Dow:Gold, Dow:Silver ratio

HonoluluDude · February 10, 2007 10:50AM

ziggy29 · February 10, 2007 10:55AM

It's silly to think this ratio should be fixed. Gold and silver are, above all else, mostly going to track in line with inflation over a long period of time. The stock market generally returns 5-6% above inflation (on average). So one would expect the ratio to keep increasing over time.

cladking · February 10, 2007 11:08AM

<< $410 Silver? Got Kool-Aid? >>

This link doesn't work for me.

What's the point?

HonoluluDude · February 10, 2007 11:09AM

<< It's silly to think this ratio should be fixed. Gold and silver are, above all else, mostly going to track in line with inflation over a long period of time. The stock market generally returns 5-6% above inflation (on average). So one would expect the ratio to keep increasing over time. >>

I didn't get the impression from the author that he implied it should be a fixed ratio.
It was more of a condemnation on the fiat system, and how that system erodes over time,
while hard assets eventually become valued where they should be valued vs. paper backed by
empty promises.

If the Dow:Gold ratio even comes close to single digits, we should easily see 4-digit gold prices
and triple digit silver prices in the not to distant future.

HonoluluDude · February 10, 2007 11:10AM

<< 

<< $410 Silver? Got Kool-Aid? >>

This link doesn't work for me.

What's the point? >>

Works for me.

roadrunner · February 10, 2007 11:22AM

Another interesting article surfaced this past week on the silver to gold ratio. In essence the author's theory was that as the ratio of silver to gold headed towards historical highs, that it was a pretty strong signal that the metals bull would be ending. The reasoning is that silver tends to be more bullish than gold during metal market cycles. With a ratio of 1/42 for silver to gold, it would appear that there is a long ways to go.

roadrunner

ddink · February 10, 2007 3:00PM

It seems to me that there has been a dramatic paradigm shift in the global economy. IMO, comparing it to the past--where the supply of metal controlled the growth rate of the economy--is simply antiquated. Gold and silver are worth money only because people think they should be. Paper currency is worth money only because people think it should be. The entire concept of money is based on a fiat system...the object that represents the money is worth money simply because it must be. When people believe gold to be a store of value, it is. When people believe paper to be a store of value, it is.

What is interesting is how some of the doomsday scenarios on this message board are playing out. The dollar is "collapsing" against foreign currencies...it's the end of the world! Yet a cheaper dollar makes our goods more competitive in foreign markets, lessening the trade deficit. This is bad in what way?

IMO, people are stuck thinking about the economy in old terms. Globalization and fiat money have changed everything. Maybe they're good, maybe they're bad, but either way, we're facing a totally new paradigm.

BlindedByEgo · February 10, 2007 4:02PM

<< What is interesting is how some of the doomsday scenarios on this message board are playing out. The dollar is "collapsing" against foreign currencies...it's the end of the world! Yet a cheaper dollar makes our goods more competitive in foreign markets, lessening the trade deficit. This is bad in what way?

>>

What goods? We've outsourced and offshored a majority of our manufacturing base over the past 30 years... But we make Billions of Big Macs.

When I was in the military electronics business in the Eighties, it took virtually an act of Congress to use a foreign manufactured component. Mil-Spec virtually guaranteed US made. It ain't that way no more.

Globalization isn't necessarily bad, unless you are the one who has been outsourced. You might have to learn to say "You want fries with that?"

Oh, and if the dollar collapses against foreign currnecies, and none of those countries want to buy any more dollars (why buy something today when you know it will be worth less tomorrow?), who then will step up to buy our debt and allow us to continue to print money as fast as we can?

Hmmm?

SeatedCoin · February 10, 2007 4:12PM

I believe in the ratios. Just for starts, by 2010, Gold to $2,000. Silver to $75. Silver has a lot more catching up to do than Gold.

ddink · February 10, 2007 11:31PM

<< What goods? We've outsourced and offshored a majority of our manufacturing base over the past 30 years >>

Would you mind citing your source, please?

