Chart of the Day: Gold and the Dow

Gold’s recent behavior strikes me as similar to oil circa July ‘08. With it leaping to another new high Wednesday — $1,119 — I thought I’d offer the following chart for reader comments: (Click chart to enlarge)

Thanks to Nick Laird of Sharelynx for the data.

Comments

[woollyB:]

Thanks. Bob Prechter has published similar charts for years to illustrate the illusory nature of the 2003-2007 credit-driven advance of nearly all asset classes.

Nov 11 02:22 PM

[Gedankonomist:]

Awesome chart!

Nov 12 10:05 AM

[LR European:]

If you were to cut out the extremes - equity over-valuation in the late '20s, 60's and '90s the ratio has consistently traded below 10. A move to 5 now would imply (estimated by eye) a doubling in the gold price or a halving in the Dow.

Nov 12 10:57 AM

[Carlos Lam:]

The Dow/gold ratio historically bottoms at 2:1 or lower at the end of secular bear markets in equities. The ratio is an excellent, inherently inflation-adjusted measure of how well the stock market is really doing. After all, the Zimbabwe stock market returned 322,111% growth in 2007 in nominal terms, but hyperinflation devastated the Zimbabwean dollar.

Sharelynx has another chart at www.sharelynx.com/char... that shows a 200-year trend on the Dow/gold ratio. While the DJIA wasn't created until 1896, Sharelynx recreated the DJIA with what would have been the companies included in the index before its creation.

Several commentators--including Peter Schiff--have called for a 1:1 ratio before the secular bear in US equities ends. I don't know if we'll get to 1:1, but--given Chmn. Bernanke's relentless money printing--it isn't an impossibility.

Nov 12 02:55 PM

[yellowhoard:]

I'm looking for at least 1:1.

Given the extreme scenario that we have today, we could overshoot to .5:1.

Nov 12 03:21 PM