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Dow Gold Ratio

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What does the Dow Gold Ratio say?

The Dow Gold Ratio expresses the relation of the index points of the Dow Jones Index and the gold price. In the 20th century, there were two lows: (1) at the height of the Great Depression (1932), the ratio fell to 2, and (2) due to inflation, a stagnation of the stock markets and an upswing in gold prices caused the ratio to fall to 1 in 1980.

Chart of Dow Gold Ratios since 1900

Plot of Dow Gold Ratio since 1900 with arithmetic mean

Source:  Own calculations and presentation based on data from Markt-Daten.de (Internet retrieval, dated 01.06.2012).

High: 42.6 (02/15/2001)

Low: 1 (01/1980)

Relevance of the Dow Gold Ratio

The highs of the Dow-Gold ratio are also becoming increasingly pronounced: (1) during the economic boom of the 1920s, the ratio rose to as high as 15, (2) during the post-war upswing to 25 by the mid-1960s and (3) during the New Economy to as high as 40. The arithmetic mean of the Dow-Gold ratio since 1900 is 10. In 2010, the ratio fell below this level for the first time since the mid-1990s. If the trend of increasingly pronounced highs and lows continues, the Dow gold ratio should fall below 1 at the next low. If the Dow-Gold-Ratio, which was still at 8 in October 2012, only falls to a value of 2 in a final blow off in the course of further upheavals of the global financial and monetary system, which will fully unfold in the second half of this decade, this would already correspond to a gold price of US$ 5,000 per fine ounce at an assumed Dow Jones index level of 10,000 points.
 

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