At 9.39, the Dow Jones Industrial Average measured in how many ounces of gold it takes to buy the 30 stock DOW is up 33.6% from its 17-year March 6th low of 7.03. Despite that impressive gain, the DOW-Gold ratio remains 79% below its 1999 peak of 44.77. See:
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.
lick chart courtesy of stockcharts.com for full size imageThe 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 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 (December 11, 2009) it only took 9.39 ounces of gold to buy the DOW
- Gold quote and charts
The scary part is 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.
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 9.66, 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.
US Treasury rates are so low, that they are paying less than long term inflation. 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.
US Treasury rates are so low, that they are paying less than long term inflation. See:
Disclosure: I own a very small amount of gold hidden in the house for bribes if we see Armageddon. For real inflation protection, I own and recommend in my newsletters TIPS, TIPS mutual funds and Series iBonds.
For more information, see:
For more information, see:
- Kirk's Two Investment Letters
- Series I Bonds Explained (iBonds)
- TIPS Mutual Fund (VIPSX)
I feel that the programs put in place by the US government (and other governments that have followed in their footsteps) in their attempts to "improve" the economy are extremely irresponsible and wreckless. It has wasted trillions of dollars bailing out creditors and shareholders of failed institutions with broken business models rather than addressing the structural flaws in the system of too much debt. And these actions are going to lead to massive problems down the road with regard to our currency and interest rates, in my opinion. Furthermore, I think that the gold price breaking out to a new high is a strong indication of the reduction in faith and confidence that people have in governments and their fiat currencies. I recently read a good article called Gold Price Wobbles Under $1,130 But U.S. Dollar Future Bleak that discusses the Federal Reserve's easy monetary policies in order to try to prevent any sort of deflation from occurring and to try to reflate assets prices. There are also many more articles here that I think are very helpful for any investor to read because they help to explain the investment implications for the dollar, the gold price, and gold mining companies who I believe will continue to benefit from central banks' inflationary programs.
ReplyDeleteKirk, as always thanks for sharing your market thoughts.
ReplyDeleteHave you considered a personal-articles floater on your homeowners' policy to insure your small amount of gold against theft? You could have an endorsement added to your homeowners' policy.