The chart below (click charts to enlarge) shows one of the potentially most important cycles in macroeconomics. It plots the Blue Chips of the U.S. industry (the Dow Jones Industrial Average, "Dow Jones index") priced in ounces of gold. The chart shows that when one real asset (industry) is priced in another real asset (gold), one does not get ever increasing prices, but instead major price CYCLES. The chart implies that the amplitude of these DJIA:gold cycles (possibly due to the increasing degree of leverage in the system) has ever grown since December 23, 1913, when the Federal Reserve Act (read more) established the second U.S. central bank, the "Federal Reserve" as we know it today. A target of the DJIA:gold ratio below 1:1 seems possible.
Click here for an alternative, less Dow-bearish version of this chart: DrBubb's Edition
The next chart illustrates the exponential (in the log-chart: linear) aligning of temporary peaks in the gold bull market since 1999. We find it worthwhile to point out the "Brown Bottom" (announcement of the Bank of England to auction off 58% of the UK gold reserves under Chancellor of the Exchequer Gordon Brown) and the Washington Agreement on the limiting of central bank gold sales (both in 1999; read more).
The step-/wedge-like structures seen in silver during earlier years have not repeated themselves since 2008 due to the sell-off that followed gold's spike to $1,030 in that year.
Gold shows step-like structures as well. Is this the great breakout?
Gold:Silver -- the major trend is DOWN. An older version of the chart below can be found here.
The long term picture:
Below a scenario for Gold:Silver at 35:1. Our long-standing old price target was more conservatively at gold $1,050 / silver $30 (see old chart here). The target has now been adjusted for the 2008 correction.
The Silver Sammy Contra Indicator -- he is the guru.
A possible medium term scenario for the EURO and gold.
In the absence of hyperinflation, a repeat of the stagflationary environment of the 1970s (read more) could lead to a scenario similar to the one shown below. However, at Approximity some believe that the DJIA:Gold ratio will dip below 1:1 over the course of this crisis.
Another useful ratio that displays a cyclical structure is the average house price expressed in gold. Below we see the average UK house price in ounces of gold since 1930. Similar to the DJIA:gold ratio at the top of this page, the leverage in the property:gold cycle has increased over the years. Large booms seem to be followed by swift busts.
Chart of the month (May 2010)
"Spot the difference."
Different political parties (here in the U.K.) may follow different monetary policies.
Is the Bank of England now really independent of the U.K. Government? We will see.
Chart of the month (March/April 2010)
"Long-term development of GBPUSD."
Will the exchange rate hit the lower boundary of the channel (the $1 level) anytime soon?
Chart of the month (February 2010)
"Interest rates peak with house prices."
At least in the UK, this seems to hold as the chart below shows. Lower rates create
inflation in house prices, until the Bank of England steps on the emergency breaks
and deflates the bubble in real terms. The lower and lower interest rates over
more recent years have created a bubble bigger than ever before.
Chart of the month (January 2010)
"Dow up = Gold flat. Dow flat = Gold up."
An interesting chart on the gold-DJIA relationship is the one below. It seems to be such that
phases of DJIA stagnation mean a rise in gold, and vice versa. The DJIA seems to stay flat for around
20 years in the stagnation phases.
Chart of the month (December 2009)
"The top callers in gold have not done their homework. The comparison shows that the recent increase in the gold
price can not even compare with the rise in the early 1970s."
A comparion of year-on-year rates with day-to-day rates.
Chart of the month (November 2009)
"The time to be in gold is when you can't earn money with a savings account that pays the Federal Funds Rate."
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