PROSPECTS FOR HIGHER RATES BOOSTS DOLLAR -- GOLD AND CRB INDEX DROP SHARPLY

HIGHER DOLLAR HURTS COMMODITIES... Yesterday's announcement by the Fed hinted at higher rates sooner rather than later. That raised rates all along the yield curve and has boosted the U.S. dollar. A bounce in an oversold dollar is causing heavy profit-taking in gold and commodities in general. Last night I showed the continuing downturn in gold stocks. Chart 1 shows gold stocks falling even further today. Weakness in gold stocks over the past month has been hinting at some corrective action in bullion and a firmer dollar. Gold prices are tumbling over $15 today and are in danger of falling below psychological support near $400. (See Chart 2). Chart 3 shows the CRB Index tumbling over 6 points. This is the biggest one-day commodity decline in years. Twelve of the seventeen commodities are down. Energy prices are also sharply lower. I doubt that this is a major bottom in the dollar -- or a major top in commodities. However, the dollar may be entering a short to intermediate term recovery which would call for a downside correction in commodities and stocks tied to those commodities.

Chart 1

Chart 2

Chart 3