Wednesday, September 2, 2009

Dow to Gold Ratio

Take a close look at the chart below. This is a chart of Dow Jones Industrial Average (DJIA - DOW30) to price of Gold in terms of Dollars per Oz.

Right through the bear market cycle from Oct 2007 to the bottom in March 2009, the ratio had fallen from a high of 21 odd levels to just below 7 (6.86 to be precise). In the 5 month bounce the ratio has moved back again to 10 odd levels... and over the course of last few days, has started the descent back down...the move down can be precisely monitored in the daily charts...

DOW-GOLD - Weekly chart

DOW-GOLD - Daily chart

With Gold's breakout today and the headwinds in Dow entering the weary months of September / October, we believe we have seen the highs of the ratio for the year. Investors can position themselves to profit from the trade by going long gold and shorting DJIA - using any available and preferred channel - ETFs (Long GLD or DGP, Short DIA,DDM or Long DXD) Futures, Options etc.

This trade requires patience as the trade takes time to make itself profitable and the ratios may snap back for brief periods of time, but the patience will be truly rewarded and satisfying.

More on the ratio in upcoming posts...

No comments:

Post a Comment