Perhaps.  A runaway dollar would be dangerous, so we can’t believe for a second that the Fed would want to see a breakout in the Dollar Index through the 100.71 high it hit in March.  This would actually be counter-productive to the Fed’s desire to jump-start inflation, and would generally impair the U.S. economy.

One of the reasons for the economy’s disappointing performance during the 1st half of 2015 was the delayed affect of the impact of the record surge in the dollar during the 2nd half of 2014. It’s reasonable to expect the Dollar Index to run into fierce resistance in the high 90‘s as we’ve been stating, after it retraced to Fib. support around 93 in May and then retested that level a month later.  The correlation between the greenback and the Venture is very high, so an extended period of Dollar weakness – even for just 6 months or so – would give the junior resource market some much-needed relief.  Perhaps that’s what we’ll see beginning in September or the very early fall.

It’s hard to imagine the Dollar Index, through the balance of this year, repeating the strength it showed over the final 4 months of 2014.

Gold Update

The fear of a continued immediate decline in Gold straight down to $1,000 doesn’t hold water with us given the current technical posture of this very reliable 2.5-year weekly chart , plus the fact commercial traders have dramatically reduced their short positions.  It’s never very wise to go against the “smart money” commercial traders who now appear to be of the opinion that a rally is in the works for bullion.

Gold has been consolidating within a downsloping flag for more than 2 years.  Consistently, it has tested the top of that flag (resistance) and the bottom of it (support).  In late July Gold touched the bottom of that flag while RSI(14) has also landed at previous support going back to the end of 2014.  Perhaps this is why commercial traders have decided now’s not a wise time to be short.

First significant resistance on the upside is around $1,150.  Gold could certainly still test the $1,000 level this year, but the immediate path of least resistance is probably a rally to the upside, not a further plunge toward $1,000.

For the week, Gold was off $3 an ounce, closing at $1,095.

Silver gained a nickel last week to finish the month at $14.79.  Crude Oil, under continued pressure, fell more than $1 a barrel to $46.77.  Copper slid 2 pennies to $2.37 while the U.S. Dollar Index was essentially unchanged for the week at 97.19.