Wednesday, December 14, 2005


Gold, US Dollar Move Lower

As Market Watch reports, the US dollar is still moving in tandem with gold. "Gold futures prices extended their slide in electronic trading early Wednesday, despite a sharp decline in the U.S. dollar, as traders continued digested the Federal Reserve's decision to raise interest rates. Gold for February delivery was last down $9.00 at $515.10, but had been down as much as $10.40 at a low of $513.70 earlier in the session."

"'The gold market seems to be unsure of how to take the new language by the Fed,' said veteran commodities trader Kevin Kerr. 'Gold traders are a bit weary from the volatile rollercoaster ride this week and it's only Tuesday,' said Kerr."

"The Fed's latest rate hike didn't help the dollar, which slumped 1.2% vs. the yen to a 2-week low of 118.64. Against the euro, the buck lost 0.6% to $1.2014. A lower dollar typically helps boost gold prices, as the resulting higher import prices puts upward pressure on inflation."

"March silver followed gold lower, losing 29.7 cents, or 3.3%, to close at a nearly two-week low of $8.585 an ounce. January platinum closed down $22.20 at $995.90 an ounce and March palladium finished down $19.10 at $273.25 an ounce."


Can you offer any fundamental reason why gold and the dollar would drop on the same day that long-term Treasuries and the US stock market are rallying? For instance, I thought that gold was the thing to buy when the dollar is subject to revaluation risk; similarly, l-t Treasuries often fall on the day the stock market rallies, in a reversal of the flight-to-quality play. The whole picture has me scratching my head in puzzlement.
Gold coupled with the US dollar recently and decoupled with the Swiss Franc. Given the multiple deficits in the US, I have to believe this is a short term fluke and the situation bears watching. Rest assured this blog will keep an eye on it.
IMO it is about time we saw some profit taking. Last week everyone was trying to get on board, now we have a sale and maybe a good point to nibble. Also, read somewhere that gold misbehaves after Fed meetings for a week or two.

Know why you are buying gold first. The physical should be a hedge against some sort of catastrophy. When you buy it, best to forget about it transaction costs too high to trade.
Today's action remindeds me of something Flec said a few months ago. With 8000 hedge funds and a similar number of mutual fund floating on a sea of excess liquidity, on any given day anything can happen. It does not necessarily mean anything.

One last thing I just saw on Flec'c site the Japanes were apparently long gold in large size and with the recent rally in the Yen are switching into currency. To put where? Their gold futures have been trading virtually limit down for the past couple days according to Flec. At any rate this would be your fundemental reason for golds dramatic correction here.
I agree about the transaction costs. If you look back at some posts here called 'the true price of gold', I go over my experiences with physical gold and silver. I hope to review egold and currencies with gold backing in the future. At least you can draw interest on those.
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