Gold/Dollar Ratio Goes Parabolic

Below we highlight the Gold/Dollar ratio since 1975. This divides the US Dollar index [DXY] into the price of an ounce of Gold.

As shown, recently we took out the prior highs of the ratio made in January 1980, and things have now gone completely parabolic. Things don't stay like this forever, and those who have recently joined the party and entered the long Gold/short Dollar trade should tread very carefully.

click to enlarge

Comments

[MikeL]

What could the author possibly be thinking? Adjusted for inflation, gold is nowhere NEAR the ration of 1979, and won't be unless it reaches somewhere around $4000 per ounce. Think of it in terms of genuine buying power. A house in 1979 vs today. A gallon of gas in 79 vs today. Medical care in 79 vs today, etc etc etc , Gold has a LONG way to go up before it approximates the same genuine ration as 1979.

[RobertStockTradingCards]

For the last $300 up in Gold all I have heard ablut is how this is going to collapse, how its going to back off, etc...

I guess if you write one of the articles, such as the one above every $100 up in gold, you are bound to be right sooner or later.

I have been buying the pullbacks for months now and am sitting on a massive winner - which will get bigger.

S&P estimated today we are half way through the write offs. Even if we are 3/4 of the way through the feds rate cuts we have over a point of more cuts coming. And do not forget the banks are all still writing off - maybe more moves at the window, policy changes, etc...

This move is in response to a little inflation and ANTICIPATED inflation. The paper money fiat market is getting soooooo inflated, just wait till it works its way through to the CPI and PPI. Thats when gold really goes parabolic. Dont forget that China just posted well over 8% inflation, Russia is printing roubles like puppet presidents. The world is awash in paper.

Nice chart buddy. Now take some time to figure out how to interpret it properly.

[jbmaria]

seekingalpha.com/artic...


Uh-Huh,and they were cautious when Gold was at $850-take note.

[carmelus]

One thing is compare gold to dow(an index reflecting nominal values) and another one is to compare gold to the dollar index(60% euros pondering to make things worse), trying to mix apple and peaches. Maybe that ratio looks the same as the pound did once it was considered as the N°1 currency reserve before collapsing.

[SEBASS]

Good points, however everyone is forgetting the most important point.
Gold trades with oil movments. Now most important statment here.
PEAK OIL. It's here and if you're unaware of it or think it's years away you need to do your research again. Greenspan recently (feb 08) said this and I quote "Oil Boom Will Likely 'Go on Forever'" Since oil price will keep rising indefinitly now gold will as well. Paper currency is shit as you can see. Euros won't help for long. Gold silently will be pricing for oil. Good luck.

[jackson]

Compare 1980 with 2007. 27 years and NO adjustment for inflation-oh yeah, I forgot, we don't have inflation-it's under control. 1980. We still had a MANUFACTURING BASE that could support any actions to boost the dollar-2007-we have NOTHING! What you are seeing is a controlled crash of the USA as we know it. So what and where are YOU going to put your money, Einstein?- Treasuries? CD's. Who wrote this story, Maria Bartilomonio?

[jackson]

Peter Hambro, chairman of Peter Hambro Mining, said gold is regaining its historic role as the ultimate store of value as mainstream investors lose confidence in the entire range of paper currencies.

"When the Federal Reserve starts taking 'bus tickets' as collateral as they did this week, people are bound to see this as inflationary.

[jackson]

I LOVE that analogy! Bus Tickets! Of course most of you morons who still have 401K's that are bleeding red-hell, you can't even trust putting your money into a Money Market account! Whoever wrote this piece of propaganda, obviously hasn't lived through a Depression. Don't worry, you'll get your chance-soon.

[jackson]

Watch this video and LEARN something-FOR A CHANGE:
www.youtube.com/watch?...

[AmesTiedeman]

The U.S. Dollar is quite in the tank. When does the Central Banker intervention come in? At what level of collapse?

[HeliBen]

Terrible "point". Our support base in the 70s with manufactoring, debt levels, spending, etc, etc was much stronger, providing a floor for the dollar. We could raise rates to 20% and largely survive. Raising them to 5.25% is bringing down the banking structure today and the Fed is quickly backtracking. Now we have negative real rates.

