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Monday, September 13, 2010

Dow Gold Ratio - DJIA vs GLD

Dow Gold Ratio Approaching 20-Year Lows. With the price of gold ($1,246.00) just below its recent all time high,  the DOW:Gold ratio is approaching 20 year lows. 
At 8.40, the Dow Jones Industrial Average measured in how many ounces of gold it takes to buy the 30 stock DOW is up 19.5% from its 17-year March 6th, 2009 low of 7.03. 
Despite good gains for the DOW since March 2009, the DOW-Gold ratio remains  just above its  March low and 81% below its 1999 peak of 44.77.
Here is a chart showing the current Dow to Gold Ratio, the ratio of the price of the Dow Jones Industrial Average to the price of gold. When measured in ounces of Gold, the DOW has been in a secular bear market since peaking in late 1999 at nearly 45.
 (Click Charts for full size images)
Gold - Continuous Contract (EOD) ($GOLD) DAILY bars
Day   Date        Close
=== =========== ==========
Fri 10-Sep-2010 1246.2000
Thu 09-Sep-2010 1243.8000
Wed 08-Sep-2010 1255.1000
Tue 07-Sep-2010 1255.5000
Fri 03-Sep-2010 1247.0000
Thu 02-Sep-2010 1251.2000
...
Fri 18-Jun-2010 1256.6000 
The markets, measured by the S&P500 (S&P500 Charts) and DIJA (DJIA Charts), 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 Friday (September 10, 2010) it only takes 8.40 ounces of gold to buy the DOW
  • Gold quote and charts
All time Lows:

The DJIA-to-Gold ratio got down near 1 in the early 1980s and was just under 0.2 in the early 1800s.

This 200 Year Dow/Gold Chart shows the DOW/Gold ratio from 1800 through August 2008.
chart courtesy of www.sharelynx.com (Click for full size image)

With the DOW:Gold ratio now at 8.40, it is trading below the green zone in the second chart. The ratio is oversold, but nothing says it can't get more "oversold."

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.  

The Top 10-year CD rate is 3.25% at Discover Bank which compares well with the 10-yr US Treasury with a current yield of 2.77%.  For more information, see:
Disclosure: I own a very small amount of gold hidden in the house for bribes if we see Armageddon. For income plus inflation protection, I own and recommend in my newsletters TIPS, TIPS mutual funds and Series iBonds.

For more information, see:
Question: Which way do you think the DOW-Gold ratio is headed?

Kirk Lindstrom's Investment Letter Performance

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