Dow Vs. Gold Ratio

The Dow Jones Industrial Average versus the gold ratio (Dow/gold ratio) is a tool that helps determine the future price of gold and reflects consumer confidence. It compares the price of gold to the Dow Jones Industrial Average.

Purpose

The Dow/gold ratio has been used since the late 1920s, before the Depression. It is used to determine inflation expectations, based on the future price of gold.

Process

This tool is a ratio that compares how many ounces of gold are needed to purchase the Dow. It assumes that every point in the Dow represents one dollar. The ratio calculates the price of gold compared to the points on the Dow and is usually summarized as a number with an "x," meaning how many times gold buys the points on the Dow.

Details

According to Gold Seek, the Dow/gold ratio peaked to nearly 45x in 1999 and has ever since declined. In 2009, the ratio was around 9.3x. When the ratio is high or rising, it represents high confidence in the economy and projected decreasing inflation rates. When the ratio is declining, it indicates low confidence in the economy and projected increasing inflation rates.

References

• Gold Seek: The Dow/Gold Ratio will Decline Further
• Trusted Bullion: Silent Crash: Dow Continues Slide vs. Gold
• US Gold: About Gold; Dow Jones Average vs. Gold Price Ratio
• Stocks for Beginners: Gold Market Price vs. Dow Jones Index