As the Dollar Dims, Gold's Luster Grows

Updated from 7:13 a.m. EDT

Contrary to popular intuition, the relationship between the performance of gold and equities is tenuous, at best. So the fact gold has rallied 15% since April 7 amid the stock market's robust rally isn't so strange. Actually, it's readily explainable given the very strong inverse relationship between gold prices and the dollar.

Why stocks have rallied as the dollar has recently tumbled is more complicated, but the relationship between the dollar and gold makes sense "since identical monetary factors and inflationary expectations drive the two," as RealMoney.com contributor Howard Simons once explained.

Near term, the dollar might soon reverse its recent fall. Why? Because it's technically oversold, central bankers in Europe and, especially, Japan don't want to see it fall further, and U.S. economic data might show improvement. Given that, the odds are rising gold will soon suffer a setback. Notably, the yellow metal has retreated from Wednesday's high of $373.50, settling in New York on Thursday at $368.10 per ounce. The overall trend, though, would appear to favor gold. ...