Silent Crash: Dow Continues Slide vs. Gold

Rise in equities got ya bullish? Be cautious. Amidst the October push to 11,000, the Dow Jones Industrial Average has continued its calamitous descent against gold which began in 2001 and shows no signs of abating. The silent market crash is real, and the fall of this paper tiger is surreptitiously ferocious.

As I wrote earlier this year, gold is not an investment. Gold is money - real money (See: Aristotle). Today, the rise in the Dow is being shown for what it really is - a crash - by that golden bedrock of monetary stability.

In the past 10 years, gold has fallen in nominal value sharply at times. In 2008, it plummeted over 20% in six months. It may happen again. But the real statistic worth measuring is purchasing power.

Gold's real value is determined not in the price of a fiat currency, but as a ratio to other assets. The Dow/Gold ratio simply determines how many ounces of gold it takes to purchase one Dow Jones Industrial Index. Whether the economy suffers through deflation or hyperinflation, it's the purchasing power that matters.

Dow/Gold Ratio

I follow the Dow/Gold ratio closely as a measure of equity strength. It is worth noting that, in the two most difficult economic periods in the past one hundred years, the Dow/Gold Ratio approached 1. As of today it sits at 8.16.

July 1932 - Deflationary Depression
Dow 41.22, Gold $20.67
Ratio: 1.99

January 1980 - Inflation
Dow 872, Gold $850
Ratio: 1.03

Will the gold price catch the Dow to the upside as a result of hyperinflation, or will the Dow plummet towards the gold price in a deflationary vacuum? There are well-qualified arguments for each scenario. Regardless of direction, what we do know is that the ratio is narrowing - and fast!

'Til next time, that's my Saab Story.

Tarek Saab

Trusted Bullion

Tarek Saab is the President of Trusted Bullion and a former finalist on NBC's "The Apprentice" with Donald Trump. He is an international speaker and syndicated author.