BlindedByEgo · February 11, 2007 5:54AM

<< 

<< What goods? We've outsourced and offshored a majority of our manufacturing base over the past 30 years >>

Would you mind citing your source, please? >>

A fairly good source.

Another one.

In hindsight, perhaps "a substantial amount" should be used, rather than "majority".

I can give you a list of products that are no longer made here that formely were. You just let me know with what that loss was offset.

Ed. for spelling.

ddink · February 11, 2007 7:22AM

Blinded: what exactly is your position? In a previous post, you say:

<< Oh, and if the dollar collapses against foreign currnecies, and none of those countries want to buy any more dollars (why buy something today when you know it will be worth less tomorrow?), who then will step up to buy our debt and allow us to continue to print money as fast as we can? >>

Yet the second site you link to suggests that a devaulation of the dollar is the necessary medicine to reverse the loss in manufacturing jobs:

<< The overvalued U.S. dollar has been the single greatest contributor to the crisis in manufacturing. >>

and

<< Since its peak in February 2002, the dollar has fallen by 6.9%; however, this decline is far too small to substantially affect the trade deficit. Projections in Bivens (2003) imply that a decline of about 40% in the dollar's value would be needed to balance trade. While perfect trade balance may not be a necessary goal, a dollar devaluation of at least 25% is necessary for long-term foreign debt sustainability. >>

So where exactly do you stand? Are you for a cheaper dollar, or against it?

Furthermore, this website indicates that in 2005, $782,225,174,000 in manufactured items were exported. The 1989 number is $289,391,608,000. Even if "a substantial amount" of our manufacturing is now done overseas, nonetheless, the amount of domestic exports has nearly tripled since 1989. If we include non-manufactured exports (such as raw materials), the numbers are $363,765,500,000 in 1989 versus $904,379,818. Again, nearly triple. This tells me that despite a decrease in the number of domestic manufacturing jobs, more is being done with fewer employees. Our exports are dramatically increasing.

roadrunner · February 11, 2007 7:55AM

Since its peak in February 2002, the dollar has fallen by 6.9%; however, this decline is far too small to substantially affect the trade deficit. Projections in Bivens (2003) imply that a decline of about 40% in the dollar's value would be needed to balance trade. While perfect trade balance may not be a necessary goal, a dollar devaluation of at least 25% is necessary for long-term foreign debt sustainability.

I'd recheck some numbers on this. The dollar has fallen 32% since Feb 2002 and not the quoted 6.9%. A 32% gain in the stock market would basically mean you broke even in that period. Gold has basically doubled. Bivens will get his 40% soon enough. Personally I'm not for a weak or a strong dollar. But it's much cheaper than it was in 2002 with gold/silver moving in the opposite direction.

New York Board of Trade - USDX historical data

roadrunner

BlindedByEgo · February 11, 2007 8:22AM

<< 
So where exactly do you stand? Are you for a cheaper dollar, or against it?

>>

I think that a cheaper dollar is a fait accompli, regardless of where I stand.

In a perfect world, I'd like to see the US have a robust domestic manufacturing base, and at the same time not have to rely on the world market to finance our consumption by financing our huge trade imbalance. The IOU is written against our children and our grandchildren.

<<Furthermore, this website indicates that in 2005, $782,225,174,000 in manufactured items were exported. The 1989 number is $289,391,608,000. Even if "a substantial amount" of our manufacturing is now done overseas, nonetheless, the amount of domestic exports has nearly tripled since 1989. If we include non-manufactured exports (such as raw materials), the numbers are $363,765,500,000 in 1989 versus $904,379,818. Again, nearly triple. This tells me that despite a decrease in the number of domestic manufacturing jobs, more is being done with fewer employees. Our exports are dramatically increasing. >>

2005, $782,225,174,000 - is that in 1989 dollars, or 2005 dollars? What would the ratio be when allowing for the real decline in the dollar over 16 years? About flat? Given increases in productivity, may even be negative?

Regardless of my feelings, I believe that the OP's original point of the thread - that PM's are going to go up in dollar valuation - is correct. Time will tell.

ddink · February 11, 2007 12:46PM

Good point, Blinded. Adjusted for inflation (here the 1989 figure would be $451,074,699,000 in 2005 dollars. The 2005 figure, of course, remains $782,225,174,000.

