We thought it about time for an 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 shares are versus gold.
The Dow/Gold ratio continues to trend higher – meaning the dow is gaining value versus gold. The Dow to Gold ratio has touched the rising trend line since 2011 fives times in the past couple of years. Now sitting just under 19.
Some time before too long we will see stocks falling versus gold like they were from 2000 to 2011.
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.
For example the Dow might 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 will see the Dow Gold ratio turn back down once it hits the green trend line that has acted as a resistance/pivot zone multiple times during the this “FIAT only” era.
The Gold/Silver ratio is simply the number of ounces of silver it takes to buy one ounce of gold. Or 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 near 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: Gold to Silver Ratio Update for 2017: Time to Buy Silver Again
Also this recent 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 April 2018 the median NZ house price had jumped up to $550,000. Gold in NZ dollars on the 30th April was $1865.
So the NZ housing to gold ratio at the end of May was 295 ounces ($550,000 / $1865 = 295 ounces).
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. As a result the ratio, while zigzagging a bit, 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 again, like we said earlier with regards to the Dow Gold Ratio, we could just see gold rise 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