I’ll bite since you asked. Short answer is no. I can’t trade the Dow/Gold ratio, so it doesn’t do much for me.
Long answer, still no. It tells me nothing about where the Dow or gold is going or where to get out if I am wrong. Both could go up, both could go down, one could go up and the other could go down, for weeks or months if not years.
As you can tell, I put very little (zero) importance on ratio charts.
I think it’s important to a certain extent. The idea of this ratio reverting back to the 1 range is what got me interested in gold initially. After going to an extreme high in 2000 I fully expect it to get close to 1 once again and possibly even drop below it. No matter how you slice it, this is great news for gold and terrible news for stocks.
Very interesting detail Bikoo99…..if the ratio will go below 1, where gold and the dow will be in a period from 3 to 5 years from now??
And the answer should include not only financial factors but also political,social and economic factors.
Dow/gold below 1 makes me a little scared since gold (and oil) are the termometer of the world.
I am 100% confident there will be a resumption of the gold bull market. I just don’t think the ratio chart will tell me when that resumption is likely to happen with any degree of precision or confidence.
I personally do not trade gold, but I do trade GDX/GDXJ which I believe is just a leveraged play on the price of gold. I am currently long since that is what my trend following system dictates. I have no idea if this is the real deal or not and will bail quickly if the system says to.
Fundamentally the answer is probably yes. Anyway, you can trade short one and long the other to trade the ratio so you can trade it really.
I think it looks better as a log chart because the variation is about a factor of 4 over the long term. It is also interesting to look at the equivalent figures for the 1800s on http://www.sharelynx.net for a two century chart. I don’t know how he got those figures because I thought the Dow started in 1896.
Anyway, the pattern changed in the 1920s and has got wilder and wilder. This to me represents uncertainty in market pricing across the board. In other words it is becoming impossible to know the price or value of anything because of manipulation of the money markets by the State institutions. In the end, all markets will probably collapse.
It’s a giant megaphone pattern. Never mind the jaws of death on the Dow Jones in the past 20 odd years. This is the big one.
Quoting from my blog post; I think I still feel this is true:
The wild oscillation of the Dow:Gold ratio from 1:1 in 1980 to 43:1 in 2000 is a change by a factor of above 40! This means that, in a fiat money system, the value of one asset is not knowable in terms of another asset within a factor of 40! This is outrageous in a so-called ‘stable’ economy and is proof positive that the economy is not stable. I think that this huge volatility is a key factor that has been ignored. …
In fact at the time of highest consumer price inflation during the 1970s, the Dow:Gold ratio was falling fast. The previous fall in the 1930s was during a deflation (with the 1933-34 inflationary policy of dollar devaluation accompanying it)! In both cases, stocks fell massively with respect to gold.
I’ll bite since you asked. Short answer is no. I can’t trade the Dow/Gold ratio, so it doesn’t do much for me.
Long answer, still no. It tells me nothing about where the Dow or gold is going or where to get out if I am wrong. Both could go up, both could go down, one could go up and the other could go down, for weeks or months if not years.
As you can tell, I put very little (zero) importance on ratio charts.
Yours is a trader’s bite 🙂 But maybe is important to understand if there could be a resumption of the gold bull market.
I think it’s important to a certain extent. The idea of this ratio reverting back to the 1 range is what got me interested in gold initially. After going to an extreme high in 2000 I fully expect it to get close to 1 once again and possibly even drop below it. No matter how you slice it, this is great news for gold and terrible news for stocks.
If you connect the bottom at 1.99 and 1.09 the ratio is going down below 1.
But it is not a predictive ratio like Silver to gold ratio.
Very interesting detail Bikoo99…..if the ratio will go below 1, where gold and the dow will be in a period from 3 to 5 years from now??
And the answer should include not only financial factors but also political,social and economic factors.
Dow/gold below 1 makes me a little scared since gold (and oil) are the termometer of the world.
“I can’t trade the Dow/Gold ratio”
Actually, for a while there you could and in leveraged fashion via FSG. As a double gold long and double SPX short.
http://www.etftrends.com/2011/09/long-goldshort-stocks-etf-drops-12/
Factor shares had a whole suite of these ratio trade ETFs.
I am 100% confident there will be a resumption of the gold bull market. I just don’t think the ratio chart will tell me when that resumption is likely to happen with any degree of precision or confidence.
Welcome to the Discussion Traderscott
Do you have a feeling for this juncture
False Breakout or the real deal ?
I personally do not trade gold, but I do trade GDX/GDXJ which I believe is just a leveraged play on the price of gold. I am currently long since that is what my trend following system dictates. I have no idea if this is the real deal or not and will bail quickly if the system says to.
Fundamentally the answer is probably yes. Anyway, you can trade short one and long the other to trade the ratio so you can trade it really.
I think it looks better as a log chart because the variation is about a factor of 4 over the long term. It is also interesting to look at the equivalent figures for the 1800s on http://www.sharelynx.net for a two century chart. I don’t know how he got those figures because I thought the Dow started in 1896.
Anyway, the pattern changed in the 1920s and has got wilder and wilder. This to me represents uncertainty in market pricing across the board. In other words it is becoming impossible to know the price or value of anything because of manipulation of the money markets by the State institutions. In the end, all markets will probably collapse.
It’s a giant megaphone pattern. Never mind the jaws of death on the Dow Jones in the past 20 odd years. This is the big one.
http://1000gold.blogspot.co.uk/2008/06/mega-move-from-dowgold-megaphone-2008.html
I meant the variation is a factor of 40.
Quoting from my blog post; I think I still feel this is true:
The wild oscillation of the Dow:Gold ratio from 1:1 in 1980 to 43:1 in 2000 is a change by a factor of above 40! This means that, in a fiat money system, the value of one asset is not knowable in terms of another asset within a factor of 40! This is outrageous in a so-called ‘stable’ economy and is proof positive that the economy is not stable. I think that this huge volatility is a key factor that has been ignored. …
In fact at the time of highest consumer price inflation during the 1970s, the Dow:Gold ratio was falling fast. The previous fall in the 1930s was during a deflation (with the 1933-34 inflationary policy of dollar devaluation accompanying it)! In both cases, stocks fell massively with respect to gold.
Here:
http://1000gold.blogspot.co.uk/2008/06/megaphone-top-in-dowgold-ratio-2008-06.html
http://1000gold.blogspot.co.uk/2008/04/chart-hints-at-financial-disintegration.html