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Update Dow/Gold Ratio: Drop It Like It’s Hot!
About a month ago, we reviewed the situation of stocks versus gold by analyzing the Dow/Gold ratio.
We concluded:
Gold rising further from current levels is possible,
but history clearly shows the yellow metal suffers summer doldrums,
which in the current stage of the secular bull market usually means
sideward price action for the coming months.
A sharp decline for stocks seems more obvious, as investors await
more stimulus from the Fed, but probably won’t get their new dose of QE
immediately, which could lead to a sharp correction.
Furthermore, stock valuations are ballooned, pimped by unusual high profits and extreme margins!
With the steep rise of input costs, due to explosive commodity
prices over the recent months, investors could get very disappointed if
their high expectations aren’t met.
These are just a few risks which could trigger a stock market selloff…
Today, we are in the midst of an accelerating stock market decline,
with the most important indices dropping below their technical support
lines. The S&P 500 sank below its crucial 1300-level, while the Dow
Jones is nearing in on 12,000 points.
On the other side, gold is going strong, still trading around $1,550/ounce!
This mix – collapsing stocks and strength in gold – translates into a
Dow/Gold ratio falling through the floor as we speak. The floor being
7.9x in the Dow/Gold chart.
Our analysis was looking for a Death Cross formation, which would
trigger the next leg down for the ratio. Meanwhile, we have entered the
crash-territory and are now on our way towards the 7x-level for the
Dow/Gold.
We still expect that the ratio will drop even further this time, towards 6x or even lower.
The forcefulness of gold is quite astonishing, trading near its
all-time high during these shaky market circumstances. To us, this is a
sign of further strength for the yellow metal in the near future, which
indicates even higher gold prices than we had anticipated.
The second half of 2011 could spark fireworks within the precious
metals arena. We could see the Dow Jones sink further towards 10,000 or
below, with a Dow/Gold ratio plummeting, we wouldn’t be surprised to see
the price of gold zoom towards $1,800/ounce, even touching the
2,000-dollar-level before the year ends!
We reiterate our advice to avoid or minimize exposure
to the general stock markets for the rest of 2011, and use the summer
doldrums in gold, and especially (junior) gold mining companies, to load
up the truck. With the current strength of gold, we expect it’s going
to be a hot fall… again!
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It is also noted that the Dow/Gold ratio has formed and broken (to the downside) an inverse wedge formation. Looks like "down" is were its going. For holders of Gold ( not GLD) this looks like a confirmation to hold long.
I expect this ratio to hit 2 or lower in the quest for equilibrium. My guess-target is $5,000 DOW and Gold.
"My guess-target is $5,000 DOW and Gold."
Ditto, this time is indeed different.
Am I the only one noticing the Brent/WTI spread right now? YTD high at the moment. Ratio is approaching YTD high.
Yes, I am noticing. I also note that the WTI is, in essence, meaningless. Brent is really the world price for oil but the MSM seems to always reference the WTI price when it fits their extend and pretend talking points.
Interesting times that is for sure. No argument on stocks. Have none. For now.
grab the gold by its balls and the silver by its dikk head...can't lose in this pornographic surge of hot metal urge that is so precious it makes those fannies melt with joy and sparkle in bliss blizzard!
Good job! That's how the game is played. Hold on to your core. LOL
Well I sold my tadeable silver at 49.10 not my core for you pumping trolls who will chirp up. I loaded upafter the crash at 33.(Who the hell knew I was only sellign cause I hit my target price from 2002)
I hate trading but what you gonna do?
The gamers and pumpers have gamed gold and silver and it is nothing more than a trade now.
It's shame really. Maybe that will change once they get wiped out.
Who knows anymore the whole damn system including gold and silver is rigged.
Sold my tradeable silver just now to go to cash. (not my core holding)
shit
Buy gold that's where it's at.
WoW! Absolutely fuckin' amazing! How'd you pick out the high to sell and buy back at the low? And when was silver 49.10?
In gold we trust.
And damn glad we did. :-)
Goddam right.
The comment below mentions pumping of the gold market.
To a degree perhaps but the fundamentals are of a secular bull market underpinned by money printing and to come, chinese central bank buying.
Debt and leverage .
Great on the way up.
Bummer on the way down.
All good for gold.
I know so many all leveraged up.
It is sad, every freggin dime made is spent in advance.
"No extra to save", they say.
A society where save is a foreign word.
Today's bit.. Gold In Deflation.
The Fed forces people not to save because of the negative real rate environment. They want people to dish out their funny money Greenspan/Bernanke bucks to keep the 70% commercial economy's heart pumping and to invest in stocks, bonds and other gambles.
If savings were what government/bankster stooges wanted they'd ask people to save and raise rates to 5% or more.
People are being forced to make investments instead of saving.
Temp,
A good friend who had to buy rental properties because the real estate bottom was in comes to mind. Now his job and marriage are in question, and he needs a place to live. Go figure.
This is the sort of article that we on ZH like to read!!
The break out to the moon.... ahhh. Soothing in these hard times.
sell now??
just when the printing of the oney is about to kick in.....
are you sure?
sell now? selling a decaded or more ago was the ticket. take a look at the long term SPX chart in $Gold.
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s235939273]&disp=P
The new reality is that if your investments cant beat the price of gold - you are failing. Happy trading
Cash without counter-party risk bitches !