Free Commodity Tip | Gold Analysis | DJIA Trend Analysis

1. I came across an interesting pattern in gold and same is courtesy none other that famous Dr Marc Faber who is editor of the Gloom Boom Doom Report. He is of the opinion that gold and stocks have been moving in distinctive long-term trends and he has analysed the data spread over the last 110 years and in conclusion he has figured out that these trends have staged six major phases and same are listed below:
1900-1929: stocks outperform gold
1929-1932: gold outperforms stocks
1932-1966: stocks outperform gold
1966-1980: gold outperforms stocks
1980-2000: stocks outperform gold
2000-???: gold outperforms stocks

2. Now it is to be seen that whether gold can outperform the stocks or not as historically the median stock to gold ratio for the last 106 years has been 5.4 and to make it simple one can state that throughout the 20th century, on average 5.4 ounces of gold would buy one unit of the DJIA.



3. An interesting fact which comes from this analysis is that as of today, gold is trading at $980 per ounce and DJIA is trading at 8,500. This puts the ratio of gold to stocks at 8.6. Thus, the DJIA needs to fall to 5,292 (a 37% drop from today’s level), gold needs to rally to $1,574 (a 60% rally from today’s level), or some combination of the two, in order for gold to be appropriately priced relative to stocks again. So moral of the whole analysis is that either gold will rally significantly or markets will drop significantly to respect the available correlation between the gold and DJIA.

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