Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Trump Manchurian President Embarrasses Putin By Farcically Blowing his Russian Agent Cover - 19th Jul 18
The Fonzie–Ponzi Theory of Government Debt: An Update - 19th Jul 18
Will the Fed’s Interest Rate Tightening Trigger Another Financial Crisis? - 18th Jul 18
Stock Market Investor “Buy the Dip” Mentality is Still Strong, Which is Bullish for Stocks - 18th Jul 18
Stock Market Longer-Term Charts Show Incredible Potential - 18th Jul 18
A Better Yield Curve for Predicting the Stock Market is Bullish - 18th Jul 18
U.S. Stock Market Cycles Update - 18th Jul 18
Cayton Bay Hoseasons Caravan Park Holiday Summer 2018 Review - 18th Jul 18
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Dow to Gold Ratio Update

Commodities / Gold & Silver 2009 Oct 09, 2009 - 12:55 PM GMT

By: Adam_Brochert

Commodities

Best Financial Markets Analysis ArticleThe Dow to Gold ratio is something I harp on again and again. Why? Well, two reasons. The second I'll mention later. The first reason is that it is a very big step for stockbugs to step away from their addiction with all things Wall Street. The long term chart of the Dow to Gold ratio tends to induce cognitive dissonance in stockbugs and may help them get to rehab. In other words, to change their thoughts on investing "for the long haul." Most Americans of investing age right now are bred to be stockbugs and are saturated with messages about investing in stocks that are, quite simply, ridiculous and biased.


A piece of metal has vastly outperformed the stock market and holding cash since 1999. And it's going to continue for a while longer. It is up to you to do something about it if you haven't already.

Yes, 401(k) plans are restrictive and screw the average guy or gal. Yes, it's true that most plans won't let you invest in Gold or Gold mining stocks. Yes, it's true that nobody cares about you or your savings and you will get screwed if you leave your money in one of the lousy, overpriced stock mutual funds in a typical retirement plan. And U.S. short-term bonds are holding up nicely but leave you at risk for a currency crisis or one-time currency debasement in the future, which is now an almost certainty for U.S. investors as the international monetary system deteriorates and global capital races in and out of paper currencies looking for safety (the current intermediate bear market rally aside). As the greatest debtor nation on earth, the United States is not in a great position to dictate terms to the rest of the world any longer now that the secular credit contraction has begun in earnest.

But rather than give up and leave what's left of your money to the wolves, there's a shiny piece of metal available to you that can protect your savings from the further destruction in financial assets that is inevitable. The Dow to Gold ratio will reach 2 and may well go below 1 this cycle. The ratio is currently around 9. Do the math. When it's a choice of stocks or no stocks, the choice is "no stocks" for now, assuming you are not a good trader who can play the swings both ways. But if it's "no stocks" and if corporate bonds and real estate are in the same price collapse boat, what are your options? The oil bubble has popped and dragged most commodities with it.

Gold stands above the rubble looking down with disinterest. The value of Gold is that it has a stable value while the things around it fluctuate in value. After all, it's just a hunk of freakin' metal - how can its true value change? Right now, financial assets and asset prices that rose due to heavy leverage (i.e. real estate) are falling in value as the leverage is taken away by the credit contraction. This is one of the reasons that Gold is rising relative to stocks and has been since 1999.

Cash is king during a secular credit market contraction because other asset classes are declining in value so that cash can buy more of these assets at a later date. But you'd better be holding the right form of cash during a Kondratieff Winter to come out ahead! The best form of cash is Gold. It cannot be debased by apparatchiks, while every paper currency on the planet is being mismanaged right now by bankstas and bureaucrats trying to borrow their way back to prosperity. Never mind that impossible-to-service debt cannot be cured by taking on more debt when there is not enough underlying productive capacity to make good use of the new debt. Officials are not in the business of making sense or being prudent - why bother when the money you are spending and debts you are taking on are not yours?

The Dow to Gold ratio simply reflects this decline of confidence in financial assets. Now that we have reached the point of recognition in the minds of institutional funds and many retail investors, the Gold and Gold stock mania can begin. The current breakout of Gold to all-time new nominal highs in U.S. Dollar terms corresponds with a breakdown in the Dow to Gold ratio that looks very good technically. Here's a 3.5 year weekly chart of the ratio up thru yesterday's close:


And here's a long-term 20 year chart of the Dow to Gold ratio with a prediction on where and when this ratio will next bottom based on the channel in this ratio chart that has formed:


This should be a big move and since it's a ratio chart, the move can be accomplished many ways. What I believe will happen is that Gold will rise significantly (30-75%)and the Dow will fall significantly (40-75%). This intermediate-term move will not be a straight line but I think it will be mostly over before the end of June based on Gold's seasonal price run patterns that tend to start in the late-summer to early-fall and complete in the spring.

Oh, and that second reason I keep harping on the Dow to Gold rato? Because I am using it as my long-term road map for knowing when it is time to sell my Gold and get back into general stocks, corporate bonds and/or real estate. I'll probably keep a few Krugerrands as a souvenir once this cycle is over, though...

Visit Adam Brochert’s blog: http://goldversuspaper.blogspot.com/

Adam Brochert
abrochert@yahoo.com
http://goldversuspaper.blogspot.com

BIO: Markets and cycles are my new hobby. I've seen the writing on the wall for the U.S. and the global economy and I am seeking financial salvation for myself (and anyone else who cares to listen) while Rome burns around us.

© 2009 Copyright Adam Brochert - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules