Dow Jones Stock Market Gold: Reviewing the Dow-to-Gold and Greek Stocks-to-Gold Ratios

Dow Jones Stock Market Gold: Reviewing the Dow-to-Gold and Greek Stocks-to-Gold Ratios

In this article we will discuss different ratios, including the important Dow Jones-to-Gold ratio and another special ratio as well.

Let’s start with the Dow Jones-to-Gold ratio.

When you see the following chart, you will probably be convinced that the Dow-to-Gold ratio has a long way to go before bottoming. Since 1900, the ratio has often fallen below 3. It even dropped as low as 1 in 1980:

However, when we look at the ratio since 1800 (yes, that is more than 200 years of data!), we see a completely different picture.

We can clearly see that the ratio is in an uptrend over the long term. This means that, over the long term, stocks have outperformed gold, big time. The ratio has now dropped below the green zone (just like it did three times in the mid-1800s), which looks like a long-term trend zone.

When we look at the medium term, we can see that a huge bubble in stocks was created in the late 1990s. However, that bubble burst in 2000-2001, and stocks have underperformed gold ever since. The blue line looks to provide support right now, although the bottom may fall out at anytime. Stock bulls may argue that the ratio now broke out above the red resistance line. Who is right?

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