Dow-to-Gold Ratio Continues to Plunge

Here is a chart showing the current Dow to Gold Ratio, the ratio of the price of the 30 stocks in the Dow Jones Industrial Average to the price of gold. When measured in ounces of Gold, the DOW has been in a secular bear market since peaking in late 1999.

Click chart courtesy of stockcharts.com for full size image

The markets, measured by the S&P500 (S&P500 Charts) and DIJA (DJIA Charts), may have recovered to new highs in 2007, but the DOW:Gold ratio told a different, truer story of just how unhealthy the US economy was.

• Back in 1999, it took 45 ounces of gold to buy the DJIA.
• Yesterday it only took 7.58 ounces of gold to buy the DOW!

The scary part is the DJIA-to-Gold ratio got down near 1 in the early 1980s and was just under 0.2 in the early 1800s.

The DOW/Gold ratio broke out of the "symmetrical triangle" pattern, explained below, when we entered our first recession and the markets were in the March 2000 to October 2002 bear market.

The good news is the chart shows the DOW:Gold ratio is very over sold.

This 200 Year Dow/Gold Chart courtesy of www.sharelynx.com (Click for full size image) shows the DOW/Gold ratio from 1800 through August 2008:


With the DOW:Gold ratio now at 7.58, it is trading below the green zone in the second chart. The ratio is oversold, but nothing says it can't get more "oversold."

CDs have been a "safe haven" for those wishing to preserve assets and get a small inflation adjusted return. See Very Best CD Rates with FDIC for a list of the best rates and terms.

US Treasury rates are so low, that they are paying less than long term inflation. See:

• US Treasury Rates at a Glance
• LIBOR Rates at a Glance

Disclosure: No positions

Comments

[Sakata:]

It may be below the green zone but if you join the lows of 1840 and 1980 you get to a current ratio of about 2. Why, perhaps not coincidentally, is what a number of writeers have been predicting this time around.

Feb 27 06:10 AM

[doubleguns:]

Every time it goes through the top of the green zone it plunges down throught the bottom of the green zone shortly after so thats what we are doing now. History repeats again.

Going lower seems obvious since no solutions have been forthcoming. The question is how much lower. I think we will be getting back to 1980 levels since this problem is global and BIG. Much bigger than 1980. And all we need is another Hunt brothers situation which if currency crisis gets worse could cause someone to start buying precious metals in a panic.

All pieces are all in place its just a matter of time in my humble opinion.

Feb 27 09:21 AM

[ROLEXROLEX:]

Very "nice" piece of art, 200 years chart, let's assume average age of reading it 45, life span for human is 75, another 30 years to live, who cares about 200 years, all of us will be long dead by then 7 times.

Feb 27 10:17 AM

[Mark123:]

Diamondrolex...rolexro... what ever--- as usual.... you miss the point


On Feb 27 10:17 AM ROLEXROLEX wrote:

> Very "nice" piece of art, 200 years chart, let's assume average age
> of reading it 45, life span for human is 75, another 30 years to
> live, who cares about 200 years, all of us will be long dead by then
> 7 times.

Feb 27 12:24 PM

[mkreisel:]

Gold at 2000 and Dow at 4000 will get us to the golden ratio of 2!

Feb 28 02:42 PM

[Paddy Fields:]

How can there be a dow/gold ratio chart that goes back 200 years if the dow was created in 1896?

Mar 03 02:05 PM