Wednesday, January 05, 2011

Dow Gold ratio hits new recent high today

The often watched Dow/Gold ratio today hit 8.6 and it has not been this high since August 11th, 2010. Everyone has been focused on the recent rise of the Dow, but few have been commenting on the corresponding drop in Gold prices. Today Gold closed at $1368/ounce after a recent high was reached of $1421 on Nov. 9th and $1420 again on Dec. 7th. But since Dec. 7th the speculative Gold market has been selling off slowly. That's about a 3.7% drop in Gold prices, while from Dec. 7th the Dow has gone up 369 points or 3.2%.

This may not appear as significant but if the speculation on Gold has turned, can the stock market speculation end be far away? I don't know but this market, with the Fed's help has maintained a rally and I believe it is in its final gasps to surge one last time before exhaustion settles in. I have been wrong before and I might be wrong again here but I am telling you I believe we are all in for a rude awakening when this market starts to drop to levels which scare people again. It is coming and each day the market rises, we are one step closer.

The chart below is a daily chart I have kept on the Dow/Gold ratio for all of 2010 and the first few days of 2011. I plan to continue to keep this data base going and from time to time I will post them here. Remember the other significant point I call your attention to is the Sell Signal the Put to Call ratio flashed in the first hour of trading 2 days ago when it had a 0.37 reading. We are just so overbought it is pathetic.

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