I used to work with someone back in my days at Arthur Andersen who used to say, “the first time you hear something, it’s a data point….the second time you hear something, it’s a line but the third time you hear something, it’s a trend.” First, let me relay to you a few data points that I have been wondering about:
1. Gold futures fell 3% on news of a pressured dollar.
2. Fed Chairman Ben Bernanke recently said inflation risks are growing.
3. The Fed is also concerned about a “dollar rout”. Since that term doesn’t make plain sense to me, I refer to a link to the Economist on the subject the subject – the point here is The Fed wants to be sure there is no free fall in the value of the dollar
So what can we conclude by these data points (besides that there are three of them)? There are a number of conclusions one can draw. First and foremost, is to point out the inverse relationship between gold and the dollar. When gold goes up (it did hit $1000 ounce earlier this year), the dollar is down (the dollar slide is likely what causes gold to go up). But the point here is that gold futures are coming down which means the dollar may be on the rise. Second, with Fed Chairman Bernanke publicly stating his concern about inflation, he is hinting that the economy may need some interest rate increases in the near future. When interest rates go up, so does the dollar.
What other factoids can we bring up? Exports are starting to drop off a bit and lo and behold, steel imports are starting to come up a bit. Imports help keep inflationary pressures in check (as many of you steel buyers would attest to). I’m not an economist but I’m going to call it here…the dollar has bottomed out and may be on a slow ascent. We’re going to see more imports and all you metals buyers out there will start to see a few chinks in the armor.