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When someone says the stock market is worth so much in gold, what does that mean?
Posted by admin on February 9th, 2010 filed in Gold Stock
I am wondering when someone says the value or worth of the dow jones is say worth 8.5 oz of gold.. I don’t understand where they are basing that value, because it seems like very little?
As of Feb 5 Close
Dow Jones Industrial Average Index = $10012.23
Gold (1oz with a purity of .9999 or 24K) = $1066.60
Dow Jones Index / Gold Price = 9.39 oz or Gold price ratio
8.5 oz of gold to dow jones ratio was weeks ago.
Explanation why Gold Price Ratio is used:
There are various tools investors can use to help determine the future price of gold. One of the primary methods used by US Gold is the Dow Jones versus Gold ratio. This ratio looks at how many ounces of gold it takes to purchase the Dow, assuming every point in the index represents a dollar. This ratio also reflects the market’s confidence in paper versus physical assets like gold.
There is a historical relationship where at certain points in time the gold and the Dow trade at a 1:1 or a 2:1 ratio, where one or two ounces of gold can purchase the Dow. When this happens gold has reached its peak in terms of purchasing power relative to other financial assets. These are periods where investors have lost confidence in paper assets. It occurred in 1896, 1929 and 1980 and we believe we are approaching this ratio again.
February 9th, 2010 at 1:56 am
For example, the dow closed at 10,012, gold is at 1,053 per ounce. 10012 / 1053 = 9.5 So dow jones is worth 9.5 oz of gold. Maybe it’s as simple as that? I’m not aware of this concept, but it sounds like its a rough way of making a comparison.
References :
February 9th, 2010 at 2:46 am
As of Feb 5 Close
Dow Jones Industrial Average Index = $10012.23
Gold (1oz with a purity of .9999 or 24K) = $1066.60
Dow Jones Index / Gold Price = 9.39 oz or Gold price ratio
8.5 oz of gold to dow jones ratio was weeks ago.
Explanation why Gold Price Ratio is used:
There are various tools investors can use to help determine the future price of gold. One of the primary methods used by US Gold is the Dow Jones versus Gold ratio. This ratio looks at how many ounces of gold it takes to purchase the Dow, assuming every point in the index represents a dollar. This ratio also reflects the market’s confidence in paper versus physical assets like gold.
There is a historical relationship where at certain points in time the gold and the Dow trade at a 1:1 or a 2:1 ratio, where one or two ounces of gold can purchase the Dow. When this happens gold has reached its peak in terms of purchasing power relative to other financial assets. These are periods where investors have lost confidence in paper assets. It occurred in 1896, 1929 and 1980 and we believe we are approaching this ratio again.
References :
http://www.usgold.com/about-gold/
February 10th, 2010 at 2:11 am
[...] post: When someone says the stock market is worth so much in gold, what … tags: certain-points, historical-relationship, its-peak, purchase-the-dow, two-ounces | [...]
February 10th, 2010 at 8:01 pm
Great explanation. It is not hard to imagine that we are approaching one of those historical occurrences yet again. So yeah. I agree. With all the world economic woes and the way our gov is printing money it’s just a matter of time.