Saturday, October 6, 2007

DOW at 14,000 & the DOW/GOLD RATIO

The Dow/Gold Ratio is the ratio of the price of the Dow to the price of gold. More simply it is the number of ounces of gold required to buy one unit of the Dow. As the chart shows, though the value of the dow in US Dollar has risen post the dot com crash, it continues to decline in terms of gold.

The ratio is a extremely useful in determining major long term turnarounds or shifts in equity and gold markets. As the graph shows, declines in this ratio have been positive for gold, and negative for equity and vice-versa.

In 1999 it took over 40 ounces of gold to buy one unit of the Dow Jones Industrial Average, as against 18.68 ounces currently.

A time to sell?

(chart: )

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