Gold, the DOW and the USD
Wednesday, October 28, 2009 at 10:34PM
Gold Prices in Other
Gold, DOW, USD Chart 29 Oct 09.JPG

A quick comparison between gold prices, the DOW Industrial Index and the US Dollar raises a few tricky questions as gold has slipped back below its previous resistance level of $1033/oz. We can all remember last year when the broader markets tanked and the gold and silver stocks were also dumped regardless of golds performance.

As we see it the DOW will correct at some point and that point appears to have arrived at the 10,000 level, although pierced, it has not been held, with the DOW closing at 9,762.69 today. This sell off has been accompanied by a small but significant rally in the dollar which in turn has put a cap on gold and silver prices as evidenced by the HUI which has dropped from 450 to 380.
The broader markets could well continue to head south as they have put in a terrific rally since March and should be due for a breather.

Also note that this rally would appear to based on stimulus and not economic activity as it has been described as a jobless recovery. A recovery without an increase in jobs lacks the foundation of a true recovery in our humble opinion. A stock market rally based on quantitative easing is one to be cautious of as a retraction could be upon us just as quickly as the rally. Assuming that the broader market sectors will head south we are left pondering the possibility of the mining sector being thrown out with the bath water.

Our opinion for what it is worth is that the DOW will endure some retraction but not on the scale that we had last year. The mining sector is suffering right now but we expect it to be short lived as their 'worth' will be seen as dependent on the performance of gold and silver and not connected to the industrials. Again the performance of the precious metals producers is still inversely linked to the dollar and the dollars rally will also be short lived before it resumes its trek south.

In conclusion hold fast to your core position and ride this one out, its not the first time and it wont be the last time that we get buffeted and pressured to part with our holdings. Our tiny sector has suffered this sort of thing all the way up to this record level in gold prices and has recovered to trade higher each time.

Also note that a number of stocks are now considerably cheaper and the next few days and maybe weeks could present us with some bargain prices so make use of this 'dip' to acquire a few more of your favourite stocks in an orderly manner.

Have a good one and stay calm.

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