David Frazier, editor of The ETF Strategist newsletter, says short-term deflation will cause the dollar to strengthen and gold to weaken before reversing next year.
“We have deflation in many sectors of the economy,” Frazier says. He sees that trend continuing for another three to six months.
“That’s a no-brainer as the slowdown in the economy takes hold here and abroad.”
The markets are proving Frazier right. The dollar rose to a three-week high against the euro Monday amid optimism about President-elect Barack Obama’s stimulus plan, and gold fell for the third straight day.
He sees the economy and stock prices rebounding soon, which should benefit the dollar.
As for the economy, it should get a boost from the fiscal stimulus package being formulated by Obama, Frazier says.
“Obama and the Democrats will spend huge sums of money on getting this economy going again. Ideologues say this never works, but that’s untrue,” he says.
To be sure, Frazier believes that the dollar’s strength and gold’s weakness represent temporary phenomena.
“Next year there will be huge money supply floating around … and then we will have inflation,” he says.
Thus, “the exchange value of the dollar gets hit,” and gold prices will gain, Frazier predicts.
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