Monday, January 23, 2006

Dow Jones Industrials Ratio to Gold

As for the see-saw battle between the gold bugs and the Wall Street bulls, it is interesting to note that the Dow Jones Industrials fell to a seven year low, compared to the yellow metal. The Dow lost half of its value to gold from the September 11th terror attacks until the conquest of Baghdad in March 2003, during the second phase in the war on terror. After gyrating in a tight sideways trading range between 24 and 26, for almost three years, the Dow to gold ratio began to break down again in November 2005, falling below the February 2002 low of 21.88.

So while the recovery of the Dow Industrials since the end of the Iraqi war in March 2003 looks very impressive on paper, in "hard money" terms, the US stock market remains in a long term bear market. The latest breakdown in the Dow to gold ratio coincided with Iran's rejection of Russia's compromise proposal for averting a confrontation, and thus, possibly signaling the beginning of Phase three in the war on terror. But this time, with the EU on board the American side.


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