Monday, November 16, 2009


The Dow Jones Industrial Average, Priced Per Ounce of Gold

The fascinating chart above provides a thought-provoking alternative scope for viewing US economic history as its its assets became more publicly traded.

The Great Crash of 1929 looks like a minor bobble in a steeplechase. The broad-based post-WWII economic expansion capped by the Go-G0 '60s began to falter congruently with US fortunes in Vietnam, then was followed by a steep crash brought on by the conflict's huge debt overhang. As the US went off the gold standard at Bretton Woods II and printed money to pay those debts, the Dow/gold ratio touched its century-long low in the late '70s as the Fed raised interest rates to century-long highs in order to stanch hyperinflation.

Finally, the Dow-gold multiple scaled a cliff wall in the '90s as simultaneous housing and dot-com bubbles rapidly filled in the mid-'90s, with a decade-long decline which shows no technical or fundamental sign of abating, and which at @10:1 is still at least twice the previous century's non-bubble baseline. Physical gold and other industrial metals are compelling portfolio investments in that context.

6 comments:

Anonymous said...

Here I am decades later, drowning and choCking; there is noone at my door to protect me, I am swallowing in my Life unprotected...

Richard Sprague said...

Very interesting chart. Would be fun to overlay it with the value of the dollar over the same time period.

MarcLord said...

Hi Richard, how's Beijing?

The dollar is devaluing pretty fast internationally now, and it would be hard to do an accurate domestic-only graph due to government jigging of the numbers. For example, a new pair of Florsheim shoes cost $2 in 1940 and $25 in 1950, and official figures state inflation was clocking in at @2% per year in that time frame.

Another fun chart I came across but haven't put up is the US Housing Prices/Gold Ratio: http://www.sharelynx.com/chartstemp/USHLSPOG.php

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Brother Tim said...

Get ready for the next crash. The wealthy are preparing for it. Notice the uptick in companies dealing in scrap gold? They are buying up the gold with near-worthless fiat currency.