Dow Gold ratio hits a new 1 1/2 year low

As an added feature today, I have noted that the Dow/Gold ratio hit a new low yesterday of 7.8 and it looks like it is not yet as low as it is going. First an explanation of the Dow/Gold ratio for those unfamiliar with it.

In very simple words, the Dow-Gold ratio tell investors how many ounces of gold is needed to buy one Dow Jones Industrial Index.

If we consider today's index value and gold prices then:

Dow-Gold Ratio = Value of Dow Jones / Value of Gold in Ounce = 12,089 / 1549 = 7.8

So, if the Dow-Gold ratio were to touch one, either gold will go ballistic in the long term or the Dow Jones Index will crash very significantly.

The first chart below is of the Dow/Gold ratio for all of 2010 and 2011 as of the close of the market yesterday.

The second chart shows the Dow/Gold ratio every year since 1980 taken on Jan. 31st. The last data point on the chart is for yesterday's close of a 7.8 reading.

This 3rd chart below is and commentary is from an article written by Faisal Humayun and Seeking Alpha on June 7th 2009:

This from Seeking Alpha:

"Below is my opinion (Faisal Humayun) on why I feel that Dow-Gold ratio will touch one and why I also feel that it will be gold that will go ballistic in the long term leading to this ratio touching one.

Before I proceed, I would like to present a 200 year Dow-Gold chart for readers. This will give a clear idea as to how this ratio has moved historically.

What is interesting is that the stock markets have gone up post 2003 till late 2007. But during this period, the Dow-Gold ratio has gone down. This means that the stock markets have gone up only in nominal terms. In terms of real money or other hard assets the US stock market has been on a decline since 2000 as indicated by the Dow/Gold ratio."

To read the entire article on Seeking Alpha, click here, it's worth the read.

The Stock Market, The Fed, Gold and the US Dollar: Are we really wealthier or is it an illusion?

The stock market hit a 3 year high yesterday and the big question for all investors is where do we go from here. Interest rates this week dropped most dramatically for 3 year Government Bonds, from 1.12% to 0.99%, raising yields for these instruments. The chart below shows this week's move. The actual percent change for these various instruments showed the 3 month yields changing 20% from 0.05% to 0.04%, followed by a 6 month move from 0.11% to 0.09%, as the Table below shows.


Volume yesterday was incredibly high for the Dow at over 325 Million shares traded. The spike up in Volume is very noticeable also on the charts as is shown below. Was this a blowout and capitulation? I think not. This market still has some legs left. And while you may be comforted by the move to a 3 year high in the stock market, don't be. Gold has continued to rise closing also at an all time high of $1563. As you can see from the charts below that Gold prices continue to climb and the all important Dow/Gold ratio continues to drop. You see while the move in the market may make you feel wealthier, your purchasing power has been simultaneously dropping as well. One could argue successfully that the inflated price of Gold have taken all your wealth away. Did you know that?

Buy a house today with Gold and let me know how many ounces it takes, compared to what you needed just 3 years ago. In the year 2000, The Dow was at 10,787 while Gold was at $237/ounce. Today the Dow is at 12,800 and Gold is at $1563/ounce. So the Dow gained 18.7% in those 11 years and Gold gained 544% over the same period. (Source: Wikipedia)


Here's a look at the almighty US Dollar's value over about the past 25 years in the chart below. You still feel wealthier with the stock market advance? I don't think so! Ponder these charts and your government's complicity in this. We need politicians that can't be bought by Wall Street and we don't need the Fed! They have messed up this country the past 25 years or so starting with the Reagan Presidency. Ever since then it has been down hill financially. It has been nothing but gimmicks and smoke and mirrors with the people's money. Tax rates before Reagan were 90% for the wealthy and the country was fine! Oh for the good old days! Here's the chart on the US Dollar.

Has the stock market really gone up? A look at the Dow Gold ratio

I have updated my recent charts on the price of Gold and also the Dow/Gold ratio and I find it quite revealing in light of the bullishness of those in the stock market and investor sentiment numbers being at near record highs. As you can see from the chart of the price of Gold, we have set a new record high this week. Of course that is the price of Gold in US dollar currency. The Dow/Gold ratio from the other chart shows that the trend continues to go down. Many investors in the stock market have felt very good at the gains they have made in the past year or so. You see since January 1st, 2010 to March 23, 2011 the Dow has gained about 13.9%. On the surface, that would appear to be a fabulous year, wouldn't it, that is unless you compare it to the price of Gold. Gold has risen in the same period over 33%. Now that is a big gain. So if you consider Gold a standard to measure your progress financially in real assets, you have lost significant ground based upon this data. Still feel good?


