Gold Continuous Contract (GC.F) & S&P/TSX Composite Index (TSX.I)

US stocks advanced early in the week, with the S&P 500 and Nasdaq Composite both showing gains on Monday, driven by optimism ahead of Fed Chair Jerome Powell’s upcoming speech at Jackson Hole. This rally followed a strong week, with the S&P 500 aiming for its longest winning streak of the year and the Nasdaq poised for an eighth consecutive gain. On Tuesday, the Toronto Stock Exchange fell 78 points, led by declines in the energy and mining sectors, after hitting a record high from eight consecutive gains. Oil prices steadied, while gold reached a new peak amid a weaker dollar and lower treasury yields. Canada's July CPI eased to 2.5%, its slowest increase since March 2021, reflecting a deceleration in inflation due to lower prices in several categories. On Wednesday, US benchmarks rose ahead of the Federal Reserve's release of its July meeting minutes, with the S&P 500 and Nasdaq Composite both up, and the Dow Jones also gaining. The Fed's decision to maintain its benchmark rate at 5.25%-5.50% and the downward revision of job creation figures added pressure on the Fed, while West Texas Intermediate crude oil fell 1.7% to $71.92 per barrel. Overall, markets are consolidating gains while awaiting further economic signals and policy directions. Meanwhile, in Canada, the complete shutdown of Canadian National Railway and Canadian Pacific Kansas City operations is feared to have a massive impact on the economy, small businesses, and consumers, according to the Canadian Federation of Independent Business (CFIB). The disruption threatens essential shipments, from aviation fuel and manufacturing inputs to consumer goods, and could force many small businesses to halt operations due to strained trucking capacity and already fragile economic conditions. In this edition of Equity Leaders Weekly, we focus on the broader Canadian S&P/TSX Composite Index and examine gold, one of Canada’s strong commodities, in light of the challenges facing the rail sector.

Since we last discussed gold in the July 11th edition of the Equity Leaders Weekly, gold has broken out further and charged higher to fresh all-time highs, surpassing the previous resistance levels we noted at $2,413.47 and $2,461.98.Several factors have contributed to this continued move to all-time highs. Specifically, gold has historically been a safe haven in times of turmoil. With ongoing political uncertainty around elections and wars, this has provided a tailwind for gold. Additionally, the prospects of rate cuts on the horizon in the U.S., which are driving U.S. Treasury yields lower, are also boosting gold.Looking at the attached point and figure chart of gold at a 1% scale (GC.F), we see the breakout that occurred in early March at the $2,099.00 level. Since that time, a steady pattern of higher highs and higher lows has materialized from May onwards. After the early August market selloff, where everything seemed to be falling, gold has recovered nicely, with a fresh all-time high materializing once again when the price went above $2,511.46. Based on measured moves, the next level of resistance can be found at $2,613.44, and above that, $2,692.63. To the downside, on a pullback, support can be found at its 3-box reversal of $2,437.60, then below that, $2,389.57, and finally, $2,296.33. With an SMAX score of a perfect 10 out of 10, gold is exhibiting very strong near-term strength against the asset classes.

It has been quite a while since we last updated on the S&P/TSX Composite Index (TSX.I), when we last commented on it back on March 21st, 2024, so let’s take a look at the price action of the major Canadian index to see what lies ahead.The three largest equity industry sectors that make up the Canadian market are the Banks, Energy, and Mining. With Energy having experienced a strong move upward earlier in the spring, followed by the Banks later this spring due to the last two rate cuts the Bank of Canada has implemented (with more cuts likely), and with gold mining equities moving strongly in correlation with the bullion, it is no surprise that the S&P/TSX Composite Index has charged higher to new all-time highs.Looking at the point and figure chart at a 1% scale, we see a very strong move with a rising column of 17 X’s that began in December of last year and ended in June before a 3-box reversal materialized last month. However, right at the beginning of this month, TSX.I regained its footing and a new higher high formed when the index went above 22,611.96. Shortly thereafter, there was a brief market selloff, where the index retreated just like all the other global indices, but it once again regained its footing with a new column of X’s forming most recently. We are at an important inflection point now; if the index can close above 23,297.12, a new up leg will form with the potential for further upside for Canada’s main index. If the index can close above this near-term resistance at 23,297.12, the next area of resistance is at $24,003.05 (or an even whole number of 24,000), and further resistance above that is at 24,730.36. Support can be found at its 3-box reversal of 22,166.41, and below that, at 21,514.50. With an SMAX score of 7 out of 10, TSX.I is exhibiting near-term strength against the asset classes.