DaveOver the last few days, precious metals have bounced back from their reported fall from grace.  Silver fell to a level near $33 an ounce and gold prices drifted into the $1480 range after reaching as high as $1580.  Today, they are drifting lower again, along with stocks, and now we all wonder, what happened?

Yesterday, silver closed at $38.47 and gold closed at $1516.70.  Often overlooked, however, is what happens after our trading day ends.  While we slumber Asian markets rumble.  Just as occurred over Easter weekend and the weekend to follow, Asian markets gobbled up more gold and silver driving the price of each, last night, to $1526.20 and $39.50 respectively - give or take a few cents.  That's a 3% recovery in gold prices and 20% for silver, from their recent pull-back.  This in just a matter of a few days.

Then for the third time in 3 weeks, after reaching weekly highs overnight, domestic markets opened to reports that gold and silver were selling off and the temptation to salvage profit was too great to resist.  Gold, Silver and Stocks are selling off again.  However, in the case of the first incident, the dollar index was still dropping and prices recovered quickly to reach even higher highs the next weekend.  The second time the sell-off was more steep and recovery more moderate as the dollar index began to turn higher.    

Today, after reaching the third weekly high, overnight, Gold, Silver and Stocks are once again being sold off in unison.  After two consecutive days of losing ground, the dollar index has started the day up and has now risen more than 2 full points off its recent low.  It appears the dollar index is the roller coaster on which Gold, Silver and Stocks are riding.

It may well be that any bounce back will be determined by the rise or fall of the dollar index.  I have come to watch it daily by visiting fxstreet.com.  The more I watch it the more I believe no one likes the idea of a strong dollar.  And, while the Fed says they believe a strong dollar is in the best interest of our economy, it appears to stand alone in this belief.

Right now I believe the dollar is winning the ugly contest being less ugly than the basket of foreign currencies from which the dollar index is derived.  Over the longer term, my bet is that the dollar will win the ugly contest.  Our debt is already insurmountable and rising.  As I have said many times the ultimate choice will be between default or print more money.  Either one is bad news for the dollar.  Where do you think the dollar is headed?