QUESTION:
Martin,
Thank you for clearing up all this gold propaganda about backwardation and comex workings that I keep hearing. I do have one question that some gold bugs keep bringing up.
I hear them talk about the DJIA to Gold ratio and how the ratio will go back towards 1 when the gold market and the commodity cycle peaks and the secular bear market makes it ultimate low. Do you have any thoughts about the secular bear/commodity bull and is there anything magical about DJIA to Gold ratio?
Also, looking at commodity charts, it appears commodities peaked in 2008 do you have forecast of when that peak will be overtaken?
Best Regards…Jeff
ANSWER: The DJIA v Gold ratio is about as valid as the Silver/Gold ratio. All things fluctuate and trying to predict one based on another is meaningless. The commodities peaked in general and that should be an overall 5 year decline. Gold has penetrated the 2011 low of 1286 and that warns that we should see lower lows in 2014 especially if we close below that at year-end or at least below 1442.
Gold rallied aggressively WHEN? Once the ECM turned down in 2007. Why? It was a decline in the confidence of government. Gold peaked with the low in the ECM in 2011 and it should rise after 2016 into 2020. This is a matter of the overall business cycle.
If we see the Dow Jones Industrials soar, this will signal the shift is starting. We are dealing with a set of dominoes. One thing at a time. A Dow rally will show the shift in pension funds and this will then cause rates to rise and that is what we need to start the inflationary spiral.
