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Since 1900 the Dow to Gold ratio has been
flawless in its ability to graphically display the
imbalances between US corporations measured in Dollars,
versus Gold, timeless and global. All of the peaks
and valleys have amazingly similar global circumstances
and economic conditions.
The three ratio bottoms occurred during
times of war and weak economic conditions resulting
with the population experiencing severe pessimism,
a general disdain for paper assets, and what they represented.
During 1980 the ratio briefly touched 1:1. The Dow
was trading in the 850 range with an ounce of gold
reaching an all time high of $872.00. Headlines in
the business sections of newspapers across the country
were predicting that the stock market would not survive.
Inflation was running unchecked and interest rates
were in the double digits. In hindsight, this period
in history was precisely the time to liquidate gold,
take the proceeds and invest in American companies.
The longest Bull Run in the stock market was about
to begin.
Leading up to, during and shortly after
each ratio peak, the spot price for gold was far too
low, with many factors contributing to that condition.
The Federal Reserve expanded credit resulting in a
monetary bubble producing manic levels of optimism
and bullishness amongst the population. It seemed that
the good times would continue forever. The peak of
2000 exceeded 45:1, 60% higher than the peak of 1980
and 247% higher than 1929.
The last half of the 1990's were devoid
of long term planning on the part of the government,
wall street, corporations and their investors alike.
Immediate gratification and over indulgence was the
mantra. Paper assets flourished like never before in
history. It proved to be the moment in time to liquidate
most stocks and convert some of the proceeds into Gold.
Since January of 2002, the Dow has lost
23% of its value. During that same timeframe, Gold
increased 26%. Within the next 3 to 5 years, Gold will
again assume its rightful position at center stage
for an Encore performance.
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