Friday, September 11, 2009

Chart of the Day: The Dow / Gold Ratio

For some perspective on the current rally that began back on March 9th, today's chart presents the Dow divided by the price of one ounce of gold. This results in what is referred to as the Dow / gold ratio or the cost of the Dow in ounces of gold. For example, it currently takes 9.7 ounces of gold to “buy the Dow.” This is considerably less (78% less) than the 44.8 ounces it took to buy the Dow back in 1999. Since 2007, the Dow / gold ratio has declined at an accelerated pace (see dashed lines). As a result of the recent rally, the Dow (priced in gold) has moved up significantly and is currently testing resistance of its accelerated downtrend.

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