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TSX Venture Exchange and Gold

The Venture got off to a rocky start last Monday with an 11-point loss, but a temporary minor pullback was normal and healthy given the sudden 9% advance out of the previous week’s intra-day August 24 low (509).  Furthermore, John’s chart last Monday demonstrated a clear trend change in the Chaikin Oscillator with cash flowing into the Venture after this indicator hit an extreme, historical low near the end of July.

Notably, the Index held up extremely well Friday in the face of weakness across the broader equity markets and commodities as well.  This shows some new internal strength in the Venture which is refreshing to see.  For the week, it was off 3 points, closing at 553 – just below key resistance at the EMA(20) and SMA(20).

Venture 4-Month Daily Chart

Below are 7 key takeaways from John’s updated 4-month Venture “awareness” chart:

1.  A confirmed breakout has occurred above the EMA(8) which has also reversed to the upside and is now providing new support;

2.  Next key resistance is the EMA(20), currently 558.  A confirmed breakout above the EMA(20), followed by its reversal to the upside, would give the Index fresh momentum – this would also verify that the Venture is in the midst of a significant rally;

3.  RSI(14) has climbed out of oversold conditions which it had been trapped in since the beginning of July;

4.  Sell pressure (CMF) peaked in late July and has been declining steadily since – the trend suggests a near-term switch to buy pressure;

5.  The recent bearish trend (ADX indicator) has weakened dramatically since the August 24 low;

6.  Fib. support at 515 has held – on a monthly basis, Fib. support around 560 also held in August;

7.  Fib. resistance above the EMA(20) starts at 586.

These are all highly encouraging signs, though history has taught us that it’s too early at this point to declare an end to the Venture bear market (Crude Oil, despite its recent advance, is just one of several significant challenges still facing the Index).  However, what certainly could be unfolding here is a very strong rally, the likes of which we haven’t seen since the end of 2013/early 2014.  A lot of answers should come over the next couple of weeks, especially after the Fed meeting.

If an important discovery is made somewhere – possibilities range from Labrador to the Sheslay district and some places in between – watch out.  The Venture would rapidly gain momentum as investors are starving for something big.

Venture 39-Week Cycle Chart

John’s 39-week cycle chart going back 15 years has been a very useful guide that prevented us and many of our readers from pushing the “panic button” while the market was taking a beating in July and August.  This chart gave us confidence that relief was on the way around the end of August – perhaps even a final capitulation, or at least a stabilization or the beginning of a strong rally.

Consistently over the last 15 years, a Venture pattern change (short-term or longer-term) has occurred around the end of each 39-week period.  Why that is, we can only speculate.  However, facts are facts.  The last 5 cycle periods, including this one (each cycle period is indicated by a vertical blue line), have also ended with RSI(14) lows or highs.

It’s premature at this point to suggest the Venture is about to enter a new bull phase, especially considering that uncertain outlook for Crude Oil and commodities in general.  However, July and August for the Venture were very different than those same months last year, and it’s reasonable to believe – based on all the technical evidence at least – that September through December for the Venture will also be much different than that same 4-month period last year when the Index got hammered.

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

A key metric to watch over the next couple of weeks will be the U.S. Dollar Index (the Venture typically has an inverse relationship with the greenback).  Will the dollar regain strength or will this crowded trade start to really unwind based on market perceptions and Fed actions or inactions (how the Fed and other central banks have increasingly distorted markets is incredible, but they’ve been filling a fiscal policy vacuum that exists in many major economies).

The consistent position we’ve maintained over the last several months is that the Dollar Index hit its 2015 high during March-April based on what has proven to be, so far at least, a very reliable 9-month daily chart (see below).  Fundamentally, a runaway dollar would not be healthy for the U.S. or global economies, so one can be certain the Fed is keeping a close eye on movements in the greenback (the Chinese appear to be, as well, and recently of course fired some critical shots in the latest currency war).

Dollar Index support has been strong around the 93 level as expected.  However, the Index faces serious technical challenges in terms of moving higher, or significantly higher, from its close just above 96 Friday.

Watch The Resistance Area

Note how the first uptrend line, in place since the summer of 2014, became resistance after the Index broke below that uptrend in late April.  A second uptrend line formed from the May low in the Index.  That uptrend was broken in late August and became fresh resistance which the Dollar Index is now once again testing.  If this resistance is overcome, the Index could take another run into the high 90’s but that’s going to ring alarm bells across the globe.

Ultimately, what we perceive as a growing possibility (albeit not a certainty) over the remainder of the year for the Dollar Index is a test of base support at 88.  That’s definitely not a mainstream view but the chart supports that kind of consolidation potential following the record advance that started during the summer of last year.  Such a drop in the greenback would be supportive of commodities and the Venture, the reverse of what occurred over the final 4 months of last year.

Gold

September is traditionally Gold’s best month of the year, but the yellow metal is off $11 an ounce through the first 4 trading sessions this month after closing Friday at $1,123.  How the rest of this September unfolds will hinge largely on what the Fed does and says after its policy meeting September 16–17 (this meeting will include a Janet Yellen news conference following a fresh statement from the Fed).

Below is John’s updated 2.5-year weekly chart.  It doesn’t give many clues regarding what next week may bring (of course it’s a shortened trading week with the Monday holiday), but the broad aspects of this chart are generally positive at the moment.  Over the last 2+ years, each time Gold has touched the bottom of its downsloping channel, it has eventually rallied back to the top of that channel.  This has happened on 3 occasions going back to 2013.  There’s a good chance this trend will continue.  At the moment, SS is showing strong up momentum while a bullish DI cross could be in the works as well (+DI and -DI are now virtually equal).

Any signs of increased demand from China and India this month could give Gold a boost or some much-needed support in the event of any further weakness.

Silver closed unchanged last week at $14.59.  Copper added a penny to $2.33.  Crude Oil gained 44 cents to $45.77 while U.S. Dollar Index was relatively unchanged at 96.22.

The “Big Picture” View Of 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, and fresh weakness now, the fundamental long-term case for the metal remains solidly intact based on the following factors (not necessarily in order of importance).