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Friday, August 01, 2008

DOW Priced in Ounces of GOLD: A Secular Bear Market!

When measured in ounces of Gold, the DOW has been in a secular bear market since peaking in late 1999.

Click chart courtesy of for full size image
A chart of the DOW Jones Industrial Average (DJIA Charts) priced in gold shows the markets are not as healthy as one might think due to the decline of the US dollar.
  • Back in 1999, it took 45 ounces of gold to buy the DJIA.

  • Today it only takes 12.33 ounces of gold to buy the DOW!
Cutting the Fed Funds target rate from 6.50% in January 2001 to 1.0% in June 2003 may have inflated the US stock market out of its bear market when priced in dollars but it had consequences that we are feeling today.

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. You can get over 5% at Discover Bank if you are willing to tie your money up for five years. You can get a one year CD paying 4.25% at Wachovia Bank.

Cutting interest rates to get the US out of a recession may have worked but the inflation in commodities and devaluation of the US dollar it caused has caused pain for the US consumer. This pain is often blamed on president Bush who took office just as the DOW/Gold ratio broke out of the "symmetrical triangle" pattern, explained below.

More Dow/Gold Charts courtesy of and (Click for full size images)

With the DOW:Gold ratio now at 12.44, it is trading near the bottom of the green zone in the second chart.

Chart of the Day observed:
"It is also interesting to note that the magnitude of the current bear market (when adjusted for inflation) is approximately 60% of what occurred during the dot-com bust of 1999 to 2003."
Gold:Oil Ratio:

This last chart of the Gold/Oil ratio shows how many barrels of oil an ounce of gold will buy.

Both are international commodities. This ratio tends to cancel out the US dollar as both gold and oil are priced in US Dollars.

More on "Symetrical Triangle" chart patterns:
The Bible for technical analysis, Technical Analysis of Stock Trends, by Robert Edwards and John Magee, says about 75% of symmetrical triangles are continuation patterns and the rest mark reversals. This book makes a great Father's Day Gift!

The "return to the apex" of the Gold/DOW ratio in late 2001, early 2002 confirmed the technical breakdown of this chart pattern.

For more information, read chapter eight "Important Reversal Patterns - The Triangles."

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