Dow to Gold Ratio: Nothing Says It Can't Get More Oversold

This article was originally posted at Kirk's Market Thoughts as DOW Gold Ratio at 9.66.

The Dow Jones Industrial Average measured in how many ounces of gold it takes to buy the 30 stock DOW is up 37% from its 17-year March 6th low of 7.03. (Gold quote and charts) Despite that impressive gain, the DOW-Gold ratio remains 78% below its 1999 peak of 44.77.

Here is a chart showing the current Dow to Gold Ratio, the ratio of the price of 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.
  
• On Friday March 6 of 2009 the DOW-Gold ratio hit a low of 7.03
  
• As of Friday (September 11, 2009) it only took 9.66 ounces of gold to buy the DOW
  
• Gold quote and charts

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.

Which way do you think the DOW-Gold ratio is headed?

This 200 Year Dow/Gold Chart shows the DOW/Gold ratio from 1800 through August 2008.

chart courtesy of sharelynx.com (Click for full size image)

With the DOW:Gold ratio now at 9.66, 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:

• Gold quote and charts
• US Treasury Rates at a Glance
• LIBOR Rates at a Glance
  

Disclaimer: I have no position in Gold other than a few gold coins. I get inflation protection via TIPS mutual funds (for example Vanguard's VIPSX) and equities in my stock portfolio.

Comments

[Mad Hedge F...:]

mmfm Those transfixed by gold blasting through the $1,000 level have been missing the real action in silver. The white metal has soared 57% to $17 since the beginning of the year, compared to only a 22% move for the barbaric relic, an outperformance of almost three to one. I have been a raging bull on silver all year, and on May 7, grabbed you by the lapels and shook you senseless if you didn’t buy at $12.70 (click here for earlier report ). It is nothing less than owning gold with a turbocharger. Silver gives you a nice double play. Its qualities as a precious metal are giving it a major boost from the flight from the dollar, one of this year’s certainties. It is also an industrial commodity, which unlike gold, is consumed, and therefore gives you a call on the recovering economy. If you don’t think this move is real, check out the shares of the silver producers. Coeur D Alene Mines (CDE) has rocketed by 57% this month and is up 144% YTD, while Silver Wheaton (SLW), and Hecla Mining (HL) have also done well. If you want to get set up on buying silver futures, e-mail me at madhedgefundtrader@yah... and I’ll tell you how to do it. To accumulate .999 fine silver dollars for only a buck over spot, or bullion at the lowest spreads in the market, visit mileniummetals.net by clicking here. How long will it take to get to the old high of $50? The Hunt brothers must be grinding their teeth.

Sep 13 06:50 AM

[HATEFEEBAY:]

The DJIA is a total joke-how many original companies are left of the 30? Answer, only GE-we see then jump in and out as they collapse giving an impression of the market headed higher-lol. All you cheerleaders saying DJIA 10,000 that was last millennium it hit that in 1999! Get real, most stocks are a joke!

Sep 13 10:50 AM

[granger:]

why not use the SPX to Gold. Do you have any thoughts or history on that measure?

Sep 14 10:40 AM

[Jackson39:]

Why don't you show the early withdrawal penalties for CDs?

Oct 13 11:44 AM