That tells us about the “when”, but it does not tell us about the “how far”. The bottoms for this ratio in the 1930s and 1940s were down below 3.0, and it got all the way down to 1.3 at the low in January 1980 (based on monthly closes). If the DJIA were to stay around 12,000 for the next few years, then a ratio of 2-3 would mean gold at around $4000 to $6000 an ounce. Or the ratio could get down below 3 by having gold stay where it is, and the DJIA get cut in half, or some other combination of movements. That’s how the math works.
It is risky to forecast both the timing and the price for the end of a trend, so I’ll refrain from endorsing those numbers. I just offer them as food for thought. Nothing mandates that this ratio reach any particular level.
The more important conclusion to take from this is that the decline in this ratio does not seem to be done, and is not due to be done for a little while longer. But the end to this decline in the DJIA/gold ratio is going to come someday, probably when the Fed decides to wake up and start fighting inflation again via higher interest rates . That does not appear to be on their agenda any time soon.
No comments:
Post a Comment