With the price of gold continuing to move higher over the past few months, it’s time for another updated look at a number of gold and silver charts and gold ratios including:
- Shares versus Gold Ratio
- Gold Silver Ratio
- Housing to Gold Ratio
- New: OktoberFest Beer to Gold Ratio
The relationship between gold and shares is best tracked by the Dow/Gold ratio.
The Dow/Gold ratio takes the value of the US Dow Jones Industrial Average and divides it by the price of one ounce of gold in US Dollars. Or put another way – how many ounces of gold it takes to “buy the Dow”. Basically a measure of how cheap (or expensive) shares are versus gold.
Up until the last quarter of 2018, the Dow/Gold ratio had been moving higher. This meant the Dow was gaining value versus gold. Since 2011, the Dow to Gold ratio touched the rising trend line fives times. But each time it turned back up.
The Trend Has Changed
However in the last quarter of 2018 the Dow to Gold Ratio turned down and broke below the blue uptrend line in December. In the early part of 2019 the ratio dipped to 17. Then bounced back up above 20. Now with gold rising since June, the Dow to Gold Ratio is back at 17. So the downtrend from late 2018 looks to still be in place.
So with the ratio unable to get back above the blue uptrend line, we may continue to see stocks falling versus gold. Just as they were from 2000 to 2011. Of course there is always the chance this was merely a head fake and the uptrend may yet resume. But this is looking less likely now.
Nonetheless, our long term target for the Dow/Gold ratio remains around 1:1.
One example would be for the Dow to fall to 8000 and for gold rise to US$8000 per ounce.
But remember, this doesn’t necessarily mean the sharemarket has to fall. Merely that shares just don’t rise as much as gold. In fact, that is just what we are seeing currently.
See the very long term Dow/Gold Ratio chart below from Sharelynx.com for why 1:1 (or even lower) looks like a good bet. The rise of the last few years looks remarkably similar to the mid 70’s rise, before gold resumed its upward march. And the ratio once again fell. Is history repeating or rhyming at least?
Now that the ratio has hit the green trend line, perhaps like the mid 1970’s, we may now start to see the Dow Gold ratio turn back down and continue lower (indicated by the dotted blue arrow). As this green trend line has acted as a resistance/pivot zone multiple times during this “FIAT only” era since 1913.
Read more on the Dow/Gold Ratio: How Does Gold Compare to Shares For the Past 100 Years?
The Gold/Silver ratio is simply the number of ounces of silver it takes to buy one ounce of gold. To calculate the gold to silver ratio on a given day, take the gold price and divide it by the silver price.
We covered the gold to silver ratio extensively in early September. So we won’t spend too much time on it here. But you can learn more here.
Suffice to say with the ratio now at 85 (recently reaching a 28 year high at 95), silver still remains very cheap compared to gold. Therefore silver is currently the better buy.
There remains a possibility of the ratio extending up to the early 1990’s high of 100. But even if it did, it’s unlikely to stay there for long. However, our guess is the recent fall in the ratio is the start of a longer term trend of silver rising against gold.
For more on the gold to silver ratio check out: What is the Gold to Silver Ratio?
Also this weekly newsletter of ours showed the benefits of: Using the Gold Silver Ratio to Time Buying Silver
Our long term target for the gold:silver ratio remains somewhere around 10. That is, it will overshoot the previous lows which you can see in the long term Gold/Silver ratio chart below.
At todays gold price of NZ$2384, that would put silver at NZ$238 per ounce! So potentially silver has a lot of upside ahead in this next move higher.
Housing to Gold Ratio
The Housing to Gold Ratio is a measure of how many ounces of gold it takes to buy the median house price in New Zealand.
Today we’ll take a snapshot of where the NZ housing to Gold Ratio sits currently and compare this to the past in the old chart below. (For more on the NZ housing to gold ratio see this article.)
As of the latest data at the end of August 2019, the median NZ house price was just slightly below recent highs at $580,000. While gold in NZ dollars on the 31st August had jumped slightly higher to sit at $2425.
So the NZ housing to gold ratio at the end of August 2019 was 239 ounces ($580,000 / $2,425 = 239 ounces). Down 40 since our last update in June.
