Thursday, January 19, 2012

Dow Gold Ratio - Long term bearish

In 1980, the Dow/Gold Ratio hit a bottom of close to a 1:1 ratio with the Dow and Gold around the 850 level. Here is a long term chart provided by which depicts the downtrend with this ratio since ~2000.

The ratio has pierced the green upwards channel to the downside and is currently at a ratio of ~7.6.  Many believe that this ratio will equal the Dow for a ratio of 1:1.  This may happen when (if) Gold goes into a parabolic frenzy with the Dow flat or dropping.  Gold can be stable with the Dow crashing which is also a possible scenario.

A 3 year chart which shows the decline in the ratio:

Some people are looking at this ratio as a signal to exit the Gold market.  I have heard one CEO of a mining company mention that he will start lightening up on his Gold positions when the Dow/Gold ratio is 2;1, then exiting his remaining position in increments all the way to the 1:1 ratio.

He stated that he would purchase undervalued assets like Real Estate at that time.  Sounds like a good plan, especially if you can pull the trigger and execute.  No one really knows what is going to happen with the price of Gold / Silver, especially when the governments around the world seem to make new laws on a whim. 

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