http://marketoracle.co.uk/Article10999.html How’s this for a bubble? In 1965 one in ten Americans owned stocks. It took 25 years for stock ownership to double. And most of that growth came between 1983 and 1990 with the introduction of 401(k)s, IRAs and other stock-based retirement plans: suddenly anyone with a large scale employer could invest in stocks without having to open a brokerage account. Thanks to the Internet and low fee online brokerage accounts, it only took seven more years for stock ownership to double AGAIN. Put another way, the rate at which new participants entered the market accelerated four fold between 1990 and 1999. At the end of the 20th century, 48% of US households owned stocks. This is the one bubble no one talks about. The bubble in “investing in stocks.” Never before have so many Americans done this. It gave us one of the biggest bull markets in stock history: a mega-18 years run from 1982 to 2001. And it also means that stocks have got a long ways to fall to get back in line with their historic relationships to other asset classes. Particularly gold. A lot of commentators talk about how gold is near an all-time high and that stocks have fallen 50% making them cheap again. However from a long-term perspective, gold and stocks are nowhere near their normal relationship. According to Dr Marc Faber, editor of the Gloom Boom Doom report, gold and stocks move in distinctive long-term trends. Over the last 110 years, these trends has staged six major phases: * 1900-1929: stocks outperform gold * 1929-1932: gold outperforms stocks * 1932-1966: stocks outperform gold * 1966-1980: gold outperforms stocks * 1980-2000: stocks outperform gold * 2000-???: gold outperforms stocks Overall, the median stock to gold ratio for the last 106 years was 5.4. In other words, throughout the 20th century, on average 5.4 ounces of gold would buy one unit of the DJIA. Today, gold trades at $980. The DJIA trades at 8,500. This puts the ratio of gold to stocks at 8.6. Thus, the DJIA needs to fall to 5,292 (a 37% drop from today’s level), gold needs to rally to $1,574 (a 60% rally from today’s level), or some combination of the two, in order for gold to be appropriately priced relative to stocks. When exactly this will happen is anyone’s guess. The gold vs. stocks trends over the last 106 years have ranged in length from three years to 29 years. However, judging from the Fed’s money printing and the recent action in gold, it’s quite possible we’ll see a mammoth run in the precious metal sometime in the next 18 months. You should prepare your portfolio accordingly.
Interesting post, thanks--that's some fascinating information. Why did Richard Nixon remove America from the Gold Standard, and what would be the benefits or problems of putting America back on it?
Nixon removed the gold standard because European countries were stampeding to cash in their US dollars for gold. Because they knew the US government was printing fake money to pay for the Vietnam war. Much like what is happening RIGHT NOW!
I would throw out pre-1955 history of Dow to Gold because I feel that was a different world. If you do that the current Dow to Gold level is about correct. But what if both the Dow and gold are overvalued?
How is any of this relevant or even true? How can you compare gold prices to gold durring the period between 1933 and 1972 when private possession of gold was illegal in the US and the price of gold for foriegn exchange was fixed by government fiat ($32 per ounce)? http://www.the-privateer.com/1933-gold-confiscation.html But given your inclinations from previous posts. This is my advice to all of you conservatives or whatever you want to call yourselves...sell all of your stocks (if you have any) now now NOW and run for the hills. And I will buy buy BUY the good ones. My portfolio is up by 31% thus far this year...keep it up boys and girls I like taking your money!!!!
I agree, but not all forms of gold were illegal, and these complications only apply to the US. The market would primarily reflect true values aside from government price fixing.
If you agree, since there was no domestic unregulated gold market in the US...gold price in the US was fixed by the government. You cannot logically tie it to an asset that is market priced...makes no sense. http://www.uiowa.edu/ifdebook/faq/faq_docs/gold_standard.shtml
My inclinations are to avoid associating with any party. If I say something critical of the democrats its not because I prefer the republicans. In fact, I dont believe there should be any parties at all.
But these, I take it, are measures of price against index. The BIG question is: what happens when you factor in DIVIDENDS? I agree with the sentiment that gold will take a big rise at some time in the next year or two, but I am mostly invested in resource stocks and shall probably keep it that way -- except for moving into real estate, hopefully at the right moment (which may not be far away). I am told that the day when gold can be recovered from sea water (via genetically engineered phytoplankton) is getting closer. Beware!
All I know is that it's never a bad time to buy gold. Not in the nickel and dime way, but as a strategy overall.
It's a rainy day investment. I for one still predict more rainy days... "I am told that the day when gold can be recovered from sea water (via genetically engineered phytoplankton) is getting closer. Beware!" Seriously? How long have they known how to get gold from sea water???
I am going to go on record as predicting gold $500 in five years. At the moment, there is no indication that we have an inflationary problem with the economy despite all of the money the Fed has pumped into the economy. What people tend to forget is that the money supply is dynamic. The Fed can increase the supply of money just as easily and as rapidly as it can decrease the supply of money. There is definately a lot of speculation going on related to inflation. But I do not see that as a likely outcome given the key players in this government. If we had a George II or a George III as president, I would be buying gold, silver and a lot of ammunition.
They don't . . . not yet. It comes as a big surprise to most people to discover that much gold may be of biological origin -- having being concentrated out of solution by bacteria. Genetic engineers have merely to discover the trick performed by nature at certain stages of Earth's long history and implant the technique in a suitable organism. Guess: say 15 to 25 years from now.
Do you have some links or argument to back this claim? I find it very strange as gold is not very reactive - what process could the bacteria use to select it?
All I can say is that REALLY spooks me out, but i'm not going to tell you why. It doesn't matter, it will not be cost effective, probably ever, considering human labour is going to cost less in the future.
This came under discussion at the big Science Festival currently taking place in my home town (Cheltenham, UK). I don't regard myself as having expertise in this subject, but if you research it on the Internet (e.g. Google "gold origin bacteria" etc) you will get plenty of hits and discover a lot of research has been done over the years.
Although this ratio thingy is interesting to mess with, since the Dow is not a standard group of stocks but a constantly changing indicator, the comparison is invalid. Basicly you can not really use the Dow for historical comparison because once a company goes down, they replace it with a successful one...
There are several popular ratios that used together can be a reliable indicator. Oil price per barrel vs. gold per ounce Gold vs. a basket of currencies Gold vs. the currency that you hold your gold in is the one that really means something. My bullion is at BullionVault and I do recommend them, and gold even now at these levels. Todays decline is an entry point for a portion of what you want to invest. Try dollar cost averaging into gold like you would any investment to smooth out the buy points. If you decide to use BullionVault or any of the services that hold your physical bullion, be aware that it takes about two weeks to set up and fund an account due to verification procedures. Get started.
How can one know they (and others like them) are not just like the original middle ages inventors of Fiat money gold certificates? I.e. They issue more gold certificates than they have gold in the vault, and depend on fact not all (in fact few ever do) want to take physical possession? This is the “Madoff era,” and that may not even be illegal. – All the banks do it. (Total of savings account deposits far exceeds the money in the vault they can pay out as most of it has been loaned to others.) In the contracts they issue is there the same “fine print” that banks have, which reserves the right to not deliver the gold for some period of time? (Long enough to declare bankruptcy.)