Here’s a chart showing the NZ Housing to Gold Ratio since the start of 2017.
In November 2018 there was a spike down in gold and a spike up in the NZ median house price. Followed by a sharp reversal in both so the ratio plunged back below 300 again. As a result the NZ Housing to Gold Ratio, while zigzagging a bit, did not changed too dramatically between January 2017 and early 2019.
But the ratio now looks to clearly be in a downtrend. With gold prices rising faster than New Zealand house prices since March 2019. As shown in the chart above, 239 is the lowest the ratio has been for a number of years.
So after getting back up into the 300’s in 2018, the ratio is now down to the mid 200’s.
Still a long way off the low of 50 in 1980. 100 is probably the number to look out for we’re guessing.
NZ Housing to Gold Ratio Still Above the 2010 Low
However the NZ Housing to Gold Ratio still remains up from the low it reached of 200 ounces in 2010.
If history repeats we might even see this ratio head back down well below 100 ounces like it did in 1980. (See the long term chart below. For now we’ve just hand drawn an extension to each line to indicate where the ratio and median house price have moved to since 2010).
Your gold would buy an awful lot more house if the ratio was once again to head below 100 ounces. With rising house prices constantly in the news it may seem hard to believe it could happen.
But with Auckland house prices looking to have topped out, the rest of New Zealand usually follows but with a lag. Now we also have the NZ gold price rising. So we may have already entered a period where the ratio heads lower.
Also, like we said earlier with regards to the Dow Gold Ratio, the housing to gold ratio could fall simply due to gold rising faster than house prices, as gold did in the 1970’s. Therefore a lower ratio doesn’t solely reply upon falling house prices.
Oktoberfest Beer to Gold Ratio!
Here’s a new gold ratio to take a look at. Care of our friend Ronnie Stoeferle at Incrementum. It’s the Oktoberfest Beer to Gold ratio!
Why not measure the value of beer in gold or gold in beer! A staple “food” product is consistent across the decades. So is therefore a nice uniform comparison we can make.
The gold/Oktoberfest beer ratio expresses how many Maß of beer (the traditional Bavarian one-litre mug), can be bought with one ounce of gold.
The price of a Maß of beer has risen again this year to a maximum of 11,80 EUR, compared to a maximum of 11.50 EUR last year, resulting in an Oktoberfest beer inflation rate of 2.6%. (1)
This is slightly lower than last year’s rate of 2.8%. Again, prices increased significantly more than the general price level. For comparison: In 1950 the guests had to put only 0.82 EUR on the counter for one Maß [For ease of comparison, DM prices converted into euros]. Since 1950 the inflation rate for Oktoberfest beer has averaged 3.9% per year.
But how many Maß of beer does one ounce of gold buy? For the gold investor, this price is certainly of greater interest than the price in euros, as it shows how the purchasing power of gold has developed over time.
Whereas in 2018 one ounce of gold bought 93 Maß of beer, this year’s equivalent is 115 Maß [as of September 19, 2019]. The sharp rise in the price of gold, which just recently reached a new all-time high in euros, is clearly making itself felt this year. Measured against the historical average of 89 Maß, the “beer purchasing power” of gold is now considerably above the long-term average. We are, however, still well away from the historic high of 227 Maß per ounce of gold in 1980. But also, the low of 1998, when an ounce of gold bought only 46 Maß of beer, is a long way off.
Therefore, much like our other measures, such as Housing to gold and Dow to Gold ratios, the Beer ratio is also telling us that gold is still some way from reaching its full valuation.
Gold Ratio Conclusion
Both the Dow to Gold ratio and Housing to Gold ratio seem to have peaked out. So we may already be witnessing gold bouncing back compared to shares and housing. Likewise silver may also be in the early stages of a comeback.
So now is likely a good time to purchase either silver or gold as a long term hold. Go here to buy gold or silver now.
Related – Learn more about when to buy gold and silver see: When to Buy Gold or Silver: The Ultimate Guide
Editors Note: This article was first published 15 May 2018. Last updated 30 September 2019 including all new charts for each ratio and new commentary for each ratio and where they may be heading now.