Gold and the U.S. Dollar

• Ian Wyatt
• On 5:30 pm EDT, Tuesday October 6, 2009

The big story today is the U.S. dollar. It's getting creamed, and that means gold prices and gold stocks are higher.

As you might expect, we're seeing some gold stocks make the Top Gainers list today. Keegan Resources (AMEX:KGN - News) was up 18%, Vista Gold (AMEX:VGZ) jumped 20% and some warrants for Goldcorp (NYSE:GG-WT - News) were 15% higher.

Gold has been making headlines over the last couple of weeks as it has pushed to $1,000 an ounce. Today, it broke that resistance line and gold futures for October finished at $1,038, trading intra-day as high as $1,043.80. 

There are a couple of catalysts moving the dollar lower and gold higher. The first is the Australian central bank's interest rate hike. The hike was only of the quarter-point variety, but Australia is the first G-20 nation to actually test its assessment that the global economy is recovering by raising rates.

Given the volume of US dollars in circulation, the prospect of a growing economy brings inflation concerns front and center. That's why the dollar is down and gold is up. (Of course, growth also means U.S. interest rates must rise, which will not be good for stocks. But investors seem to be content taking things one step at a time.)

The other catalyst for gold and the US dollar is much more in the "tin-foil hat" realm. According to a story from the UK newspaper, The Independent, the six Arab states of the Persian Gulf, Japan, Russia, China and France have been holding secret meetings to work toward a world in which oil is no longer denominated in US dollars. In its place, they hope for a currency basket that would include gold as well as a proposed shared currency that would be used by the Arab States Gulf Cooperation Council (GCC).

Obviously the first question we must ask is...what is France thinking?

But seriously. A shared Arab currency, and oil priced according to a basket of both currency and gold are both pretty outrageous ideas. And who in the world would want to partially peg their currency with Russia's ruble? However, gold bugs and conspiracy theorists alike love the idea of gold becoming a medium of exchange again. This report (rumor?) is right up their alley.

How much this article from The Independent has to do with gold's rise is anyone's guess. I suspect it's not much. Still, I just released a Special Report to my Top Stock Insights advisory service members featuring 3 excellent junior gold miners and I want to keep you informed on the most recent trends. You can get that report HERE.

There are a few other stocks of interest on the Top Gainers list. Chinese electric motor company Harbin Electric (NasdaqGM:HRBN - News) made the list with a 17% move after it announced the acquisition of Chinese industrial rotary motors maker Xi'an Simo Motor. Specific terms of the deal were not disclosed, but it appears the attractively priced acquisition will be an immediate boost to earnings.  

I love undervalued Chinese companies. And Harbin is one. Even after today's nice gain the stock has a forward P/E of just 14. You'll find several dynamic Chinese companies with attractive valuations in the SmallCapInvestor PRO portfolio.

Trident Microsystems (Nasdaq:TRID) added another 10% today after yesterday's 15% gain. You'll recall I thought this one might have more upside coming soon.

Trident makes integrated circuits for digital and LCD televisions. And it said Q1 revenues will be up more than 24% over previous estimates. Don't ignore the fact that LCD glass-maker Corning (NYSE:GLW) received an upgrade today. It would appear that there is a bullish trend developing for high-definition television equipment...

Finally, I'm going to run the list of upcoming IPO's I included on Friday. IPO's have been doing well, and you might be able to use these ticker symbols to your advantage.

Over the next 6 trading days, watch for IPO's from Verisk Analytics (proposed symbol VRSK, expected to debut at $21-$22 on October 6), Omeros Corp (proposed symbol OMER, expected to debut in the $10-$12 range on October 7), Mistras Group (proposed symbol MG, expected to debut in the $14-$16 range on October 7) and Chinese stock DST Digital Networks (proposed symbol ZSTN, expected to debut in the $7.50-$8.50 range on October 12).

Verisk Analytics was supposed to hit the market today, but I didn't see anything about it. I'll continue to watch for these stocks.

Ian Wyatt is the founder of Business Financial Publishing and author of the book, "The Small-Cap Investor: Secrets to Winning Big with Small-Cap Stocks." You can learn more about his book at http://www.smallcapbook.com, read his blog at http://www.IanWyatt.com, and follow him on Twitter at @IanWyatt.

Buzz up!