Why Is The Dollar Getting Stronger and Why Did Gold Prices Drop, After 1.25% Rate Cut?

As someone who bought gold (mining stocks) much too late, but still early enough (last month), I was expecting a big bump in the price of gold (and therefore mining stocks) after the Fed added another half a point rate cut on the Fed funds, after the emergency .75% -- for an unprecedented 1.25% rate cut, which is supposed to weaken the dollar and make gold prices rise.

So as I noticed it was dropping (and it ended up dropping below the pre-cut price at the end of U.S. trading), I ran to the Batcomputer and typed, "Why are news wires saying the U.S. dollar is getting STRONGER?" (Because the dollar getting stronger, was the reason gold was heading south, as quickly as it went north after that last rate cut.)

A: First of all, as gold and other metals hit record highs in overnight trading, when the market opened in the morning, two LARGE hedge funds sold TONS of gold. (Probably much more than tons...tons and tons. A heck of a lot, let's just say.)

Why would professional investors sell gold when the whole world is expecting it to go up? Not because they don't think it will be going up, too. But because they have the price limit triggers set at those record high prices, and they strictly go off charts and numbers. They're not saying, "Hmmm...maybe we should hold it?" So that's a little of the bureaucracy that helps keep things extra safe (but not necessarily extra profitable).

And when you have that much gold dumping into the market, yes...2 companies can make the price go down.

But what about the reason the dollar got stronger according to news reports today (2/1/08),which further drove down the price?

A: After the big 1.25% rate cut, a lot of liquidity was poured into the U.S. market as a result of the new low rate. So that's a short and quick bump up, but a hard fall down. (When you pour gas on a fire, you get an initial burst of flame.)

So if we've seen the big up, get ready for the big down. When? I'll tell you if you pay for a paid subscription...

JUST KIDDING. Batcomputer says expect the price of gold to drop further on Monday, and start watching on Tuesday -- maybe Wednesday -- for gold to hit it's lows before it starts rising back up, and keeps on rising (with dips here and there, of course) on it's way to $1000-$1100.

From a price point, start buying it ("layering it in") at $880-$890. Be prepared for it to continue down to $860, even $850. So if you start layering-in your buy at $880-$890 and you see it drop...keep buying...it's going to $1000 in the next 30 days.

Platinum and Palladium are hotter than gold right now because you have mining problems in some areas around the world, so production is down, and the reserves are low. And most of the world's platinum is held in Russia. So with these two metals down in supply, they sure do mark up the price like Springsteen tickets in the '80's.

So although I do expect the price to drop between now and the next few days (and Palladium will go up 10% or more in a day (like it did today), and it will fall pretty hard the other way, too. PAL is a $5.00 palladium stock, and I've been following it since platinum and palladium started skyrocketing due to the shortage, and it can go the distance, all the way to the top of the heap, leapfrogging gold with those up 10% days like it sees. So try and catch it on the way down, but it's so hot right now, it may not fall as hard as usual. But even if you pay a little too much for this, or other metals, right now -- if the Batcomputer is correct, it won't make a difference this time next month, cause it'll be way up from anywhere it will be next week.

If you already own gold, and are nervous when you see it go down next week, hopefully this can help you in your decision making process, based on what you are comfortable with. Traders...start your engines. Long term gold holders...don't even trip when it goes down over the next three days...it's going back up.

BUT THIS IS ALL ADVICE FROM A DUSTY OLD, OUTDATED COMPUTER FROM SOME ABANDONED CAVE. SO TAKE THIS ALL WITH A GRAIN OF SALT, AND RESEARCH IT YOURSELF. Or, just wait it all out and see how the Batcomputer did, and you can try it next time.

StrategyUpdate.com Investors resource page with links to all the site my Batcomputer monitors throughout the day. (News wires, micro TV feeds of CNBC and Bloomberg, 24 hour gold charts and more.)

Batcomputer says silver (currently at $16.79) is going to $21.00, and Palladium from $490 to $500.