Market Wrap - Gold Tumble, Dollar Rises on Euro Issues

More Europe

Both Fitch and Moody’s, the ratings agencies, weighed in today on the EU situation after the meeting last week. Neither agency seemed to be pleased with the outcome and the stiff warnings fueled a sell-off that began overnight in Europe. The day-to-day perception of the situation in Europe is not going to end anytime soon. So if you cannot take the triple-digit daily moves on the Dow you may want to close your eyes for a few weeks/months.

My analogy of Europe being a gaping wound in a patient remains. However, the governments of the EU and around the globe will continue to bandage it up to keep the economy and stock market from falling too hard. This is why I believe there is a good chance of a stock market rally into early next year based on the actions of the ECB, Fed, EU, IMF, and any other acronym you think of.

US Dollar Strength

One of the lone safe havens throughout the day was the Greenback. The PowerShares US Dollar Index Bullish ETF ($UUP) rose by 1.1% and is nearing a 2-month high. My argument is that when the risk-on trade is “off” that safety is the number one goal of investors and the US Dollar is perceived as the “safest” currency at this time. Even though the US has its own issues with a rising deficit, it is the best of the worst. Would you rather own the Euro or the Greenback?

Gold Falls

Gold suffered one of its worst days in months today as it fell due to a rise in the US Dollar and a technical breakdown. There is also a lesser-known factor that could have affected gold today. India, the world’s largest consumer of gold, reported that industrial production in the country fell for the first time in over 2 years. Granted it is a secondary factor at best, it could have added fuel to the bears argument that gold needs to correct more. We continue to hold gold as our largest position via ETFs $GLD and $IAU.