Saturday, March 16, 2013

Dow/Gold Ratio: How High Can The Dow Go?

 Subscribe in a reader

The Dow Jones Industrial Average $INDU has been making new highs, however the 10-day streak ended this Friday and the S&P500 came within 4 points of it's New High.

 ITZ has in the past looked at several gold ratios, to see how much gold was need to buy an index or commodity?

The Dow/Gold Ratio (DGR) measures how many ounces of gold it takes to buy the $DJIA.
Below are several charts, one going back 200 years, another some 30 years and a look at some more specific periods.

Currently, the DGR rests at 9.12, with the $DJIA @ 14,514 and $GOLD @ $1,591.15

If, gold held firm at $1,591 an ounce and the DGR went to 15:1 the DOW would be at 23,865; 25:1 = 39,775 and at the historical peak of 45:1 = 51,595.

Lets say the DOW stayed flat 14,500, then for a 15:1 DGR Gold would need to fall to $968 an ounce; @ 25:1 = $580 and at 45:1 = $322!

Near term ITZ is looking at gold to test $1,800, if the ratio held to 9:1, that would put the $DJIA around 16,415.... about 13% higher from here.

Let's see what happens when the Fed ends QE and rates begin to raise and/or inflation creeps in.

No comments: