"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, August 16, 2013

Dow Jones/ Gold ratio - by request

I like to track this ratio to see if I can glean what investor sentiment is towards the precious metals in relation to stocks. As can be expected, with the horrific sell off in the precious metals sector this year, coupled with the surge in US equity markets into all time highs, the ratio has been rising since the beginning of this - until the beginning of last month (July) when it began to move in favor of gold once again.

It could very well be that some large investors are seeing US stocks as overvalued and in the latter stages of a bull run compared to a beaten down sector which is undervalued and needs further long side exposure. For whatever reason, over the last 6 weeks or so, gold has outperformed the Dow Jones.

Additionally, the indicator below the price graph has now crossed below what is a signal or trigger line for the first time this year. That would entail that gold is coming back into favor when compared to expensive stocks.

while I do not like becoming too dogmatic when using these ratio charts, they are still very informative as to SENTIMENT.

By the way, I have noted the very clear, textbook perfect example of what is called "Bearish Divergence" on this chart. While the ratio was going on to make new highs the indicator measuring momentum was making a series of lower highs. In other words, the upside momentum was waning. Translation - there appears to be a very slow yet growing shift in sentiment in favor of gold and away from equities.

This does not mean that the stock market has topped out and the bull run is over - what I think it means is that gold is slowly coming back into favor among some larger investors.

Stay tuned!


  1. Always look forward to your commentary Dan thank you for your efforts and guidance in these turbulent times .

  2. You have an excellent knack for specific guages which help us students. Few words which reflect a conciseness of expression giving us the greatest assistance in mastering/understanding the GOLD market. Thank you Master Dan!!!

  3. http://s15.postimg.org/cyeha8irf/gld.jpg

    Can we see a cup and handle in this chart?
    There seemed to be a revert cup and handle before, which led us precisely to its target around 1180 $.
    Now, we have the symetry, with what seems to be a cup and handle with a target around 1480 $.
    It would be nice if we could go there by mid september, following the trend of the pitchfork, without ever breaking the mlh inf which could be use as a support and allow me to put my stop losses higher and higher.

    I had to buy stop at 1345 recently, having missed two opportunities to buy on the dips before. First one at 1280 because we went under the ma20 and I didn't like it.
    Second one very lately, because I put a buy order too close to the mlh inf and 1300 $ level. Lowest support held at 1320 and I missed the spot.

    Dow/Gold ratio : you can also find an interesting chart in this link. The post is in french, but scroll down a bit and you'll find the long term history of Dow/Gold and maybe a target of 1:1 when this mess is over :)

    Have a nice weekend :)

  4. Dan,

    Always enjoy comments and your lucid writing style. I don't use your charting service. I use Stockcharts.com instead. Stockcharts allows for ratio charts like the Dow/Gold ratio you are showing. But what is the name of the indicator you are showing with the 0 signal line you show at the bottom of the chart? I would like to see if Stockcharts has that indicator as well.

  5. Hi everyone

    I like to buy into market when it is extreme bearish.. and sell when thing is xtreme bullish which usually very good deal.

    I am all in at around 1200, and silver at around 18.00 , my average at 1270 for gold and silver at 19.2...i never try to pick the lowest entry point but i accumulate when thing look bad and sell when thing look good

    I will post total contract i have purchase and price sold once i close all position..

    Please note that i will be seller on the way up from here .but not right.. now i am watching the ride.

    Just like stock, i am on the short side... just to make sense out of you guy.

    the equities market have being on rally mode for the pass 5 years and from worse News and indicator untill now, the market is getting good news then the best time to sell is when thing are rosy...

    now economy indicator is control by large speculator, they controlling both interesting rate to oil or commodity and exchange rate.

    they can create both good news and bad news. Now the crude oil is holding up well but lack on fundamental. I think the crude will go up from here same for soft commodity.

    I am not making any call nor advise any position. investment is like music chair game with 20 players but only 10 chairs. So the last person to have the seat will be the most luck one.


  6. He is 100% right!
    So I will NOT buy more than I already have at 1345 next week even if gold keeps rallying. It's already too late short term. Stop loss probably around 1340 to cover my position.


    Have a nice weekend,

  7. Hello,
    I'm not giving détails about the reasons because it's very short-term, and I would have to bother you every 30 minute with intra-day updates, lol, but FYI, I'm temporarily out of 50% of my recent buy in gold at 1365.
    To make it short, MACD 4H is going down, on the 1H or 2H we have a downwards pitchfork and we can't really go through the mlh sup, with the horizontal support at 1360 being threatened. Plus daily, ma20 is horizontal, and if I trace a parallel to it a bit down, it perfectly joins the last bottoms, and meets the ma50 at 1310.
    Sorry if I speak "chinese" here, I just have a vague feeling that we may correct to 1330 today and 1310 tomorrow. If I'm wrong, I'll know pretty soon because we will then break 1370 on the way up. So I can always get back in quickly.

    Why am I bothering you with all this intraday stuff when you are interested in longer-term units?
    In fact to say that I think that we may correct towards 1310 pretty easily from here and still find a bullish support in that area, close to the ma50 and the 38% fibo of the recent upwards move. 1310 is below the mlh inf of the upwards pitchfork I krew recently, but I think it's ok.
    So my correction is : the uptrend is not broken as long as 1308 area is not broken.
    Thanks for bearing with me on this one :) :)

  8. seems that we are leaving the pitchfork and the mlh sup. Bought back position at 1367...ok that's all for today :)


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