Going out on a Monday night is tough to do. But when Alphatrends comes into town, you have to make an exception. Dr. Phil Pearlman and I were walking down 6th Avenue on the way to dinner, and of course, we’re talking about the recent price action in Gold. These are the types of conversations we have. And this is just before we were literally yelling at each other about Warren Buffett and Paul Tudor Jones’ investment strategies. It’s funny to think about the things that get us all worked up.
Anyway, one thing that wasn’t brought up at dinner is the Dow/Gold ratio. We talk about this a lot here on the site, but I haven’t posted an updated chart for a while. First a little background history:
Since the turn of the century, the Dow to Gold ratio has done nothing but go down. From its peak 10 years ago, around 42:1, it has consistently declined down to its current level just under 7:1. Historically, this ratio does not bottom out until it reaches 2:1 or 1:1 as it did in 1980 when the Dow Jones Industrial Average and Gold were roughly the same price – about $800.
Here is the updated chart:
Since early August, this ratio has been working off its oversold conditions (circled in blue). But with a declining 200-day moving average and a “brick-wall” of resistance near 8:1, I think that any rally here needs to be sold. The 10-year downtrend, I believe, is still in place and the bears here get the benefit of the doubt.
Gold prices on an absolute basis look very strong, but I think that this ratio tells a more powerful story. I’ll try to update this chart a little bit more frequently going forward because as I told Joe Weisenthal (@thestalwart) a couple of weeks ago – I believe that this is the most important chart in the world.
Tags: $GLD $GC_F $DJIA $DIA