Here's the big picture view of the Dow/Gold ratio.
Here I speculate that the Dow/Gold ratio is going to repeat a similar trend as seen in 1977-1980 where after a bounce the Dow/Gold ratio then fell from 10:1 down almost to a Dow/Gold ratio of 1:1
Here's a short term view showing the next possible leg down.
Here's a close up view where you can see the prices for the Dow and Gold back in the 1970's.
From 1971 when stocks were high and gold was low the Dow/Gold ratio fell from 24:1 down to 3:1
Then in 1975-1976 the Dow/Gold ratio rebounded back up to almost 10:1 were again the stocks were high and gold was low.
Then came the final run down to the lows in the Dow/Gold ratio in 1980 where they almost met at 1:1
Here's the current picture in the Dow/Gold ratio.
In 2000 stocks were again high with gold low and the Dow/Gold ratio went from a high of 45:1 down to a low of almost 5:1
Then in 2011 with stocks low and gold high the Dow/Gold ratio rebounded from a low of 5:1 back up to 15:1 which is where we now stand.
So we are similarly placed as to in 1977 with stocks high and gold low and the new trend soon to emerge.
Here you can see the price percentage that gold fell during both of these rebounds in the Dow/Gold ratio :
- In 1975-1976 gold fell approx 45%
- In 2011-2014 gold fell approx 40%
This chart shows the global sentiment on sharemarkets with the top 10 sharemarkets in a composite index.
Here it shows that we are potentially at a top (or soon to be).
Be it that we are now seeing a top in stocks and a low in gold then I postulate that the Dow/Gold ratio now has the potential to run down to new lows in a similar fashion to 1977-1980.
We potentially are seeing the highs in stocks and lows in gold with the potential for money to move from one sector into the other.
Potential exists for the Dow/Gold ratio to fall down to the 2:1 region or lower.
The following potential price for gold on attaining a Dow/Gold ratio of 2:1 are:
If the Dow declines 20% to 14,400 then gold would be at $7,200
If the Dow declines 50% to 9,000 then gold would be at $4,500
If the Dow declines 80% to 3,600 then gold would be at $1,800
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The information contained in this article is for information purposes only and does not constitute investment advice or a recommendation to buy or sell.
