The Dow, In Gold

I’m always uneasy about these “Let’s price Thing X in Commodity Y” exercises – if thing X was supposed to be priced in commodity Y, it would be priced in commodity Y – but this one is at least semi-useful. Here is the Dow index in gold since 1900:

[via Rolfe]

Comments

[User 350223:]

What are your references? I used Dow data from Yahoo going back to 1928 and gold data from www.research.gold.org/.../, but monthly data starts at first in 1971 for gold.

Nov 11 01:22 PM

[systemBuilder:]

The longterm average valuation of the DOW is still 10 gold pieces. So, gold is 10% overvalued now ($1118 vs. $1026 at 1/10th the DOW). People buying gold right probably don't realize that they are speculating on a longterm DOW bubble.

Nov 11 02:07 PM

[DrZero:]

This chart is suspect because gold was not a floating commodity for the first part of the chart, but had linked to the US dollar. So the first big discontinuity comes in 1932, when FDR ended gold exchange for dollars, and devalued.

Nixon took us off the international gold standard (ending exchange of dollars for gold for foreign central banks) in 1971. That's the second discontinuity.

President Ford allowed US citizens to buy gold again for the first time since 1932, a third discontinuity.

I would say that if you look at the chart from 1980 forward you are dealing with a steady state and it is more meaningful. This says perhaps the gold boom / dow bust is almost over. Somewhere around "2" it's time to sell gold and buy Dow.

Nov 12 10:33 AM