If Wednesday was an example of stock proxies overcoming negative news, Thursday was shaping up as a session in which shares were unable to benefit from some positive developments. Despite better-than-expected retail sales data and some positive corporate guidance, major stock proxies couldn't sustain a midmorning rally and were lately trading south of breakeven.

As of 2:18 p.m. EST, the

Dow Jones Industrial Average

was down 0.7% to 8528.53 after having traded as high as 8615.13 and as low as 8510.84. The

S&P 500

was down 0.6% to 899.42 but off its earlier low of 897 while the

Nasdaq Composite

was lower by 0.3% to 1392.22 vs. its low of 1388.5.

On the economic front, the government reported retail sales rose 0.4% in November and 0.5% excluding autos, both results were well in excess of consensus estimates of 0.3% overall and 0.2%, excluding autos. Separately, the Bank of Tokyo-Mitsubishi reported U.S. same-store sales rose 2% last week. On the micro front,

Costco

(COST) - Get Report

reported fiscal first-quarter results in line with expectations but lowered its sales and earnings guidance for the remainder of the year.

A much higher-than-expected jobless claims report -- initially rose 83,000 to 441,000 vs. estimates of 393,000 -- was an offsetting factor to the retail sales data, but considering the latter was presumably such a concern among traders on Wednesday, the market's tepid reaction was disappointing.

Simultaneously, equity bulls were unable to parlay upbeat news from firms such as

Ciena

(CIEN) - Get Report

,

Amgen

(AMGN) - Get Report

and

Halliburton

(HAL) - Get Report

into anything more than gains for those names.

In the midst of economic news flow generally weighted toward the positive, stocks were reportedly sluggish due to geopolitical concerns. Specifically,

The Washington Post

reported Iraq may have given chemical weapons materials to al Qaeda and various news outlets have reported North Korea is planning to restart a nuclear power plant that may be used for making weapons-grade uranium.

Such developments were helping give a boost to gold and related shares. The price of the yellow metal was lately up $6.60 while the Philadelphia Stock Exchange Gold & Silver Index was higher by 6.6%.

After rallying steadily in 2001 and the first portion of 2002, gold and mining stocks stumbled through the summer, then spiked higher in September. When that move faltered and the price of gold reversed back to around $310 per ounce in mid-October, many observers declared the nascent bull market in gold to be over. Among others, veteran technician Martin Pring has

commented previously that a close above $328 per ounce would signal both a new bull move for gold and would confirm the likelihood of an upturn in inflation going forward.

Gold Benefiting From Dollar Woes

Rather than geopolitical concerns, Frank Holmes, lead portfolio manager for U.S. Global Investors' $65 million

(UNWPX) - Get Report

World Precious Minerals and $36 million

(USERX) - Get Report

Gold Shares funds, said Thursday's rally was due to investors' changing perceptions about the dollar.

"Today's move, bottom line it's the currency players," Holmes said. "What we're hearing is currency hedge fund players are looking for the dollar to be down," due to a combination of increased deficit spending, the current account deficit being more than 5% of GDP and zero rates of return as the real fed funds rate -- the fed funds adjusted for deflation -- is negative.

Several of those elements have been in place for some time, but recent changes in President Bush's economics team have triggered a view that the administration will support a weaker dollar, he said. "The big picture is an economic stimulus package is coming with more deficit spending. Policymakers are going to sell that, which makes the dollar weaker, and they're not worried about it."

The U.S. Dollar Index was lately down 0.9 to 104.48.

From a macro perspective, Holmes argued that a weaker dollar will also benefit exporters such as consumer product giants

Procter & Gamble

(PG) - Get Report

(which issued some upbeat news over the past day) and

Coca-Cola

(NYSE)

, as well as big-cap tech names such as

Intel

(INTC) - Get Report

and

Microsoft

(MSFT) - Get Report

.

"You could get tech stocks going with gold," he said, noting that the third year of presidential election cycles is very often bullish for both stocks and the economy.

Finally, Holmes mentioned a more direct, fundamental support for gold, specifically, that the metal's lackluster performance in the 1990s and higher environmental hurdles have resulted in a "shrinkage of mine supply," especially from the largest producers. "We anticipated this structural industry issue --

many producers need $370-ounce gold to expand."

Because of this supply issue, Holmes is most bullish on mid-cap and unhedged gold producers such as

Wheaton River Minerals

(WHT)

, which his fund is long.

Earlier this week,

RealMoney.com

contributor

John Roque mentioned a number of small- and mid-cap gold producers with bullish technical patterns, including

Randgold Resources

(GOLD) - Get Report

and

Harmony Gold

(HMY) - Get Report

; both were up more than 10% of late.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.