I am a holder of PMs and their stocks. I will sell them when I see a reason to be pro-dollar versus gold. So far I only see reasons to stock up on more gold. Should things get really hairy our dollar will collapse just like the Russian Ruble in the late 90s. Given that they are a very mineral rich country with something real to offer and sell to the world, I see no reason why the US could not possibly, just possibly suffer the same fate. Our main export of the dollar is just not going to cut it for very long.

[HeliBen]

I also do not see much relevance in comparing the dollar index to gold. Fiat versus other fiats constantly losing or gaining against each other in a race to 0. Like another poster, I think the DJIA versus gold is a much better measure, the dollar and it's value is largely smoke and mirrors.

Incidently, I started buying when gold was around 400 and people were also saying it was "overpriced"... never going to break that 450. Then came 730 and same song and dance, overpriced, never going to beat out that old high of 730. Then came 850, 1,000, etc.

Most bull markets end with a 10-20x (and up) price increase, like the djia/nas during the 1980-2000 and pms during the 70s. That puts gold's top around 2,500-5,000.

[REBEL]

It pains me to think that government's all over the world value gold vis-a-vis paper monies which are intrinsically worthless pieces of paper, (fiat money doesn't even make good toilet paper). Gold has been a proven store of value, (#1 definition of REAL MONEY) throughout the history of the world. Governments can - and will - describe gold as a "barbarous relic" in order to maintain their absolute control over populations that are unaware they are being robbed, (by fiat money theft).

[JamesSeaberg]

On the gold/dollar ratio: The dollar will continue to fall against the Euro as long as the US inflation rate is higher than that of Europe. Gold will keep rising as long as we have negative real interest rates in the USA. If you put these two ingredients together, you will be able to forecast a continuation of the exponential rise of the gold/dollar ratio. So, don't worry. Keep buying gold. The Fed is an unvoluntary friend of gold.

[deuxsous]

Gold certainly does look parabolic on an arithmetic chart. But on a log (%)chart gold has made three pushes up since 1999 and is weakening on that basis. I won't sell my gold, which I own from much lower, but I would not recommend that a newbie buy it at this level. I'd wait for a >$100 pullback at least for starting a new position or even for adding to existing positions.

[Mr. G]

As long as the commodity market designates hard assets in dollars, the dollars demise will continue to lift their value. Coupled with global growth, hard assets have a long way to run due to unpredented DEMAND. Selecting the right asset markets to invest in to protect yourself from a severe recession is at a premium in todays market.

[sedek]

Not seeing useful information in the article, as the Euro, and other "majors," is also devaluing due to Trichet printing money like paper is free. The commodities have pretty much all quadrupled, so I read that as the Dollar losing 75% of its value due to FR manipulation and US government deficit and debt. Until Ben Bernanke finally runs out of bp's to cut and as long as the government spends more than it generates in revenue, the Dollar will continue to devalue.

Unfortunately, the three remaining presidential candidates all offer more tax deferments and more spending targeted to their constituencies, so gold or wheat or anything of intrinsic value will continue to rise in falling currencies. For those who dream of gold falling, lock Ben Bernanke in a closet so he can do nothing this week. The Dollar will raise and commodities fall because the markets have already priced in a 50 bp cut.

[eldocbffb]

Paper will always hold whatever you put on it regardless of accuracy but when you need to flee for your life this isn't the sort of stuff you pack in your bags! However Gold always seems negotiable wherever you go. Parabolic? How can a 30 year simplistic analysis of this ratio lead anyone to conclude such a prediction? Commodities will rise, because the world's population is increasing and thus it's reasonable to assume there will be more consumption, for more people to survive they will need food, as more food is needed in the world, those who consume the most and produce the least will be our biggest market, but we need oil to do what we do best, as we use more oil, oil prices continue to rise so does Gold. China is using more oil, oil demand does not appear to me as something that will diminish in the near future therefore the price of oil is not likely to drop in the near future. Unless an alchemist comes up with the real lead for gold formula I do not see the Parabolic prediction of Gold price having any trust worthiness. Buy Gold if you have the paper to do it with!