With the price of gold recently moving higher, 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. With the Dow to Gold ratio touching the rising trend line since 2011 fives times in the past few years. Each time it turned back up.
The Trend Has Changed
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 early part of 2019 the ratio dipped to 17. Then bounced back up above 20. Now with gold rising again, the Dow to Gold Ratio is back at 17. So the downtrend from late 2018 remains in place.
Now with the ratio unable to get back above the 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. But remember, this doesn’t necessarily mean the sharemarket has to fall. Merely that shares just don’t rise as much as gold. That is just what we are seeing currently.
One example would be for the Dow to fall to 8000 and for gold 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. Is history repeating?
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 (indicated by the dotted blue arrow). 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 now above 90 (recently reaching a 28 year high), silver 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.
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$2102, that would put silver at NZ$210 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 June 2019, the median NZ house price had risen back to a record high of $585,000. While gold in NZ dollars on the 30th June was $2099.
So the NZ housing to gold ratio at the end of June 2019 was 279 ounces ($585,000 / $2,099 = 279 ounces).
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, has not changed too dramatically between January 2017 and early 2019.
But the ratio now seems to be in a downtrend. With gold prices rising faster than New Zealand house prices. As shown in the chart above 279 is the lowest the ratio has been for a number of years.
NZ Housing to Gold Ratio Still A Long Way From 2010 Low
However the NZ Housing to Gold Ratio still remains up sharply 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 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. 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.
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 is also likely not too far from staging a comeback.
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. Updated 22 January 2019 and again 16 July 2019 including all new charts for each ratio and new commentary for each ratio and where they may be heading now.