Written by Dave Skarica, Dollarcollapse.com’s Gold Prodigy:
One of the oldest and longest term ratios when it comes to Gold is the Dow to Gold Ratio. This ratio simply states that when it takes roughly only 1 ounce of gold to buy the Dow Jones Industrial Average it is time to buy Stocks and Sell Gold. This extreme has only been hit two times in history. Once in 1980 and the other time in 1932. Both times end up been generational lows for stocks. The DOw bottomed at under 40 in 1932 and rose to 1000 by 1966 a gain of 25 fold (gold was frozen at 35 dollars an ounce during that period) and the Dow rallied from 800 to nearly 40,000 in the 40 plus years that followed the 1980 bottom.
I have enclosed a 54 year chart of this ratio which shows this ratio going back to 1970. As we can see in the 1970s gold vs the dow was on a decade long bull market which saw the ratio go from nearly 25 times gold to 1 to 1 in 1980. As gold soared from $35 to over $800 an ounce and the dow fell in price.
Then in the early 1980s stocks started a nearly 20 year bull run against gold with the Dow trading at 45 times gold during the peak of the dotcom bubble in 2000! Then we began another decade long outperformance for gold as the dow fell to 6 times the value of gold as gold rose from $250 an ounce in 2001 to nearly $1900 in 2011 while the Dow again fell during that time period.
From 2011 to 2018 we saw the Dow again outperform gold as gold fell to as low as $1050 during this time period and the Dow rose to over 25,000 the ratio went to about 22 to 1 at this intermediate term high. Slowly since 2018 Gold has outperformed the Dow as it is up over 1000 percent from its 2018 lows whereas the Dow is up about 50 percent.
The way I view this is I believe 2000 was the start of a multi decade outperformance of Gold Versus the Dow 2011 to 2018 was a 7 year consolidation (these are extremely long term cycles we are talking about). Gold has slowly outperformed since 2018 and I feel the ratio will ultimately hit one to one again.
The question is where will they meet? If we have hyperinflation maybe they meet at a million! If deflation maybe at 10,000. I think the truth will be in the middle. I see a stagflationary environment where the Dow may do nothing for another decade and Gold will rocket so maybe they meet in the 20,000 to 40,000 area. Whatever the case if we continue the super cycle in this ratio I expect gold to trade higher while the Dow lags it. Finally, what is interesting about this super long term cycle is that since 1970 gold has actually outperformed the Dow returning 6,800 percent to the Dow’s 5,400 percent during that time period!!
