If Mr. Bernanke does what he believes in - namely that asset deflation has to be avoided at all cost and, therefore, massively prints money, no matter where the Dow will be in future, at 36,000, 40,000, or at 100,000, as some pundits predicted in their in 1999 published books (of course shortly before the market tumbled), you will be able to buy the Dow with ounce of gold worth either $36,000, $40,000 or $100,000
Writes Dr Marc Faber in his article on the Dow Gold Ratio, Buy gold to hedge the US Dollar downside risk, published on ameinfo.com (Middle East Finance and Economy.
And you were worried because the gold price dropped below $500 for the third time in 24 years this week.
Dr Marc Faber is a highly respected investment advisor and fund manager. Dr Faber is the author of The Gloom Boom & Doom Report which highlights unusual investment opportunities, and is the author of several books including, "Tomorrows Gold - Asia's Age of Discovery", which highlights future investment opportunities around the world. "Tomorrows Gold" was on Amazons's best seller list for several weeks.
Here is a short section of Dr Faber's Bio, which provides a track record of his financial forecasts:
Famous for his approach to investing, Marc Faber does not run with the bulls or bait the bears but steers his own course through the maelstrom of international finance markets. In 1987 he warned his clients to cash out before Black Monday on Wall Street. He made them handsome profits by forecasting the burst in the Japanese Bubble in 1990. He correctly predicted the collapse in US gaming stocks in 1993; and he foresaw the Asia-Pacific financial crisis of 1997/98 and the resulting global volatility.
Dr Faber, believes that at some point in future, investors will lose faith in the value of US dollar denominated bonds and in the US dollar. At such time he believes, investors will drive US interest rates much higher resulting in tumbling bond prices and rush into anything but US assets such as equities and bonds.
Dr Faber said "This does not mean that all US dollar assets will collapse in nominal terms, but they could collapse against a 'hard currency' such as gold or possibly against non-US dollar currencies, provided foreign central banks pursue tighter monetary policies than the US. This, however, is an issue about which we cannot really be certain, as all central bankers have a propensity 'to print money'. Therefore, I feel that asset prices will tend to depreciate against the only currencies for which the supply is limited - gold, silver, and platinum."
Dr Faber points out the continued decline in the Dow/Gold ratio from a high of 45 to its current level of 20. The Dow Gold Ratio is the number of ounces of gold that is required to buy one Dow Jones.
Dr Faber said " What is, however, interesting is that despite the stock market's rebound since October 2002, the Dow/Gold ratio has continued to decline. Simply put for the holder of gold - the world's only honest currency, since it cannot be printed by some dishonest central banker - the Dow, although it increased in value in dollar terms, has continued to decline in gold terms with the result that, today, it 'only' takes 20 ounces of gold to buy one Dow Jones Industrial Average."
Dr Faber predicts in the future it will take only one ounce of gold to buy the dow jones.
James Turk of GoldMoney.com has also pointed out this same point in a recent commentary Don't Get Excited About Dow 11,000 where he said:
"Even though stocks may be rising when we look at their prices in terms of dollars, they are falling when we look at prices in terms of gold. In gold terms, stock prices have been falling since July 1999, six months before the DJIA peaked in dollar terms. As the purchasing power of gold has climbed since then, stocks have become cheaper."