Registered User
Joined: 6/24/2005
Posts: 38
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Although not at all surprising (at least in retrospect), I noticed an interesting correlation in my recent scan of stocks with recent (past few days) price surges. There were tons of gold stocks, O&G companies, and foreign ETFs and trusts. This coincides with the recent slide in the value of the dollar as folks shed dollars for more stable or more valuable (because of favorable exchange rates) investments (at least that's what I am guessing).
The top 5-day MG Sub-Industries gainers are:
1. Gold at 9.8%
2. Industrial metals at 9.1%
3. Copper at 8.9%
4. O&G equip and services at 8.4%
5. O&G drilling and exploration at 8.4%
For something else interesting, set up a tab that looks at 5 day gain and open the ETF system watchlist and sort by 5 day gain (or do a visual sort on price percent change). All of the top gainers are invested in foreign markets, O&G, or gold.
Obviously, the recent fed (in)action has had an affect on the dollar.
Does anyone have any other observations or thoughts on what this might mean to the rest of the market?
Mike
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Registered User
Joined: 12/19/2004
Posts: 457
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Very good questions.
I'll take a look at oil later on, but I'm strongly bullish on gold.
Do note that on the weekly charts, gold had performed very well when the dollar was rising against other currencies. You may need to serch the 'net for this, but gold has risen in value vs. all major currencies.
I belive this signals the start of weakening confidence in the U.S. dollar. But this analysis is very complicated, and I'm not so sure how it is going to play out.
Suffice it to say, there are strong fundamental reasons for a decline in the dollar vs. other currencies. Long term, the dollar needs to decline sharply--ie. 50% or more.
But there are also strong reasons preventing a decline in the dollar.
Basically, all of the major central banks (ie. European Central Bank [ECB], Bank of England [BOE], Bank of Japan [BOJ], and the Chinese Central Bank hold lots of dollar reserves. The Asians are the prime holder of U.S. dollar denominated assets.
Asians benefit from a strong dollar, in that it facilitates trade. Should the dollar weaken, as all fundamental indications suggest it should, they would be taking billions of losses on their currency, in addition to having an economic contraction.
Yet, all of the central banks are growing more and more worried about U.S. deficits. They are all trying to figure out a way of reducing their exposure to the dollar without causing a global economic crisis.
Enter Middle East. The rise in oil has greatly enriched oil producing countries. There is speculation that they are taking some dollars, and buying gold. Indians are also supposedly buying gold. And central banks are "diversifying" into gold.
It is hard to see what the intermediate term outcome is. None of the central banks of the world want to see a sharp decline in the dollar. They all would lose trillions in reserves, and face lots of political pressure due to worsening economic conditions.
Yet, they don't want to lend money to the U.S. that continues to grow deeper and deeper into debt.
All of the world central banks are caught between a rock and a hard place.
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