Red-Hot Resources

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Friday, April 13, 2007

Gold, The US Dollar, and The See-Saw of Pain

I find the best way to explain the relationship between gold and the dollar is to describe it as "a see-saw of pain." When one goes up, the other gets hurt. And this morning, gold is going way up and the dollar is getting badly hurt. Just look at this chart ...

My co-worker Mike Larson, who knows a lot more about currencies and interest rates than I do, had this to say this morning by email ...

"The dollar is getting killed today, if you haven’t already noticed. The British pound is thisclose to breaking above its multi-year high of 1.9916 from January 23, 2007. If that happens, the 2 dollars for every 1 pound level will almost certainly fall. Meanwhile, the euro has broken above every level of technical resistance save one – a peak in December 2004 at 1.3666. It’s currently just over a cent below that (1.3533).

"And don’t even get me started on the high yielders – the Aussie and the Kiwi. The AUD has now cleared some resistance dating back to December 1996. If it takes out a small peak in 1990, it’ll be at the highest level since early 1989. Now here’s the real kicker – IF the New Zealand dollar takes out 0.7466, one last level of resistance from March 2005, it’ll be at its highest level since 1982 (!!) Definitely a development worth watching."
We'll watch it all right. Meanwhile, the gold and silver stocks in Red-Hot Canadian Small Caps are charging higher. Go, gold!
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