The DJIA vs Gold (and Silver)

Looky here! The Dow Jones Industrial Average (DJIA) is nearing the 14,000 area. Currently it’s trading at 13,940. The all-time high is 14078.69 set in October 2007 (see chart). Suppose you’d switched from the DJIA to Gold right at the peak, You would have been buying Gold at $795.3, then on 3/31/09 switched back to the DJIA. Gold on 3/31/09 was $922.60 and the DJIA was 7,749. Should you have switched back to the DJIA, you would be at 14,000 today. Gold is 1662.30.

Many people when asked why they don’t buy Gold, they answer, Gold is too risky!” The DJIA has had a remarkable run since its bottom on 2009. The Federal Reserve has given investors everything in easy money they could ask for, however the DJIA is up 79.9% from its bottom, and Gold is up 80%.

BTW, the last major low in Gold was $704.90 in 11/08, Silver’s low was $8.83. You could buy 79.8 ounces of Silver with one ounce of Gold. Right now Gold is $1,662 and Silver is $31.24. You can only buy 53.20 ounces of Silver with one ounce of Gold. If the relationship stays the same and Gold trades at $3650, Silver could trade anywhere from $68.60 (53.2X) to $140 (26X). At 10:1 Silver trades at $365!!!

At the first peak in 2007, the DJIA was 17.7 times Gold. Today, at 13,940, the DJIA is 8.4 times Gold. Suppose you had made all the right moves from DJIA to Gold and back to Gold and were ready to move back to Gold. How many ounces could you buy today? You would have sold 17.7 ounces in 2009 and now you would be able to only buy 13.11 ounces of Gold. All that switching around had cost you $6,648 not figuring in “dealer, prep and options.”

What do you do now, stay in the DJIA or move to Gold? That’s the big question isn’t it? For me, I would make the trade and buy as much Gold here as possible. If the FED keeps inflating and buying bonds to keep interest rates down and the market soaring, I don’t think I will do better in the DJIA. The odds are that this market is going to take a hit. The odds are that a Gold market that has consolidated since 8/31/2011 is about to take another big run to $3650.