Dollar Down, Gold Up

Today’s GDP report didn’t have much of an impact on the stock market, but there were significant effects in other markets. The dollar fell, reinforcing the downtrend and causing a short term rally to fail right at the 50 day MA:

Another big mover was the long term Treasury market which moved up in price (down in yield), although I’m not convinced the longer term downtrend has been reversed. The move down in yield is a reflection of the underlying weakness of the GDP report, but ultimately bond yields are determined by inflation. If the dollar keeps falling (and I think it will), inflation will move higher and so will bond yields:

Gold also moved higher with the move down in the dollar.

IShares Gold

The big winner was a market that I have highlighted repeatedly here on the blog and in our weekly updates – foreign bonds:

SPDR Internation Bonds

As for stocks, foreign stocks continue to outperform US stocks. Here are few charts showing the relative performance of various foreign markets to the US. A rising trend means the foreign market is outperforming:

EAFE vs S&P 500

China vs S&P 500

Asia ex-Japan vs S&P 500

This is consistent with the idea that the center of gravity of the world economy is shifting away from the US. I’ll flesh out that concept in the weekly update this weekend. If you would like to receive the weekly update by email, click here.

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