This all happening with the help of a Fed whose job has been to try and help the recovery using another round of Quantitative Easing (QE2), or as many like to call it, printing money out of thin air. The consequence of this is that in order to purchase a 1 ounce gold bar a year ago you would have needed 39% less dollars than today. Taking the same analogy consider for a moment the real value of Real Estate on a Gold basis if you really want to be depressed. We all know housing prices have dropped significantly around the country and many consider the absolute value in dollars as their yardstick. But it you consider that while housing prices have dropped about 10% over the past year in dollar terms, the value of properties, as measured in ounces of Gold, those houses have really dropped in value and the numbers are staggering. That's what's happening to our Country. You can buy US assets in Gold or Oil today at far cheaper prices than what we mentally think is their true worth. Depressing, to say the least. Of course if you have a lot of Gold, or Oil, you can buy much of America today for a bargain. But who would want it? Below is a chart of Housing Prices in terms of ounces of Gold to purchase a home.

Market comments for March 3rd, 2011

Europe has been up in their markets this morning in advance of our Initial Jobless Claims numbers which were released at 5:30am PST. Expectations were for 400K and the Prior period data from last week was 391K. Today's number cam in at 368K Continuous Claims, which under-reports those who remain without work but not those who have either given up hope or are under-employed using part time work to survive, came in at 3.77 Million Claims. Q4 Productivity came in at 2.6%. This shows workers continuing to be extremely productive and thus removing the necessity for employers to have to hire more workers. Unit Labor costs were down 0.6% for Q4, which could mean that companies made more profits at the expense of workers.

I have attached 2 charts this morning of the Dow. One is the latest 3 month chart which shows we are forming a short Head and Shoulders pattern. The pattern would indicate a leg up is due today. On the 1 year chart I have drawn 3 red lines showing the various bands of support visible. If we penetrate the lower red line, it will mean we are on our way down in the market and the downtrend is convincing. My guess, based upon a Dow Gold ratio of 8.5 would mean that the Dow would rise today to 12,104, about a 38-50 point gain today, because Gold is down today to $1424/ounce. We shall see.

Market comments for March 1st, 2011

The stock market closed up yesterday so many feel we are returning to new highs. It isn't going to happen! In every market drop there are a series of jagged patterns which make one think the market is rising. However you will notice that each move up is a little lower than the previous high and eventually a lower low is formed. I believe we are currently in that pattern. So I predict that we will not return to the previous high but will be going below the most recent low within a week or two as the market continues its decline.

The economic news yesterday was nothing to excite people, but the Fed was most likely behind the rise. Personal Spending was down for January, Also, Pending Home Sales for December were down.

One chart of the Dow for a 3 month period is being posted today. It shows the recent drop and the latest climb the past few days. I expect that the Dow will not return to 12,400 but will instead go below 12,000 in the next week or two, as it begins its expected steady decline.

A Friend and I were looking at the Dow/Gold ratio chart below yesterday, which covers from 1980 to Jan. 31st, 2011. He believes we will return as low a ratio as 1.1 as we were back in 1980. Certainly form the trend starting in 2000, we have continued to decline to a ratio of 8.5-9.0 most recently from a very high ratio. The red dot on this chart is where the ratio was, as of Friday's market close, so we continue to drop in this ratio.

Now yesterday I was asked a question about the reverse split of TZA and what I thought about it. Well truthfully, not much, as as the questioner had pointed out, the value of the ETF remains the same in a reverse split. But it can have a psychological impact on some because they think that the ETF must rise so much more than it did before the split, for them to break even or make a profit from where their average purchase price was. Yes it does have to move up more $ dollars now than before the split, but percentage wise it is exactly the same. So again, I don't worry about it at all.

Here's where Gold prices are going!

People are getting a bit nervous as they see Gold prices retreating. Today they hit another recent low down to $1319 as the rioting in Egypt continue. However this drop in Gold started back at thew beginning of January as is shown on the chart I have added below. You will also see the red line I have drawn on the chart which shows how low we are going to go in the near future.

