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« Gold Stocks: BUY! BUY! BUY! | Main | Yamana Gold Incorporated: Declares July Dividend! »

Gold and the DOW metric!

Gold and DOW Chart 18 July 2008

Chart courtesy of Stockcharts

As we can see from the above chart gold has outperformed the Dow Jones Industrial Average Index in dramatic fashion since 2001. Gold has gained 250% and the Dow Jones Industrial Average is back to square one with a 0% gain.

Now take a look at the chart below, which shows the gold/DOW ratio
. We can see that it now takes 12/ozs of gold to buy the DOW; this disparity has narrowed considerably from a ratio of around 45 not so long ago.

INDU and Gold Ratio Chart 19 July 2008

A number of researchers have tabled the possibility of the ratio returning to a 1:1 value. We tend to agree with them as gold is in a long term up trend and the economy in the United States is looking into the abyss having peaked at around 14000 it closed yesterday at 11496. Burdened with massive debts, a real estate crash, a banking crises and a recession it’s hard to see just where a recovery could come from.

However this raises the question of just where would these numbers meet if the 1:1 ratio was achieved. This is something that we don’t know but we suspect that the DOW could fall faster than gold can climb to meet it. If we had to put a number on it we would plumb for something north of 5000. Once the pendulum starts to swing gold could push on past the 1:1 ratio and set a new all time record, believe it or not!

Have a sparkling weekend.

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