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The Dow-to-Gold ratio measures the relative worth of mainstream stocks versus gold…and we have strong reason to believe that a significant move lower in the ratio is due ahead. In other words, gold should be gaining value relative to the Dow, and quite soon.
Presently the ratio stands at 19-to-1, with the Dow at 34,160 and gold at $1,800 per ounce. What is coming next for the ratio? Will gold increase or decrease compared to mainstream stocks? @HELP
The Dow to Gold Ratio Long-Term
@$First, let us examine the long-term chart of the Dow-to-Gold ratio. Below the data is presented from 1976 through to present day:
Note how the ratio is presently bumping up against a 20-year downtrend (blue annotation). Fortunately for gold investors, we see evidence that the ratio is thus rolling over. After all, trends are considered valid until proven otherwise and, in this case, we see no evidence that the ratio is breaking upward in favor of the Dow. Instead, we see it starting to decline in favor of gold.
The Dow-to-Gold Ratio Zoomed-In
@$$Zooming the Dow-to-Gold ratio in to the last year reveals a classic topping pattern: a head and shoulders formation (blue), which bears its name from a loose resemblance to a human silhouette, with a more prominent head sticking out above two shoulders.
Note the right shoulder now in formation, above the 18 horizontal support (black). Once this 18 level is broken to the downside, we should expect the ratio to begin to plummet precipitously.
How Low in Favor of Gold?
How low will the ratio fall after it breaks the 18 level?…Our best expectation is that the Dow-to-gold ratio will fall at least down to 13 within the next year, after it breaks the 18 support.
@$$$We can see that a 40+ year trend exists in the 13 region (magenta line). Again, trends are valid until proven otherwise.
There will be a major long-term battle that happens once the ratio declines to 13, as the chart reveals a pennant triangle consolidation dating back to 1980 that is due to be resolved…
Projections for the Dow and Gold
From 19 down to 13 represents a 31.5% underperformance for the Dow versus gold in 2022. How could this play out? Likely scenarios are:
- Gold rises, Dow flat: the Dow stays flat at 34,160 while gold advances to $2,627 per ounce. This scenario would be expected in an inflationary scenario.
- Gold flat, Dow falls: Gold remains at $1,800 per ounce and the Dow falls to 23.400. This scenario would be expected in a deflationary scenario.
Less likely but still possible scenarios:
- Both rise: the Dow rises to 40,000 while gold advances to $3,076. While the Dow advances in this scenario, gold outpaces it. This would be expected in a higher-inflation scenario, or a prelude to hyperinflation.
- Both fall: the Dow crashes to 17,080, a massive 50% fall while gold declines to $1,313. While this is still a correction for gold, it is only 23%; thus, gold holds its value better than the Dow. This would be expected in a true market panic.
Takeaway on the Dow-to-Gold Ratio
We have strong evidence that gold is set to outpace the Dow in 2022, down to a ratio of 13. This could happen in a number of scenarios; however, the key is that gold will be gaining more and/or holding its value better than the Dow in 2022, no matter how the compression plays out.
Wise investors will be using this period of calm in gold to position for it to outpace the Dow during the remainder of the year. What happens in 2023 and beyond will be featured in future analysis; however, 2022 is going to be a year for gold to shine.
Editor’s Note:
The above version of the original article by Christopher Aaron (gold-eagle.com) was edited [ ] and abridged (…) to provide you with a faster and easier read.
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