Monday was a big day for the stock market, with the Dow soaring to a new high for 2009 and closing at its best level in over a year. It was also a big day for gold, with the precious metal climbing above $1100 an ounce.
What's the connection between the two? The weak dollar. A sinking dollar is obviously a key to the rising price of gold, since when the dollar loses value, it takes more of them to buy an ounce of gold - even when nothing happens to gold's underlying price.
But there's also the theory that the weak dollar also bolsters the stock market, for reasons that are less obvious. Any major American company that exports goods - which is most of them - benefits when the dollar is low, and they can make more money for selling their wares overseas. And investors run to the safe haven of the dollar when the markets drop, returning to equities and selling off dollars when the markets rise. It makes sense: As long as the dollar remains depressed, investors are better off putting their assets into other investments, whether that's stocks or gold.
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