Click chart courtesy of stockcharts.com for full size imageA 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 12.21 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.
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Cutting interest rates to get the US out of the 2001 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 , shown above in blue and explained below.
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 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."