The price of gold has continued to move higher in 2020. So 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
- 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. The trend since then has been steadily lower. But with the stock market crash brought about by the spread of COVID-19, the ratio dropped below 12. Now with the US share market bouncing back a little the Dow to gold ratio is currently at 13. So a downtrend clearly remains in place.
It appears even more likely we will continue to see stocks falling versus gold. Just as they were from 2000 to 2011.
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.
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?
That is, with the ratio hitting the green trend line (like the mid 1970’s), are we now seeing 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 March. 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 110 (recently reaching an all time high at 130), silver still remains very, very cheap compared to gold. Therefore silver is currently the better buy.
History shows that the ratio doesn’t usually stay at these extreme levels for very long. So at some point we will likely see silver play catch up to 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$2828, that would put silver at NZ$282 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 February 2020, the median NZ house price had jumped quite sharply to get to $640,000. While gold in NZ dollars on the 29th February also moved higher to sit at $2500.
So the NZ housing to gold ratio at the end of February 2020 was 256 ounces ($640,000 / $2,500 = 256 ounces). Up 5 since our last update in September.
Here’s a chart showing the NZ Housing to Gold Ratio since the start of 2005.
The Ratio reached a peak near 500 as the pre-2008 housing boom saw house prices skyrocket in New Zealand. The ratio of median house price to gold then fell as house prices stagnated and gold conversely rose through to 2011.
The ratio then rose again, topping out in 2017. It has been slowly trending lower since then. 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 where the ratio bottomed out at 55 ounces to buy the median house price in 1980).
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.
On top of this, none of the numbers above show the impact of the COVID19 lockdown. It may take a while to filter through, but it would not be unreasonable to expect house prices to at the very least stall for a while now. This won’t show up in the data for a few months most likely.
So we may have already entered a period where the ratio heads lower. That is, gold outperforms property.
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 have bottomed out in comparison to gold. So we could be in the early stages of a silver 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 14 April 2020 including all new charts for each ratio and new commentary for each ratio and where they may be heading now.