The Dow/Gold ratio measures the price of the Dow in terms of how much gold, in Troy ounces, it takes to purchase the Dow. Normally, economists look at this ratio to compare market valuations over large periods of time for which inflation is in play, (e.g. to compare valuations in the 1920's to today.) I have begun to look at the Dow/Gold pricing for a different reason: to get a view of the market that is independent of central bank monetary policy. The thinking here is that quantitative easements have the effect of artificially pushing down the valuation of the dollar, thus, the stock market is exhibiting artificially high prices and is masking the much awaited second dip in the market.
|Dow/Gold on 10/29/2011|