The Dow vs Gold Price ratio is a good indicator for why and when to invest in gold.
This ratio looks at how many ounces of gold it takes to purchase the Dow, assuming that each point in the Index equals one dollar.
Throughout history there have been certain points in time where the ratio was near 1:1 or 2:1, meaning it would take one or two ounces of gold to purchase the Dow.
In 1896 the ratio was 1.28:1, in 1932 it was 2.07:1 and the last time the Dow vs gold ratio came close was in 1980 when it was 1.33:1. Analysts predict we are nearing that point once again.
A recent look showed the Dow was about 11,000 and the spot gold price was $1350, making the ratio about 8:1. This is well below the all time high ratio of 41:1, in 1999, but still far from a 1:1 or 2:1 ratio.
You can easily see that for the gap to close, either the stock market will have to take a huge drop, the price of gold will have to increase dramatically, or a little of both.
With all the uncertainty in the U.S. such as the shrinking dollar, the economy, a housing crisis and the ever growing national debt, a 1:1 ratio could become a reality.
Plus, the supply is decreasing as the demand is increasing because gold is becoming more of a safe haven investment than ever before in history.
Of all the reasons why you should buy gold, take a hard look at the Dow vs Gold Price ratio.
This could be the biggest one of all!
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