muses of the moment

October 6, 2009

The Gold/DOW Ratio

Filed under: DOW and S&P500, Economic Crisis, Fiat Currency, Precious metals, The Financial Crisis — totallygroovygirlfriday @ 12:55 pm

The real numbers…

The economy is not getting better and the stock market is not getting better.

It is an illusion. Do not be fooled. And insiders are still selling stocks.

Regardless, take a look at the following chart whenever you begin to entertain doubts about your own analysis of the perilous winds and waves that are lurking ahead. The ratio of the Dow Jones Industrial Average to an ounce of gold is the benchmark, the touchstone, against which all gains in the Dow may be compared to a store of value to determine how “real” or substantive those gains might actually be. It is a simple but effective method of cutting through the clutter and noise created by the snake oil salesmen of our time.

The Dow may be rising but its rise is a subterfuge, an illusion, a cup of water that vanishes into the ether before it can bring comfort and relief to a thirsty, longing soul. The Dow Jones/Gold ratio is now below the level of 10 – the last time outside of 2009 that it was trading at this level was FIFTEEN YEARS AGO. Another way of saying this is that paper is losing value against the ancient metal of kings and has been doing so in a trending fashion since 1999 or for ten years.

It could do this in a number of ways. For example, gold could shoot to $1,500 while the Dow moves down to 9,000. Or, gold could move to $2,000 while the Dow shot up to 12,000 as inflationary pressures saw money chase equity prices higher. In the event of a deflationary paper equity collapse, the Dow could drop to 6,000 while Gold hovered around $1,000.

Regardless, the point is that the TREND in the ratio is decidedly DOWN and no amount of monetary-official chicanery and spin by feckless political leaders can do anything to alter that sobering reality. This is the hard reality that the debauchery of the U S Dollar has wrought and the future that the carry trade has in store for the US.

Click here  for the chart and more information from Jim Sinclair’s website.  Get out of the stock market and buy physical gold and/or silver. Use the Gold-Dow ratio to determine your actual wealth in the stock market and how much you have really lost.

There will be a time to sell gold/silver and buy the DOW (or something else), now is NOT that time. Use this ratio to determine that time, in the meantime…sell equities.

These are the tools you may use to determine commodity and investing cycles. Your broker will not tell you these things even if he understands it. He makes his money from fees associated with the buying and selling of equities, not physical gold/silver.

Update, December 2, 2009: Gold is now outperforming the S&P500. One ounce of gold is at $1215 and one share of the S&P500 is at $1109.

Side musing: if the real value of the stock market does not move you to action. Try this……preserve your capital for the coming currency collapse, we are in the first stage.

The prerequisites for hyperinflation are a deflationary or non-inflationary recession/depression leading to major government deficits. The government issues debt paper to finance the deficits. Initially investors continue to buy the government bonds especially as in the case of the US with the dollar being a reserve currency. This is the first stage of the money printing cycle. Egon von Greyerz, Managing Partner of Matterhorn Asset Management

1 Comment »

  1. […] may also use the Gold/DOW ratio to take the “dollar devalue” out of an investment. Click here for more info. Possibly related posts: (automatically generated)Dollar headed down-breaks through support […]

    Pingback by DOW at 10,000 « muses of the moment — October 21, 2009 @ 8:14 am

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