As you can see the short term plateau is around $1275. What happens from there is anyone's guess.
The Dow Gold ratio will close even higher today and is already at 9.1 if the Dow closes at 12,000. Right now the Dow is down 44 to 11,945, so I am being conservative in my estimate.

But there is a synchronicity happening here and coincidently with the stock markets hitting their peaks. That is why I have said that Gold prices are the canary in the mine for the stock market. I know I am contrarian to most all market commentators. Time will tell who was correct in their outlook.

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.

Dow Gold ratio for all of 2010

I decided to put up this morning a chart of the Daily Dow Gold ratio for al of 2010 to the close on Friday, Dec. 17th. As you can see from the chart below, this ratio hit a new 2 month high of 8.5, which was last reached on Oct. 27th. This may be approaching a breakout to the upside. What this means is that precious metals are in for more of a correction and this could mark the beginning of the drop in the Dow as well.


Merry Christmas to everyone visiting my site. I hope to make some changes in 2011 and possibly add video clips of my comments about the market and political commentary as well. Stay well.

Dow Gold ratio: 2 charts show different perspectives on where we are today.

I get Chart of the Day every Friday and, once in a while, I post it. Today's posting by them was on the Dow/Gold ratio, which they show as far back as 1999. I then took my own chart which goes back to 1980 and updated it using a comparable Log scale. So here's what Chart of the Day says: Today's chart presents the Dow divided by the price of one ounce of gold. This results in what is referred to as the Dow / gold ratio or the cost of the Dow in ounces of gold. For example, it currently takes a mere eight ounces of gold to "buy the Dow." This is considerably less (82% less) than the 44.8 ounces it took to buy the Dow back in 1999. While the actual Dow continues to make new post-financial crisis rally highs, the most recent rally that occurred in the Dow priced in gold is fairly similar to several bear market rallies that have occurred since late 1999. It is also of interest that the Dow / gold has often tested (and is currently testing) resistance (red line) of its accelerated downtrend but has failed to break through on each occasion.


As you can see from this second chart below, which goes back to 1980, we may be in for a continued drop in this ratio, I don't believe the chart from the Chart of the day folks gives a true picture of where we are historically, as does this longer period chart below.

G-20 meeting: Effect on markets, Gold and currencies

As most of you know, the past few days has seen the G-20 meeting convene of Finance Ministers and their pronouncements that they would pledge to avoid weakening their currencies to boost exports and to let markets increasingly set foreign-exchange values.. Hopefully that means of the U.S. Dollar as well, as we seem to be on a tare to drop the value of the dollar, as fast as we can. In advance of any stock market trading this week, I thought a few charts were in order. I noticed that the on the last 3 trading days in anticipation of this meeting, there has been a slight shift upward on the ratio of the Dow/Gold ratio, as is seen in the chart below. Whether this is a reversal in trend or not is too early to say, but I will be watching it closely next week.

Now see if you can tell what has caused this movement up. Is it because the Dow has moved up or because Gold has dropped? This is important because Gold is tied to all currency valuations and is reported here in terms of U.S. Dollars. Below are the 2 charts in question.


You know there has been a lot of pressure put on China to raise the value of its currency, the Yuan, as they have kept their currency relatively low for many years. It has risen less than 2% in the past year, while Japans currency, the Yen, has been forcefully dropped by the Japanese recently as a counter to the dollar dropping. You can see from the chart below how the value of the Yen has been rising against the U.S. Dollar going back many years.

So let's assume you have a constant currency value as is the case of China and an ever steady Yuan, in this equation where currency is in the numerator and the price of Gold in the denominator, you can see that the resulting ratio goes lower and lower.

It is difficult to compete with people who get paid less than a dollar a day. Most of the world is finding out just how difficult it is. And yet, we all knew this much before the economies of the world went Global. Remember we too had someone, Ross Perot, who warned us of the giant sucking sound of jobs leaving the U.S. but the business leaders in this country thought somehow they could sell more goods in these foreign lands or at least get cheap labor to build their products here, rather than hire U.S. workers. That began the end of the Middle Class in America. We are all now suffering as citizens because of this folly. Business people do not have real concern for the common person. Their concern is totally based on Profits. That is why the Healthcare system in this country is so messed up save but a few Not for Profit endeavors which struggle every day to survive.

