Dow Jones To Gold Price Ratio Near Decade Low
Gold Silver Worlds: A couple of interesting things happened on the gold and silver charts on Friday 23 November 2012. First, the price of gold soared with one percent in a matter of minutes. Interestingly this happened right at the London PM Fix, a moment in the trading session that is generally marked by sudden drops. The silver price chart looks similar, only with a larger percentage gain. Silver has been leading gold higher, which is a sign of strength.
What exactly was the trigger for the sharp price increase, remains speculation. It could be the failure of the European budget discussions, the US fiscal cliff worries as Peter Schiff pointed out or simply trading by hedge funds. One things remains clear: the price movement happened in a thinly traded market because of the Thanksgiving holiday, which is a sign of cautiousness.
As Dan Norcini points out in his commentary:
“One thing to keep in mind about this is that pit locals are notorious for using these ultra thin trading conditions to go hunting for upside or downside stops. Since there is not the depth of liquidity that is normally present in the market, resistance to their hunting party efforts is minimal.
What this means for chart watchers is that one has to take the price movements with a bit of healthy skepticism. If the move is for real, it will hold on the resumption of trade during the next trading period. In our example – gold will need to remain above its breakout level of $1740 during both Sunday evening trade in Asia and during Monday trade here in the US.”
When looking at the daily chart, we see that the gold and silver price broke above all key moving averages as a result of Friday’s strong price action. The 50 day moving average seems like it’s sloping positively again and the MACD is gaining traction. Those are obviously strong signals, as a lot of trading is influenced by the moving averages. We are also nowhere near overbough territory. The high level technicals look good on the price charts.
Now here it gets interesting. Another way to look at gold is expressing the equity prices in gold. So how is gold doing compared to the stock market? Well, the next chart tells it all. The Dow Jones to gold price ratio is coming down and is near record lows in gold’s current secular bull market. As many have pointed out, the expectations are that the ratio will hit a value close to 1:1 at the heights of the bull market. Whether it’s 6,000 or 12,000, both the Dow Jones and the gold price are evolving towards a similar price point. The ratio hit its lowest point in September of 2011 when it stood at 7.12, after gold’s parabolic move till $ 1,900. As of Friday 23th November, the ratio stands at 7.48.
This article is brought to you courtesy of Gold Silver Worlds.
Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), iShares Gold Trust (NYSEARCA:IAU), Dow Jones Industrial Average (INDEXDJX:.DJI).