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Gold, silver surge as dollar keeps sliding; stock market rallies on

April 28, 2011 |  2:59 pm

Another trading day, same basic formula: The dollar sinks, gold and silver surge, and the stock market thinks it’s all good.

A weak report on U.S. first-quarter economic growth gave currency traders another reason to push the battered dollar lower.

The DXY index of the dollar’s value against six other major currencies fell to 73.12, down 0.5% from Wednesday and the eighth straight decline. The index is down 7.5% this year and at its lowest level since August 2008.

The dollar has been under heavy pressure all year as the Federal Reserve has maintained its easy-money policy while many other central banks worldwide have been tightening credit to combat food and energy inflation. Higher interest rates abroad, while U.S. short-term rates are near zero, boost foreign currencies at the greenback’s expense.

The U.S. growth report, which showed gross domestic product rose at an anemic 1.8% real annualized rate in the first quarter, reinforced the idea that the Fed isn’t in any hurry to start tightening credit. That also was Fed Chairman Ben S. Bernanke’s message Wednesday.

Hawaiiancoin Every notch lower in the buck’s value is another invitation to investors and traders to buy gold and silver as a way to hedge against more loss of purchasing power in paper currencies.

Gold futures for May delivery rose $14.20, or 0.9%, to a nominal record high of $1,530.80 an ounce in New York. Gold is up 7.7% this year.

But silver, the “poor man’s gold,” remains the star. May futures jumped $1.56, or 3.4%, to $47.52 an ounce, although the price retreated from an intraday high of $49.52. Silver is up 54% this year.

With the dollar sinking, “Gold and silver have become de facto currencies by default,” said Charles Nedoss, market strategist at Olympus Trading in Chicago.

Though he agrees that the momentum in silver is scary -- the price is up 26% just in the last four weeks -- a push through the $50 level could bring a torrent of new money into the gray metal, Nedoss said.
“I wouldn’t stand in front of this thing,” he said.

Some stock bulls say the same about their market.

On Wall Street, the dollar’s woes continue to be viewed as a plus. A falling greenback is helping to lift earnings of many multinational companies, as profit earned in stronger foreign currencies translates into more dollars.

But the big story in many first-quarter corporate earnings reports is that they’re stellar even without the currency effect. Major companies including Dow Chemical, PepsiCo and rail giant Norfolk Southern are handily beating analysts’ estimates, as sales growth belies the anemic showing in U.S. first-quarter GDP.

“The economic recovery in the United States, Western Europe and other developed markets continues to gain solid footing,” Dow Chemical CEO Andrew Liveris said in a statement accompanying the firm’s earnings report Thursday. In addition, he said, “Demand continues to be robust in emerging geographies, despite rising inflationary concerns.”

Stock prices advanced broadly for a third straight session. The Dow Jones industrial average rose 72.35 points, or 0.6%, to 12,763.31, its highest since May 2008. It’s now up 10.2% year-to-date.

The Russell 2000 small-stock index hit a record high for a second day, up 0.4% to 861.55. Also hitting a new all-time high: the Dow transportation-stock index, up 1.2% to 5,510.06, surpassing the previous peak reached in June 2008.

The Nasdaq composite added 2.65 points, or 0.1%, to 2,872.53, a new 10-year high.

-- Tom Petruno


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Photo: A rare 1883 Hawaiian silver coin. Credit: Heritage Auctions / Associated Press