Thursday, March 10, 2011

Gold Dow Ratio

This chart sums up the Gold Silver market since 2001 and where it will be heading going into 2012 and beyond. Most precious metal analysts predict that Gold to Dow ratio reaches 1:1 just as it did in 1980.  The Silver Gold ratio at that time was around 16:1 for a little while.

3 scenarios from where we are today:
  • With the debasement of fiat currencies worldwide, the Dow may continue to head higher (With all of those paper dollars) and Gold will out pace it to eventually hit the 1:1 ratio.
  • The Dow can remain in a trading range around the 10,000 area and Gold will continue to rise to reach that level for the 1:1 ratio.
  • The Dow can decline and Gold will increase to reach the 1:1 ratio. This scenario has the highest probability of happening.  At a minimum, Gold will reach $5000 and the Dow will drop to 5000.
With Gold at $5000 and a 16:1 Gold Silver ratio, Silver will be at  $312 an ounce in US Dollars.  Who knows what $312 will buy at the time...?   

These are two signals that the Gold and Silver markets have reached their zenith and investors will need to make a decision on what to do with their precious metals. In 1980, both Gold and Silver declined rapidly after the peak. Rob McEwen has mentioned that he will be starting to sell Gold when the Dow Gold ratio is 2:1, then take the proceeds and invest in another undervalued asset like land or real estate.

We are a few years away from the above scenario happening, but it's always good to have a clear EXIT STRATEGY on EVERY INVESTMENT that you have. Remember the saying in the stock market: BULLS make money, BEARS make money and PIGS get slaughtered. 

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