Fed Rate Cut May Benefit Gold and Stall U.S. Dollar

One of the consequences of a Fed rate cut will be a weakening of the dollar, especially if other central banks do not reduce rates proportionately. To get straight to the point, the way to play such a move would be to go short the U.S. Dollar Index and/or go long gold. The first one is overbought and the latter is oversold. Both are due for a correction.

Related Securities: Power Shares DB US Dollar Bullish Index Fund ETF (UUP); Power Shares DB US Dollar Bullish Index Fund ETF (UDN); and Spyder Gold Trust ETF (GLD). 

Disclosures: Long GLD and UDN

Comments

[Larry House:]

A bet against the US $ and for the Australian $ is FAX. It bounces when the US $ weakens or the Aus $ strengthens. The yield is over 10%, and I think the Aus $ will continue to strengthen against the US $. I am long FAX. Should you be?

2008 Oct 29 03:34 PM

[phdinsuntan...:]

FAX no yet
Oz deleverage needs in July:
M2/M1 216%
M3/M1 463%
some day for sure!
...be patient...

2008 Oct 29 04:31 PM

[BxCapricorn:]

It's a bit easy to state that the US Dollar will get weaker, after it's run like a scalded cat up a tree, since Sept. 22nd, peaked two days ago, and had a rate cut today. Hopefully the commentary that follows lists the pros and cons of a "King Dollar", and discusses why currency manipulation, and credit market breakdowns dictate world politics, and our bizarro world of stock market performance.

2008 Oct 29 04:42 PM

[User 282223:]

The problem with all of this is that, "you know nothing..."

2008 Oct 30 02:58 AM

[Moon Kil Woong:]

If everyone lowers rates 1% who wins. Currencies stay relatively the same. So who? Well considering banks aren't lowering the rate they are loaning $ out basically only the banks win. Great. Aren't you happy.

Coupled with the bailout that will only go to keeping big banks paying execs million every year no matter what they do, the general public will be screwed in 2009. Look for 8-10% unemployment and bankers taking holidays abroad so you don't notice their excesses.

2008 Oct 30 06:14 AM

[User 30121:]

Gee, ya think? Only positive here is the article is SHORT! Waste of time!

2008 Oct 30 08:25 AM

[rinkerinves...:]

Based on my current analysis, UDN started an upward trend at $25.22 on October 30, 2008. Note that $28.51 is the target price.

2008 Oct 31 02:32 AM