Only Price Pays

[Market Technician]

Gold and dollar near decision time

The StreetTracks Gold Trust (NYSE: GLD, Stock Forum) and PowerShares DB US Dollar Index Bullish Fund (AMEX: UUP, Stock Forum) ETFs are fighting for their place in the sun, with the winner likely defining the new long-term trend for several markets.

Think of this intermarket relationship as a dogfight between those who believe that inflation and misery are on the way (GLD) and those who think that the mainstream economic system (UUP) will prevail.

In other words, what we're seeing is the tug of war between those who are seeking a more conventional financial order, as in dollar-backed paper assets, and those who are expecting big trouble ahead and thus are running toward the ultimate safe haven, gold.

So who's likely to be the winner? Much depends on several factors, not the least of which is time, which favors the dollar, since it's been in a bear market for nearly eight years, while gold has been rallying for much of that time.

Next, you have actual economic factors, such as interest rates and rates of growth of gross domestic products, such as the U.S., Europe, and Asia.

Those somewhat favor the dollar, if you believe that the worst may be over for the U.S. economy, in the sense of the sub-prime crisis and related issues.

This, of course, brings Fannie Mae (NYSE: FNM, Stock Forum) and Freddie Mac (NYSE: FRE, Stock Forum)to the forefront, and the U.S. trade and budget deficits, as well as other intangibles, such as who's going to win the presidential election, and so on.

Still, in markets, much has to do with time. And if you look at the charts, which in our view always cast the deciding vote, the dollar is way overdue to mount a significant rally, while gold is way overdue to take a powder.

Source: http://www.stockhouse.com/Columnists/2008/August/20/Gold-and-dollar-near-decision-time