Dow Jones Gold Ratio: Make Cash from this All-Essential Indicator
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by: georgesmallet
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Word Count: 870
Let's start with the important numbers all traders should concentrate on:
Inventory history first: The Dow Jones Industrial Average opened the 12 months 2000 at 10,786. The same index ended 2010 at eleven,577.50. In a nutshell, in case you have been an investor within the Dow Jones Industrial Average, your capital gain appreciation over the past 11 years would have been a paltry 7.3%. (No wonder we have now all the time most well-liked micro-cap shares, penny shares and small-cap stocks!)
Gold history now: At the start of the yr 2000, gold bullion was buying and selling at $280.00 per ounce. Gold bullion closed out 2010 at $1,422 per ounce-a acquire of 407% in 11 years.
Now, let's fake you may't buy the stocks that comprise the Dow Jones Industrial Common in U.S. dollars, but you possibly can only buy them with gold bullion. Taking the numbers above, in 2000, it will have taken 38.5 ounces of gold to buy the Dow Jones Industrial Average. On the end of 2010, if you take a look at the Dow Jones Charts, it might have taken solely 8.2 ounces of gold to purchase the Dow Jones Industrial Average. In different phrases, when measured in gold and not dollars, the value of the 30 big shares that make up the Dow Jones Industrials has plummeted over the past decade.
Now, once we look again at almost a century of information in respect to the relationship between gold bullion and the Dow Jones Industrials (also known as the Dow Jones Gold Ratio), it gets really interesting.
In the interval from 1930 to 1949, a 19-year span, the price of the Dow Jones Industrial Average measured in gold bullion was under 5.zero (throughout that 19-12 months interval it would have taken less than 5 ounces of gold to figuratively purchase the Dow Jones Industrial Averages' index).
In the interval from 1974 to 1989, a 15-yr span, the value of the Dow Jones Industrial Common measured in gold bullion was below 5.zero again.
As I started writing years in the past, with the sharp rise in the price of gold for the reason that 12 months 2000, I believe we're coming into another multi-year interval where it is going to value less than five ounces of gold to buy the Dow Jones Industrial Average. To see that occur, the worth of gold must rise sharply, or the stock market has to come back down, or both occasions must occur.
Now the scary half: over the last century there have been thrice when only one ounce of gold could buy the Dow Jones Industrial Average. If we are headed close to that degree once more (which I believe we are), fortunes shall be remodeled the following few years on the lengthy aspect of gold and brief side of stocks.
Words of knowledge from our esteemed technical analyst, Anthony Jasansky, P. Eng., on President Obama inadvertently placing the brakes on the stock market rally:
"Money talks and it has been speaking very loud after Uncle Ben started the money printing presses at the outdated Fed in late 2008. He was so impressed by the outcomes of the magical out-of-thin air creation of $1.75 trillion-dubbed ingeniously as 'quantitative easing (QE)'-that, within the fall of 2010, he cranked up the printing presses once more, launching the $600-billion QE2.
"Though these large money injections have been credited with reversing monetary and economic calamity, they nonetheless fell quick on some essential fronts. Among the notable failings of QE are the anemic restoration in GDP, lack of progress in employment, continued weakness in residential and business actual estate, the battered U.S. dollar, and unexpectedly higher yields of long-time period treasuries and bonds.
"When not too long ago questioned on the effectiveness of QE, the Fed's chairman has pointed to the strong inventory market as one vital benefit. With out lacking a beat, the U.S. President in his January 25 State of the Union speech mentioned the restoration in the stock market as being the result of authorities actions to forestall a depression. Understanding how perverse the market will be, Obama's bullish assertion may turn out be a timely signal for the shares to take a deep breather."
The place the Market Stands; Where it's Headed:
Could the bear market rally in stocks be over? In spite of everything, the Dow Jones Industrials instantly fell 166 points on Friday. Last Friday was a wake-up call for investors and traders getting too cocky with this market. Shares do not go up in a straight line week after week (as has been the case for most of December 2010 and this January).
Whereas I must see extra action from the inventory market earlier than I throw within the towel on the bear market rally that started in March of 2009, I doubt the rally is over. This week opens with the Dow Jones Industrial Common up 2.1% for 2011.
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