Sunday, September 18, 2011

Gold Dow ratio

A long term chart of the Gold to Dow ratio (since 1973) depicts a major downtrend since the peak around 1999.  (How many ounces of Gold at the current price does it take to equal the Dow Jones Industrial average)

With the US financial markets taking a hit in July coupled with a run up in the Gold price, the ratio took a dive that broke below the March 2009 low.  The current ratio is hovering around 6.34 and is in a basing formation.

With Greece on the verge of default, it may not be long before the financial markets correct to the downside. The problem is that a entire country is defaulting and is the 1st domino to fall with others looming in the not too distant future. In 2008/2009, it was Bear Sterns / Lehman Brothers.  We are talking entire countries this time which may make the last downturn look like a small correction.

With governments throwing euro's at the problem (fixing debt with more debt), the flock to Safety / Gold should be the worldwide 'bet'.  Unlike in 2008/2009 when everyone was liquidating positions and buying the dollar/bonds, this time people will take their cash and purchase Gold.  The miners may be the only stocks that show up in the green.

One word about Silver: At today's price of ~$1820, a Gold Silver ratio of 20/1 is $91 Silver.  Many people believe that this ratio will go down to 16/1 or even lower.  The current Gold Silver ratio is around 44.  As long as it is above 20, Silver is a BUY!  We may not be able to purchase $30 Silver in 2012, so those on the sidelines may want to start loading up.

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