FALLING DOLLAR BOOSTS GOLD AND ITS MINERS -- STOCKS END WEEK ON STRONG NOTE AS RATES DROP

BOND YIELDS AND THE DOLLAR WEAKEN... The direction of interest rates plays a big role in determining the direction of the dollar.  Rising U.S. rates during 2022 helped push the dollar to the highest level in twenty years.   Chart 1, however, shows the 10-Year Treasury yield peaking during October and entering the new year on a weak note.   Bond yields are down again today.   That decline is also helping pull the dollar lower.   Chart 2 shows the Invesco U.S. Dollar Index also losing ground during the fourth quarter and the first week of the new year.   The UUP is testing previous support formed during August and has fallen below its 200-day moving average.   One of the main side-effects of the falling dollar is a rally in the price of gold and gold miners which are showing new signs of technical strength.

FALLING DOLLAR BOOSTS GOLD... Chart 3 highlights the inverse relationship that normally exists between the dollar and gold.   The green line in the upper box shows the Dollar Index peaking during the fourth quarter of last year and falling to the lowest level since August.   Notice that the uptrend in the price of gold has matched the decline in the dollar very closely.   Gold bottomed between September and November as the dollar was peaking and has continued to rally since then while the dollar dropped.   The chart also shows the Gold Shares SPDR (GLD) rising today to the highest level in more than six m0nths.  The GLD has also exceeded its August high and its 200-day moving average.    Gold miners are rallying along with the metal.   Chart 4 shows the VanEck Vectors Gold Miners ETF (GDX) reaching the highest level since June after clearing its 200-day moving average.   The weaker dollar may also be boosting material stocks which are today's strongest stock sector.   Copper and steel stocks are also rallying along with gold miners.

STOCKS END WEEK ON A STRONG NOTE...A sharp drop in interest rates on Friday has helped push stocks higher for the week.   The daily bars in Chart 5 show the S&P 500 ending the week on a strong note.   That, however, hasn't changed the market's overall chart pattern which shows the SPX locked in a trading range between its August high and October low.  The SPX also remains below its 50- and 200-day moving averages which remain in bearish alignment.   The direction of interest rates remains a major force in stock market direction.   Today's big drop in rates accounts for most of today's stock gains.   Fed policy, however, still favors higher rates which should keep stocks on the defensive.