Miles Franklin sponsored this article by Gary Christenson. The opinions are his.
President Roosevelt made owning gold for American citizens, with minor exceptions, illegal in 1933. See Executive Order # 6102. Begin the DOW to gold ratio analysis in 1933.
Many people have discussed the Dow to gold ratio. It fell from over 40 in the year 2000 when the DOW (11,750) was expensive, and gold sold for less than $300. In those days paper assets (DOW, bonds, S&P500 stocks) looked like they would rise forever.
By 2011 the DOW (12,800) had fallen 10% from its 2007 high and gold peaked at an all-time high over $1,900. The ratio dropped to about 7.
The ratio rises and falls in long waves.
1933 Low at 3
1965 High at 27
1980 Low under 2
2000 High over 40
2011 Low at 7
2029? Low at 3 or High at 30?
If your savings and retirement are based on stocks or gold, whether the ratio rises or falls is important.
BASED ON NEARLY A CENTURY OF EVIDENCE, WE KNOW:
- The dollar and fiat currencies devalue every year as central bankers and commercial bankers create new currency units and inject them into the economy. Many more dollars chase a small increase in goods and propel prices higher. Examine the Chapwood Index.
- Currency devaluation and consumer price increases will continue—they are “baked into the cake” of our debt-based monetary system.
- Global central banks have created (from nothing) over $20 trillion in new currency units. Much of this new paper “wealth” went to the upper 1%. Wealth and income disparity are at all-time highs.
- This “gravy train” for bankers and politicians will roll down the tracks until it’s derailed.
- Expect higher prices for beer, payoffs, union dues, traffic tickets, textbooks, prescription drugs and hundreds of other items. Stock prices will correct, rise again, correct and …
WHAT WILL HAPPEN DURING THE NEXT DECADE TO THE DOW/GOLD RATIO?
Will the ratio rise because gold prices languish while the DOW streaks to 50,000 as the elite would prefer?
Will the ratio fall as stocks and bonds implode when the “everything bubble” collapses? Capital will move to something safe—like gold—universally appreciated, with limited availability, and historically a store of value. Best of all, gold and silver have no counter-party risk from dodgy debt, devalued currencies, negative interest rates, corrupt politicians, bankruptcies, and phony promises.
Central bankers and commercial bankers create currency units by the trillions, but gold is difficult to locate and mine. Central bankers and politicians prefer digital currency units under their control rather than the discipline of gold. Perhaps they can “stimulate” the digital currency system for several more decades. But people might panic out of overpriced stocks, bonds and leveraged real estate and demand something real, proven, and valuable.
The Dow to gold ratio, based on the graph, could rise or fall from current levels. Look at the inverse – the gold to DOW ratio for the past 85 years for more perspective.
This 85-year graph shows that gold (times 100) priced by the DOW is near the lows seen in the 1960s and late 1990s. The DOW peaked in 1965, 2000 and 2019. Gold rose substantially from 1970 to 1980, from 2001 to 2011 and should rise from 2019 to 2029.
The above graph shows us that gold prices are too low, and the DOW is too high. Expect a reversal.
WHAT ABOUT SILVER?
The silver (times 1000) to DOW ratio looks like the gold/DOW ratio. Silver prices, in October 2019, are over 4 times higher than their low in 2001, but compared to the DOW, levitated by trillions of central bank created currency units, remain low.
Silver prices, compared to the DOW are low, like they were in 1939, 1960, 1971, 2001, and 2019.
Year Silver Price
2019 $17.58 (October 17, 2019 closing price for paper silver on the COMEX)
Read: Silver Prices – the Next Five Years
“Fed Balance Sheet Spikes by $253 Billion”
“Money and the Theory of Exchange”
“Evidence mounts that the global credit cycle has turned towards its perennial crisis stage. This time, the gathering forces appear to be on a scale greater than any in living memory and therefore the inflation of all major currencies to deal with it will be on an unprecedented scale. The potential collapse of the current monetary system as a consequence must be taken very seriously.”
“It’s critical to understand that the central banks cannot print up prosperity. All they can do, being redistributive organizations, is take purchasing power away from one side and hand it to another.”
Our central banker controlled monetary system runs on debt and credit. The Fed has created $ billions since last month from “thin air.”
From Bill Holter: “… a credit meltdown is a mathematical certainty. The only question is when…”
President Trump likes debt. Congress spends more dollars than the U.S. government collects in taxes. The CIA and military-industrial-security complex are busy collecting dollars. Expect boondoggles, more debt and higher prices.
A democratic candidate in 2020 will spend substantially more on social programs, “shovel-ready” programs, boondoggles and “get-even” nonsense. Expect boondoggles, more debt and higher prices.
The stock market has risen since early 2009. It is vulnerable to an “everything bubble” collapse. The Fed understands that “Inflate or Die” and QE4ever are now critical.
There are no guarantees, but the above considerations suggest higher gold prices and lower DOW prices. Look for the DOW/Gold ratio to fall below 5.
When? We don’t know, but the economy and financial systems look dodgy. Economic nonsense can persist for a long time, but the correction, when it inevitably arrives, can be rapid and deep.
- Based on the chart, the DOW to gold ratio could move higher (unlikely) or lower (likely). Expect a lower ratio and higher gold prices.
- The gold to DOW ratio and the silver to DOW ratio are too low. Expect higher metals prices for many years.
- The DOW might rise levitated by QE4ever and lower interest rates. But lower interest rates make gold more attractive. QE4ever will devalue existing dollars and encourage higher gold prices.
- Russia and Asian countries mine gold and restrict exports. They import additional gold. They prefer gold to debt paper.
- The EU and the U.S. create debt paper by the trillions and pretend gold is unimportant. This policy benefits the political and financial elite and inflates consumer prices.
- Global central banks purchase gold every year. Follow their example, not their words.
Would you prefer debt paper that “pays” near-zero or negative interest?
Do you like loans that will be repaid in currency units guaranteed to be worth less than when the currency units were loaned to sovereign governments?
Or would you prefer gold coins and bars that have retained value for thousands of years?
Most people will choose devalued currency units, over-valued stocks, dodgy bonds, debt paper yielding little or nothing, and sweet-sounding promises. It reminds me of choosing cocaine over nutritious food, hard liquor instead of intelligent thought, and opioids rather than exercise.
“You pays your money and you takes your choice.”
Sensible readers will “insure” their assets and retirements with gold and silver. Call Miles Franklin at 1-800-822-8080 for precious metals.
The Deviant Investor