Gold News

Dow/Gold Ratio Jumps Back to 2008

Still waiting on that 1-to-1 ratio of the Dow Jones Industrial to the gold price...?
 
ONE is a lump of metal, useless for pretty much anything besides storing value, and doing a pretty poor job of doing that as 2014 approaches, notes Adrian Ash at BullionVault.
 
The other is a random-seeming collection of US equity prices, run through a more random-yet calculation to produce a stockmarket average little connected to the US economy today but still widely cited as if it matters.
 
Yet the Dow/Gold Ratio still pulls our attention. And here it is, jumping to the highest level since before Lehman Brothers collapsed in 2008. Because the Dow is hitting new record highs. While gold prices are slumping.
Again, the inputs here matter less than the broad sweep of history their output suggests. In terms of productive business assets, a lump of gold grew 17 times more valuable as deflation washed the Great Depression onto US shores. It gained more value still more quickly as inflation hit in the 1970s, rising 28 times over by the spike of 1980.
 
And since the Tech Bubble peak in US stocks topped at the turn of this millennium, gold bullion has become more valuable once again. Only this time, the unproductive lump's rise in business-value stalled at 7-fold over the decade to Sept. 2011. Gold has since retreated, with stocks up, useless bullion down.
 
That one-to-one ratio of Dow/Gold remains a bargain-hunter's dream of business investment. With the Dow breaking new ground, this pullback in gold's value might yet offer a neat entry point.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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