Despite gold at an all time high over $1,230 per ounce, the current Dow to Gold Ratio is closer to its resistance level than its support level shown on my graph below.
At 8.72, the Dow Jones Industrial Average measured in how many ounces of gold it takes to buy the 30 stock DOW is up 24% from its March 6th low of 7.03. Despite that impressive gain, the DOW-Gold ratio is currently 80.5% below its 1999 peak of 44.77.Here is a chart showing the current Dow to Gold Ratio, the ratio of the price of the Dow Jones Industrial Average to the price of gold. When measured in ounces of Gold, the DOW has been in a secular bear market since peaking in late 1999 at nearly 45.
chart courtesy of stockcharts.com (Click for full size image)
The markets, measured by the S&P500 (S&P500 Charts) and DIJA, may have recovered to new highs in 2007, but the DOW:Gold ratio told a different, truer story of just how unhealthy the US economy was.
- Back in 1999, it took nearly 45 ounces of gold to buy the DJIA.
- On Friday March 6 of 2009 the DOW-Gold ratio hit a low of 7.03
- As of today (May 11, 2010) it only takes 8.72 ounces of gold to buy the DOW
- Gold quote and charts
This 200 Year Dow/Gold Chart shows the DOW/Gold ratio from 1800 through August 2008.
One way to get inflation protection without buying gold is with Series I-Bonds. Currently new iBonds pay 1.74% which combines their 0.2% base rate plus 1.54% for annualized inflation. For details, see:
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.
For more information, see:
- Kirk's Two Investment Letters
- Series I Bonds Explained (iBonds)
- TIPS Mutual Fund (VIPSX)
- US Treasury Rates at a Glance (charts)
- US Treasury Rate Quotes
- LIBOR Rates at a Glance
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