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Many factors to the U.S. Dollar Plunging, Causing Gold to Rise


The Commodities direct factor

Dollar-based commodities like gold are cheaper to buy in other currencies as the dollar heads lower. Prices have found support around the $1,080 level as bargain hunters look for buying opportunities. Many analysts believe that gold prices might come under more short-term pressure as risk appetite wanes. Questions over Federal Reserve Chairman Ben Bernanke’s re-election as well as continuing credit-tightening fears out of China could put pressure on the precious metal.

“Could we go back to testing some of the averages? We’re way ahead of the 200-day average, which is just over $1,000 [an ounce],” says J.C. Doody, editor of goldstockanalsyt.com. “I think we can bounce around in this current area for a little bit until we get direction, and what that direction will come from probably is going to be a weaker dollar … in the short term there are plenty of good stocks out there. This represents a good buying opportunity for the right stocks

Credit card charge-offs factor

Moody’s: Credit card charge-offs dip a bit in December, but spike is likely in coming months

Moody’s said the drop in December was the third in four months, but it likely reflected higher overall balances due to holiday shopping.

The agency still expects the charge-off rate to soar to between 12 percent and 13 percent during the first half of this year. The record high of 10.76 percent was reached last June.

Several factors will play into the rising rate, Moody’s said. First, many cardholders will try to pay off holiday charges at the beginning of the year, reversing the impact of higher balances in December.

Second, Chase, the biggest U.S. card issuer as measured by outstanding balances, had a “payment holiday” that it offered to some cardholders during the summer. That postponed any contribution to the charge-off rate that those cards would have made. As the holiday expires, cards in that group that go unpaid will push the charge-off rate higher, Moody’s said.

Real Estate Factor

Home sales rose in ’09 for first time in 4 years, boosted by government spending, low prices

Sales of previously occupied homes rose in 2009 for the first time in four years, despite a December slump that was due to a tax credit that had caused many buyers to complete sales earlier.

Still, prices plunged more than 12 percent last year — the sharpest fall since the Great Depression. The price drop for 2009 — to a median of $173,500 — showed the housing market remains too weak to help fuel a sustained economic recovery. Total sales for 2009 were nearly 5.2 million, up about 5 percent from 2008.

Concerns remain that the housing market will weaken after March 31, when the Federal Reserve is set to end its program to buy mortgage securities to keep home loan rates low. Once that program ends, mortgage rates could rise. Adding to the worries, a newly extended homebuyer tax credit is scheduled to run out at the end of April.

China Factor

The increase makes China the world’s fifth-largest holder of gold, just ahead of Switzerland, and among the six nations plus the International Monetary Fund that have reserves of more than 1,000 metric tons.

Hu said that China’s gold reserves had risen by 454 metric tons since 2003 and that the total was being reported to the IMF per the organization’s rules.

The comments are China’s first public acknowledgement in more than five years that its gold reserves had increased.

The new figure is 76% higher than the 600 metric tons reported at the end of March, a level that had been unchanged since December 2002.

As recently as 2002, the private ownership of gold was prohibited in China. You could be jailed if caught with any in your possession. Beginning in 2009, in a stunning about-face, the central government removed all restrictions. In fact, as Mineweb and other sources report now it is actively pushing folks to buy some personal metal, with China’s Central Television, the main state-owned television company, running news programs cum infomercials, letting the public know just how easy it is to purchase gold and silver as an investment.

It truly is as simple as can be, because every bank sells gold and silver bullion bars in four different sizes to individuals. (Try to find the same the next time you make the trek down to Wells Fargo.) Mining companies are reportedly encouraging employees to convert some of their wages to gold on payday. Gold is traded in some form 24 hours a day. And paper proxies for the metal are also soaring in popularity. There are persistent rumors that the export of silver has already been banned. Gold could be next.

Thus China, which only yesterday was the lowest per-capita consumer of gold in the world, is bidding to become the biggest. Some analysts believe it will pass India – the top dog since forever – as early as 2010. Clearly, the government believes the country is strengthened if everyone who can holds some hard currency.

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