Tuesday, December 15, 2009
GOLD & THE DOLLAR
The U.S. dollar index $USD is up today ahead of the Federal Reserves two day FOMC meeting. The Fed is expected to leave rates unchanged on Wednesday but analysts are looking for signs of a potential rate hike, just look at today's higher than expected PPI number. Sustained low interest rates means inflation is more likely and investors buy gold as a hedge. However, speculation of a hike is strengthening the U.S. dollar and putting pressure on gold prices.
Gold has been riding the lower dollar, global liquidity train...could it be switching tracks and looking at higher inflation as global economies recover? Just look at how central banks are buying gold, just recently Russia!
I've annotated a weekly GDX, mining stock etf against the US dollar ($USD). Note the similarities to that of late 2007. Personally I believe that gold will under perform silver as the economy improves and favor miner Silver Wheaton (SLW). Bottom line we have CPI tomorrow and the FOMC rate decision as well as OpEx Friday...it's going to be a wild ride as we end the year. My call recently was that gold and oil would correct, gold more so that oil. I've suggested RIG & PDE. On the miners I prefer SLW, look to add on further pullbacks...I also like Yamana Gold (AUY) near $11. All these stocks are in the ITZ PIX portfolio.
*click chart to expand image