Revisiting the DOW to Gold Ratio – What’s Next?

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by Gary Christenson, Miles Franklin:

President Roosevelt made owning gold for American citizens, with minor exceptions, illegal in 1933. See Executive Order # 6102. Begin the DOW to gold ratio analysis in 1933.

Many people have discussed the Dow to gold ratio. It fell from over 40 in the year 2000 when the DOW (11,750) was expensive, and gold sold for less than $300. In those days paper assets (DOW, bonds, S&P500 stocks) looked like they would rise forever.

Everything changes.

By 2011 the DOW (12,800) had fallen 10% from its 2007 high and gold peaked at an all-time high over $1,900. The ratio dropped to about 7.

The ratio rises and falls in long waves.

1933                   Low at 3

1965                   High at 27

1980                   Low under 2

2000                   High over 40

2011                   Low at 7

2029?                 Low at 3 or High at 30?

If your savings and retirement are based on stocks or gold, whether the ratio rises or falls is important.

BASED ON NEARLY A CENTURY OF EVIDENCE, WE KNOW:

  1. The dollar and fiat currencies devalue every year as central bankers and commercial bankers create new currency units and inject them into the economy. Many more dollars chase a small increase in goods and propel prices higher. Examine the Chapwood Index.
  2. Currency devaluation and consumer price increases will continue—they are “baked into the cake” of our debt-based monetary system.
  3. Global central banks have created (from nothing) over $20 trillion in new currency units. Much of this new paper “wealth” went to the upper 1%. Wealth and income disparity are at all-time highs.
  4. This “gravy train” for bankers and politicians will roll down the tracks until it’s derailed.
  5. Expect higher prices for beer, payoffs, union dues, traffic tickets, textbooks, prescription drugs and hundreds of other items. Stock prices will correct, rise again, correct and …

WHAT WILL HAPPEN DURING THE NEXT DECADE TO THE DOW/GOLD RATIO?

Will the ratio rise because gold prices languish while the DOW streaks to 50,000 as the elite would prefer?

Will the ratio fall as stocks and bonds implode when the “everything bubble” collapses? Capital will move to something safe—like gold—universally appreciated, with limited availability, and historically a store of value. Best of all, gold and silver have no counter-party risk from dodgy debt, devalued currencies, negative interest rates, corrupt politicians, bankruptcies, and phony promises.

Central bankers and commercial bankers create currency units by the trillions, but gold is difficult to locate and mine. Central bankers and politicians prefer digital currency units under their control rather than the discipline of gold. Perhaps they can “stimulate” the digital currency system for several more decades. But people might panic out of overpriced stocks, bonds and leveraged real estate and demand something real, proven, and valuable.

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