The US dollar index is back in rally mode, but how much could it rally and what does this mean for the stock and metals markets including gold? The US dollar index could move up to about 74.5 to 75, before running into resistance. Stocks and metals including gold (GLD) will correct further as this happens. They are inversely correlated to the US dollar. Dr. Ben Bernanke has been printing money and buying our country’s own debt in order to keep interest rates low. It is a way of effectively lowering interest rates below zero, which is where they have been for a long while.
Gold’s move down (GLD) is not yet done for this reason. GLD could stop at several places before the first serious bounce. I doubt Friday’s bounce was the real deal. GLD, the gold ETF will probably hit the 142 area, the 139.54 breakout, or the 136 area before reversing for a bounce at least.
Stocks will likely fall further as well, although the SP500 index is struggling to maintain the prior breakout by moving back above 1344.07 this morning. It is now just a point below at 1343.10 as of 1:58 pm on 5-5-2011. If the market does not hold this level on the close today, you can watch the video here to see Where the SP500 Index May Fall: SP500Tracker™ Video
We are back to the US dollar UP and stocks and gold DOWN scenario for a while. This could only be reversed in the short run by more easy money, something that is not currently in the cards. The Fed is planning on letting the QE2 program of “quantitative easing” run out by the end of June. So with the easy money running out, the markets are correcting.