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Monday, January 05, 2009

DJIA Priced in Ounces of GOLD: The Secular Bear Market Continues

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 10.31 ounces of gold to buy the DOW!
The good news is the chart shows the DOW:Gold ratio is very over sold.

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 March 2000 to October 2002 bear market when priced in dollars but it had consequences. These consequences include causing the housing bubble whose collapse has made things worse today as major US banks have failed in the past year. Skyrocketing commodity prices may have pushed us into a global recession also.

Now the Fed has cut the Fed Funds rate to a rage of zero to 0.25%. This could cause another inflationary bubble somewhere if the Fed succeeds in preventing a deflationary depression by its actions. I added significantly to my favorite TIPS (Treasury Inflation Protected Security) fund (Charts of VIPSX TIPS Fund) recently when the base rates were over 3.0%:
Date 5 yr 10 yr 20 yr 30 yr

10/4/08 1.60 2.16 2.45 2.42
10/11/08 2.46 2.96 2.97 2.94
10/18/08 2.52 2.86 2.88 2.83
10/25/08 2.92 2.98 3.02 2.98
11/1/08 2.80 3.13 3.34 3.31
11/8/08 2.18 2.71 2.97 3.17
11/15/08 2.42 2.86 2.8 2.79
11/22/08 2.50 3.01 3.03 3.05
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.

US Treasury rates are so low, that they are paying less than long term inflation. See:

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."

Click the flag pictures to see

Major World Market Graphs At A Glance: Daily 5 Days 1 Yr

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