Lear Capital: Gold, Silver, Stocks - It's all About the Dollar

By @ibtimes on

DaveIt seems nobody likes a strong dollar.  Lately, s I watch the markets, it's a little peculiar that stocks and precious metals appear to be moving in unison.  Generally, precious metals are considered the safe haven when market uncertainty prevails.  When stocks fall, people get nervous and are more apt to diversify into precious metals.  I mean just look at the last 10 years and compare what gold has done relative to stocks.  

Now, all of a sudden, stocks and precious metals appear to be holding hands every day.  One does not go anywhere without the other.  I've also been watching the dollar index closely.  Since Bill Gross of PIMCO sold off Treasuries, saying they are essentially worthless against a backdrop of $75 trillion of real U.S. debt, many believe the dollar is in great peril.

Coincidentally, it was about the same time that Gross made this announcement that gold and silver began to race higher.  The dollar index had already been in a steep decline and headed even further south. 

While the dollar index was falling perilously close to its all-time low, stocks rallied to a two-year high and both gold and silver raced toward record levels.  Then, just before the dollar gave up the ghost, it reversed course and headed higher.  There went the rug out from under stocks and precious metals.

To get a longer term view of the relationship, just to see if the last weeks were some kind of anomaly, I looked back 6 months to find the high point of the dollar index.  The high point was reached on November 30, 2010 at 81.45.  Last Friday, the dollar index closed at 75.71. 

So, I went back to the date and checked gold prices, silver and stocks.  On November 30, the Dow was 11,006 and closed May 13, at 12,595.  On November 30, Gold was $1385 and closed at $1495.  Silver was $28 and closed at $35.50.

In summary, while the dollar index fell 7.05% in the last 6 months, stocks rose 14.4%, gold was up 7.9% and silver rose 27.7%. 

It sure looks to me like no one likes a strong dollar.  Now, ask yourself this question.  If that's true, why would the Fed want one.  I think the answer is, they don't.  I'm betting we will get QE3 - 4 - 5 until we simply inflate away debt.  What's your bet?

 

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