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
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.
The Dow/Gold ratio had continued to trend higher until the last quarter of 2018. Meaning the Dow was gaining value versus gold. The Dow to Gold ratio had touched the rising trend line since 2011 fives times in the past few years. Each time it turned back up.
But in the last quarter of 2018 the Dow to Gold Ratio turned down and broke below the blue uptrend line in December. In the first days of 2019 the ratio dipped to 17. But since then it has bounced back with shares rising in price to now be just over 19.
So it appears the trend may have finally changed. We may now see stocks falling versus gold like 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.
Nevertheless, our long term target for the Dow/Gold ratio remains around 1:1. But remember, this doesn’t necessarily mean the sharemarket has to fall. Merely that shares just don’t rise as much as gold.
Just one example would be for the Dow to fall to 8000 and gold would rise to US$8000 per ounce.
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.
Perhaps like then, we may now start to see the Dow Gold ratio turn back down now that it has hit the green trend line. As this green trend line has acted as a resistance/pivot zone multiple times during the this “FIAT only” era.
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’ve covered the gold to silver ratio extensively in recent months. So we won’t spend too much time on it here.
Suffice to say with the ratio still above 80, silver remains very cheap compared to gold. Therefore silver is currently the better buy.
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
But 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$1905, that would put silver at NZ$190 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 December 2018 the median NZ house price had dipped sharply down to $560,000. Gold in NZ dollars on the 31st December was $1904.
So the NZ housing to gold ratio at the end of December 2018 was 294 ounces ($560,000 / $1904 = 294 ounces). Back to where it was in April last year, after getting as high as 325 in November.
Here’s a chart showing the NZ Housing to Gold Ratio since the start of 2017. It shows that the NZ median house price and gold have been moving up at a similar rate. Until November 2018 where there was a spike down in gold and a spike up in the NZ median house price. But then a sharp reversal in both so the ratio plunged back below 300 again. As a result the ratio, while zigzagging a bit, the NZ Housing to Gold Ratio has not changed too dramatically since January 2017.
However the NZ Housing to Gold Ratio remains up sharply from the low it reached of 200 ounces in 2010. But again if history repeats we might 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 has moved to since 2010).
Your gold would buy an awful lot more house if the ratio were to once again 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. So we could be close to entering 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 due to gold rising faster than house prices, as gold did in the 1970’s.
Gold Ratio Conclusion
These gold ratios all seem close to peaking out. So it shouldn’t be too long before we see gold bounce back compared to shares and housing. Likewise silver is also likely not too far from staging a comeback.
Now is likely a good time to purchase either 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. Updated 22 January 2018 including all new charts for each ratio and new commentary for each ratio and where they may be heading now.