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It looks like goldbugs' dream might come true in 2012...

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December 28, 2011 – Comments (10) | RELATED TICKERS: DOW , GOLD

For the last two years or so, every time DOW was going down and gold up, we would hear about DOW/Gold ratio finally getting to its "normal" 1:1 value.

We've seen numbers range from DOW $4,000 / Gold $4,000 to DOW $9,000 / Gold $9,000.

It looks like goldbugs' 1-to-1 ratio wish might finally be coming true:

DOW $13,500 / Gold $1,350.

10 Comments – Post Your Own

#1) On December 28, 2011 at 9:01 PM, Momentum21 (96.33) wrote:

Hello my friend...look at our abysmal scores these days. 2012 is the year of the comeback for us...when M21 and dragonLZ are HOT, HOT HOT!

Tell me how this is 1:1 though? You trouble-maker : ) 

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#2) On December 28, 2011 at 10:14 PM, EvilEmpire (29.25) wrote:

Hey kiddo, better start hitting those math books, your "ratio" is off by a factor of 10.

A 1:1 ratio means DOW $1,350 = Gold $1,350.

Warm regards. 

  

 

 

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#3) On December 29, 2011 at 11:20 AM, leohaas (35.73) wrote:

There is no such thing as a "Normal DOW/gold ratio". It is total hogwash.

My forecast on the DOW: it will only go one way (up) long-term. If only because of the built-in survivor bias.

My forecast on the gold price: ditto, but for entirely different reasons. Gold is in very limited supply and there are more and more folks on this earth who want it for whatever reasons. The law of supply and demand will work its magic.

The only question is what qualifies as long-term. Short-term I foresee continued volatility for both the DOW and gold. So keep on tracking a useless measurement, and maybe you will be right at some point, just like a defective clock is right twice a day...

 

 

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#4) On December 29, 2011 at 11:49 AM, dragonLZ (99.69) wrote:

Momentum21, my friend, it's been a while.

Yes, our scores stink, and unfortunately, my score reflects what happened to me in real life - I got killed.

However, I'm pretty confident 2012 is going to be our year. True winners never give up.

Unless they run out of money... :)

p.s.

As an answer to both you and EvilEmpire:

I thought as long as the numbers look almost identical, it counts as 1:1 ratio... 

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#5) On December 29, 2011 at 12:18 PM, dragonLZ (99.69) wrote:

There is no such thing as a "Normal DOW/gold ratio". It is total hogwash.

leohaas, I'm afraid you don't fully understand how the DOW/gold ratio works, if you can say something like that.

As you can see above, I'm no brain surgeon, but I can at least explain to you in simple terms how you can use DOW/gold ratio to your advantage.

If you think DOW is fairly valued at 12,200 (where it is at today), then you should sell all you have and put your money into gold (you should roughly make 8X on your initial investment - I think it's called "octoupling your money").

In case you think gold is fairly valued at $1500, you should sell everything you have and short DOW with the proceeds (with the same 8X-more-money-in-your-pocket results).

Either way, knowing that eventually DOW/gold ratio is going to be 1:1, you'll make money both ways. 

I hope this helps. 

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#6) On December 29, 2011 at 12:22 PM, DJDynamicNC (41.94) wrote:

Isn't that 10 to 1?

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#7) On December 29, 2011 at 2:01 PM, rfaramir (29.57) wrote:

"knowing that eventually DOW/gold ratio is going to be 1:1, you'll make money"

That is begging the question. The question is, "Why is a 1:1 Dow/gold ratio normal?"

That being the question, the answer cannot be, "If you know the ratio will be 1:1 you can make money."

As much of a gold enthusiast as I am, I still don't see the connection to the Dow. Not a scintilla of evidence links the two:

The composition of the Dow has changed over the years, should that matter?

The efficiency of gold miners has improved with technology, but the density of gold in known deposits is going down over time.

Discovery of new deposits continues, but at a slow pace, which may change as the dollar debases further, but will it change enough? Actually, for gold to catch up to the Dow, the pace of new discoveries would have to continue to slow down, restricting supply. Will it? Who knows?

The cost of labor is something they have in common, but I fail to see how that links the two; in fact, it would tend to send them both in the same direction as it changes.

It looks like magic and marketing-speak to me. Anyone know of any rational connections between the two?

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#8) On December 29, 2011 at 5:49 PM, Munchies101 (99.25) wrote:

I'm still trying to figure out if this post is a joke or not. If it is, you got me. If it isn't, a 1:1 Dow gold ratio? That sounds a bit ridiculous. Why not a 1:1 Dow Silver ratio? or a Dow Uranium ratio? Puppies? Gobstoppers?

 Personally, I think it should go 1:1 Dow Ferrari ratio. Either way then I'll be a very happy man :)

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#9) On December 29, 2011 at 6:44 PM, TMFAleph1 (95.98) wrote:

I thought as long as the numbers look almost identical, it counts as 1:1 ratio...

What?!

 

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#10) On December 29, 2011 at 6:51 PM, awallejr (82.72) wrote:

Dragon come on, 13,500 to 1,350 is a 10 to 1 ratio, end of story.  Saying well they have same numbers in them is therefore 1 to 1 is silly, because one of the numbers has one more number.

Personally I hope we never see gold at 13,500 in my lifetime because that means nasty nasty inflation or world war.

As for "normal ratio"  there really isn't enough data to establish that.  Give it another 500 years to see,  since the "abnormal" now could wind up being the new normal.

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