From Casey's Daily Dispatch:

... While I personally don’t think this uptick in the dollar will last long into the New Year, if it catches the wind and runs higher for a year, despite the weekly auctions of hundreds of billions of dollars in fresh Treasury borrowings, the hit to the precious metals could be significant, and the one to precious metals stocks far worse.

While I rate the odds of gold breaking down as far as $850 as almost zero, that is no guarantee it won’t. Thus, just make sure you aren’t overcommitted to the sector, that you avoid uncovered leverage, and that you have enough cash on hand that you won’t be forced to sell out your precious metals positions at a loss. That way, come what may, you’ll be able to sleep at night.

This is not a change in our forecast, and we remain confident that precious metals will be trading higher at the end of 2010 than at the beginning. We also remain confident that before the book on this crisis is closed for good, the country will have to go through a massive inflation that will send precious metals and other tangibles to the proverbial moon.

But until we can determine whether or not this current dollar rally is for real, be extra cautious.

Crux Note: Each day in Casey's Daily Dispatch, David Galland brings you an informative and entertaining overview of the markets, the economy, and politics... all from his unique and often contrarian perspective. Casey's Daily Dispatch is absolutely FREE and comes right to your inbox, five times a week. To sign up, click here...

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