Roadrunner, no idea about the accuracy of the dollar's depreciation. I was just using the author's source to make a counterpoint.

Writersblock · February 12, 2007 3:41AM

That site adjusts for inflation using the CPI. The CPI has been politically manipulated for ages and can't be trusted.

SeatedCoin · January 5, 2008 4:10AM

Silver to $50+ per ounce. Yeah!

291fifth · January 5, 2008 4:13AM

Ratios belong in discussions of 19th century election campaigns.

techeff · January 5, 2008 4:15AM

What goods? We've outsourced and offshored a majority of our manufacturing base over the past 30 years... But we make Billions of Big Macs.

The Japanese outsourced a lot of manufacturing to the United States...

A lot of people are still living in the 1950's...

oreville · January 5, 2008 5:00AM

Regardless of all other issues, the one single most dominant concern in our country is we need to become energy self sufficient.

That can be achieved through increase in energy supplies and/or better utilization of the energy we do consume including conserving, more efficient machinery, autos, modes of transportation, etc.

It has become more obvious that there needs to be a multi-faceted approach to being able to accomplish this.

Once we can solve the need to import energy then other issues will become easier to solve.

There must be a national war on "importation of energy."

RedneckHB · January 5, 2008 5:14AM

What if the DOW went to 5000. What would gold be worth then? Maintain the same ratio?

MoneyLA · January 5, 2008 6:44AM

I've been writing, blogging and reporting about the bull market in gold and silver, and the raios of gold and silver, etc. as much as anyone.

But let's take a simpler approach to what is going on with gold and silver now.

It really is a SIMPLE approach:

THE METALS ARE GOING UP IN VALUE.

That's enough for me. cheers, Alan

roadrunner · January 5, 2008 9:10AM

The stock market generally returns 5-6% above inflation (on average). So one would expect the ratio to keep increasing over time.

I'd like to see that substantiated, esp using true inflation numbers and not BLS stats.

Yet a cheaper dollar makes our goods more competitive in foreign markets, lessening the trade deficit. This is bad in what way?

It's bad in lots of ways. There is no free lunch by devaluing the dollar away to nothing. Well, maybe a free lunch for the banks, not for you and I.

roadrunner

Deadhorse · January 5, 2008 9:37AM

Link doesn't work for me either.

Takes me to a free web hosting site.

I even tried copy and paste using he properties and the same results.

My guess is that it's posted on a free site with daily limited bandwidth.

That alone doesn't give me much confidence in whatever the article had to say.

DoubleEagle59 · January 5, 2008 9:46AM

What if the DOW went to 5000. What would gold be worth then? Maintain the same ratio?

Probably gold would be worth $5000 also. Check out the chart below. It will happen eventually!!

dbcoin · January 5, 2008 11:31AM

What if the DOW went to 5000. What would gold be worth then? Maintain the same ratio?

Probably gold would be worth $5000 also. Check out the chart below. It will happen eventually!!

Excellent observation and chart. The Dow:Gold ratio has gone 1:1 twice in the last century; during the Depression and in the 1980 runup of gold. A Russian economist, Kondratief, did some research that basically says the economy moves in long cycles which are the length of one human life time. Each cycle has four 'seasons', winter, spring, summer, fall. The 'winter' season started in 2000 when the stock market peaked and should last until around the 2017 time period. During 'winter' stocks fall or fail to keep up with inflation and tangible things like oil, gold, land, food, rare coins, go up in value.

At or around 2017, the Dow and gold ratio will again hit 1:1. That could be at 5000 Dow, $5000 gold or 3000, 3000 or 10000, 10000. It is at that point you sell your gold and go long stocks where stocks will outperform the tangibles in the 'spring' season.

It is a very interesting theory and there is alot of info on this if you google it. Kondratief's theory is some times called K-Waves as well. Reading about this theory is what has lead me to gold/silver and rare coins.

Dow:Gold, Dow:Silver ratio

Comments

Leave a Comment