Gold vs DOW

Bill Bonner – September 20, 2016

We once proposed a simple trading model…

When the Dow is worth less than 5 ounces of gold, buy stocks and sell gold. When the Dow is worth more than 10 ounces of gold, sell stocks and buy gold.

Gold is real money. It is connected to real wealth. The quantity of gold increases, but only about as fast as the quantity of goods and services that it can buy.

Stocks represent real wealth, too. It makes sense, at least to us, that there should be a more-or-less predictable relationship between real money and the companies that produce real wealth.

Just eyeballing the chart below, we see stocks going up and down. But we see a pattern, too.

You could have turned 10 ounces of gold – worth about $180 in 1917 money – into 320 ounces, worth over $400,000 in today’s dollars.Had you stuck with our trading model, rigidly, over the last century, you would have had five opportunities to double your money.

Assuming the dollar lost 95% of its buying power, that represents a real gain of about 1,000%.

What should you do now?

The chart is unambiguous: Sell stocks. Buy gold.