We're still too exuberant

[tiredofwork]

Any idea why the Dow should trade at any specific ratio to gold?

Let's say that in 1970 I bought an ounce of gold and an equivalent dollar amount of GE stock and stuck them in a safety deposit box for the last 35 years. When I open that box today my ounce of gold is still just one ounce of gold. But my GE stock is a completely different and much larger company. Why should the ratio between these two things have any correlation whatsoever?

One can calculate a ratio between any two quantifiable items, as long as the denominator is not zero. As to why the ratio has historically swung between approximately 2 to 42 (peaking in year 2000), I leave that to the Gold Bugs to answer. However, it appears to me that, at the lower ratio levels, gold is overvalued relative to the stock market and, at the higher levels, the opposite is true. The ratio has been trending down since the year 2000 peak and is currently at about 22. Does the Dow have room to fall and/or the price of gold room to rise based on history? Looks that way to me. Can we safely say there is a "bubble" in gold at this point? I wouldn't want to make that bet.

 

[poyet]

Well, when I saw that gold would make a breakout in late 1999 or 2000 I had long and interesting discussions with the guy who runs this site and one of the exchange we had is reported in http://www.goldensextant.com/commentary8.html
complete site at
http://www.goldensextant.com/

There is much more to gold than its supposed value. This maket is strongly manipulated by many players including bullion banks, central banks, producers and hedgers, speculators etc.
Hope you'll find the site interesting.

 

[haha]

Here is a speech from the site referenced above which goes to the heart of the gold discussion here-"Is gold money, or just another commodity?"

http://www.goldensextant.com/

Click on "Gold Is Money, Deal With It"

It seems that most hear feel it is just another commodity, albeit one which seems to trade unpredictably.

I really don't know myself, but I know that I do not have any desire to make big gold bets. Several years ago when it was very cheap compared to today, there were even better commodity investments- most obviously oil and especially natural gas.

It’s hard to not be interested though in a substance as interesting as gold. Remember your nursery rhymes?

I do believe that gold could temporarily outperform oil and many industrial commodities if the world enters a slowdown.

Ha