The Dow currently trades 13% below its all-time record high. For some further perspective into how the stock market is actually performing, 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 12.9 ounces of gold to “buy the Dow.” This is considerably less that the 44.8 ounces back in the year 1999. When priced in that other world currency (gold), the Dow is in the midst of a massive eight year bear market!

Historically, a full cyclical bull run in gold (we are in one now, it started in 2000) is usually topped out  when the DOW/Gold ratio hits parity, or very close to it. In other words, the time to sell gold is either:

a) When the price of the dow comes down to match the price of an ounce of gold
b) The price of gold rises to meet the DOW
c) A combination of the two (most likely scenario).

For those thinking we are topped out in gold, we have a lot farther to run yet.

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This entry was posted on Tuesday, February 26th, 2008 at 10:00 am and is filed under 1 - Gold, 3 - Understanding The Economy, Charts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.