Prudent Bear's excellent presentation "The case for a secular bear market" includes a graph of the Dow divided by the price of gold, from 1920 to 2005.
Taking the present values - Dow 13,056.72, gold $864.80 - the formula works out at 15.098, which suggests that the Dow is still well above trend.
Some would see this as indicating a coming gold spike; but another way to rebalance is for the Dow to fall. As credit deflation takes hold, I suggest that in 2008, both gold and the Dow will drop below their current levels, but the Dow more than gold.
UPDATE
Gary Dorsch is looking at the same ratio ("By the end of 2008, the DJI to Gold ratio might tumble towards 10 oz’s of gold"), but thinks the rebalance could happen the other way, through destructive inflation.
If so (and he doubts that it's possible), Karl Denninger thinks you'd still be better off betting on the Dow, using call options:
So tell me again - if you believe in "hyperinflation" - why do you want to buy the clear LOSER of an asset that metals represent, when you can buy index CALLs and, if your thesis is correct, you will make an absolute stinking FORTUNE!
(Of course if you're wrong and the DOW is under 16,000 by the end of the year, that $20,000 is totally flushed. That's the price of poker - but again - just how sure are you that "The Fed" is going to "hyperinflate"? And by the way, no, I don't think they are - in fact, I don't think they CAN.)
SECOND UPDATE
Gary Tanashian sets a target of $920 for gold, but anticipates a drop-back anytime; but longer term, Julian Phillips can't imagine governments NOT hyperinflating, to avoid the horrors of deflation.
The astrologers continue to mutter and gesture over their charts.
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