Weekly Market Update by Retirement Lifestyle Advocates

          If you’ve been a long-term reader or a long-time listener to the radio program, you may recall me talking about the Dow to Gold ratio.

          Each week in my “Portfolio Watch” newsletter, I quote the Dow to Gold ratio.  As noted in the newsletter, I have long believed that to get an accurate measure of the true value of stocks; one should look at stocks measured in something other than the US Dollar.

          The current value of the Dow to Gold ratio is 16.16.  If one takes the value of the Dow which is 39,497 and divides that value by the price of gold per ounce, currently $2,445, you get about 16.16.

          In other words, it takes 16 ounces of gold to buy the Dow.

          The first analyst to introduce me to the Dow to Gold ratio was Mr. Ian Gordon who did a lot of work with the indicator.  It is something that I now track weekly, although the value of the Dow to Gold ration doesn’t dramatically change week-to-week.

          David Skarica, also a past guest on RLA Radio, recently wrote a piece that echoes how I view the Dow to Gold ratio.  Here is a bit from the piece (Source:  https://dollarcollapse.com/dave-skarica-dow-to-gold-ratio-when-will-they-meet/):

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 being 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!!

          Skarica then posts a chart of the Dow Jones Industrial Average priced in US Dollars and gold priced in US Dollars with a chart of the Dow priced in gold.  The Dow priced in gold simply gives the ratio of how many ounces of gold it takes to equal or to buy the Dow.

            Here is that chart:

          Note that the Dow to Gold ratio reached 1 in 1980, as David suggests in his piece.

          I agree with David.

          Based on the research that I’ve done and the economists that I’ve interviewed, I expect that we’ll see a Dow to Gold ratio of one.

          Mr. Skarica published a chart of the Dow to Gold ratio going back to 1971.  I’m publishing a chart here taken from macrotrends.net of the same ratio going back to 1915, shortly after the Federal Reserve was formed.

Notice from this chart that there is a series of higher highs and a series of lower lows.  I’ve drawn trendlines on the chart for reference.

          Based on these trend lines that go back about 100 years, it’s not unreasonable to expect the ratio to go lower than one.

          Skarica makes a great point.  Where the Dow is and where the price of gold is nominally, priced in US Dollars, no one knows. 

          It likely depends on the future action of the Federal Reserve.  But, it’s also reasonable to assume that gold will higher when priced in US Dollars.  If you’re a long-term investor, it pays to keep that in mind.

          This week’s RLA radio program features an interview that I did with Mr. Michael Pento, the host of the “Mid-Week Reality Check Podcast.”

          The radio program is available now by clicking on the "Podcast" tab above. The weekly Headline Roundup newscast is also posted there.  If you haven’t yet done so, check out the free resources available on the website.

“A politician promising not to raise your taxes is like a vampire promising to become a vegetarian.”         -Pierre Poilievre