It's time for a reality check. Are you holding your own or going backwards? Surprising data

So you think you have made money in the market from July 6th when the Dow was only 9,743 points to now? Think again! Here's why you haven't made what you think you have. Oh, sure the Dow closed Friday at 10,607 and shares you owned have similarly gone up the 864 points or +8.88%, but have your asset really gained this amount when you consider the following. If you used the same amount of real money to buy Gold instead, Gold was $1195/ounce on July 6th and yesterday it closed at $1274/ounce for a net gain of 6.61%.

The first chart below shows the Dow from July 6th to yesterday's close.

I have labeled this the Illusion Factor because it is all an illusion.

Now the chart below shows the variation of the Dow/Gold ratio from July 6th to the close of the market yesterday. Notice that the ratio on July 6th was 8.2 and the ratio at the close of business yesterday was 8.3, so the real gain did not happen. It is an illusion aimed at having investors believe their net worth rose almost 9% over the period when their actual purchasing power remained the same, but you feel better now, don't you?

You see the reason one can make this comparison is that both stock and Gold values are in U.S. Dollar Currency. So the fact is, the currency devalued assuming Gold is the defacto World standard. In order for the Dow/Gold ratio to impact the psychology of the American people to wake up, the Dow should have dropped or stayed exactly where it was back on July 6th, at 9743 give or take a few points. So if the market drops and Gold stays about where it is, you will get a better sense of really where we are, not in a good place.

By the way, Oil was selling for $71/barrel back on July 6th and yesterday it closed at $74.70/barrel, for a gain of 5.2%. Still think you made 8.9% gain? And think about this, on Jan. 4th, the Dow closed at 10,583 and Gold was at $1121.50/ounce. The Dow Gold ratio then was 9.4, so we have been dropping consistently in net asset value for the whole year.

Now comes the real eye opener. Below is a chart I have put together of the Dow/Gold ratio from 1980 to now. You will notice that we have been in a steady decline of that ratio since the Dot.Com bubble burst. If you have been feeling poorer, you are, and so am I. Today's Dow to Gold ratio is equivalent to the 1991 to 1992 time period. If you live in a home that you owned back then ask yourself the question, how much did you pay for your house then and what do you think it is worth now? The difference is an illusion. In real value it is worth the same purchasing power. Scary isn't it to feel like you are going backwards. Now you know why I am writing this. We have been going backwards since about 2000 to 2001. That's all of President Bush's years as President and one and a half year of President Obama's. The only good thing I can get from this chart is that it looks like we are flattening out on the curve. But it still may drop down from here. One other possibility is that the Dow could have the major correction many of us have expected and get Gold to track and come down as well.

Market commentary for Aug. 20th

First, let's take a look at the market action yesterday. Both the Dow & S&P 500 hasn't closed at this low a level since July 21st. The volume on the selloff today was the highest for the week. We closed below the 50 day Moving Average (MA) on both Indexes today and remain below the 200 day MA as well. The Dow closed today at 10,271. The next test will be at 10,100 on the Dow, as there is some support there. For the S&P 500 support is at 1065, which is not far from the 1075 close today. We remain between the bands drawn a few days ago on the Dow and S&P and are still in a tight range. There is no important data to be released Friday. It is August Options Expiration day.

I have included a chart today of the Put to Call ratio for 2010. I have included this chart before and it might be worthwhile to go back and read my comments on July 26th about 2009 and 2010 data by clicking here.
You will notice that the ratio was in a tight range recently after dropping from a wider range before that. In the last 8 days, the Put to Call Ratio has been above 1.00 in 6 out of the past 8 days. It may be shifting again to the previous period when the range went much higher and the lows were mostly higher.

The VIX closed up over its 50 day MA for the first time since the beginning of July. It is too early to make any predictions so more time needs to play out but both of these indicators are worth watching on a daily basis for a while.


Now many think that the stock market has been up except for the past few days and the highs a week ago. I would like to dispel that notion right now. as it is all smoke and mirrors. If you look at the Dow chart above, it looks like only a few days have we been dropping. But then look at the Dow Gold ratio chart for exactly the same period and you will have a different perspective. In real terms the stock market has been losing real value for a while now.

I want to send a thanks out to Vic for his kind words and comment yesterday. Thanks Vic.