Savers and investors use this one tool to find the best time to buy and sell gold and stocks. Here's why it's so great.

What can we learn from the Dow-to-Gold ratio?

What Can We Learn From the Dow to Gold Ratio?

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 or investment portfolio, you might think you need a magic crystal ball 🔮 to predict the 

, and pick the right time to buy or sell your bars and coins.  

Well, it's almost true. There’s no strategy that will give you a definite answer, but there’s a tool that could help you make a well-informed decision. It’s called the

Over the years, this ratio has helped many savers and investors avoid some of the biggest stock market crashes, 

steering them toward safe-haven assets like gold at the right time

Let’s see how the Dow to gold ratio works and how it can help you understand 

Financial graphs and digital indicators overlap with modernistic urban area

The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index that tracks the stock price of 

Amongst them: Apple, Goldman Sachs, Johnson & Johnson, McDonald's, IBM, Coca-Cola, etc...

 how many ounces of gold it takes to buy the shares in the Dow Jones Industrial Average index

. For example, if the ratio is 10, that means we need 10 ounces of gold to buy the Dow.

Now, this ratio is actually pretty useful because it can tell us whether stocks or gold are more expensive or cheap. Here's how it works:

stocks are expensive and gold is undervalued

. In other words, you'll need a lot of gold to buy the Dow, which means stocks are probably overpriced compared to gold. Conversely, when the ratio is low, that means 

stocks are undervalued and gold is expensive

So what does this all mean? Well, basically, if the ratio is increasing, that's a sign that you might want to sell some of your stocks and buy some gold instead, and vice versa.

Investors have been using the gold-to-Dow ratio for over 100 years to 

One notable investor who uses this ratio is Bill Bonner, who focuses on the 

. Bonner sells stocks and buys gold when the ratio goes above 15, indicating that gold is undervalued compared to the Dow. 

Otherwise, Bonner sells gold and buys stocks when the ratio falls below 5, suggesting that stocks are undervalued relative to gold.

 it takes 15 ounces of gold to buy the Dow. Gold is considered undervalued (cheap) compared to the Dow Jones Index.

 this means that it takes just 5 ounces of gold to buy the Dow. Stocks are undervalued relative to gold.

To give you some more pointers, let’s also take a look at how the Dow to gold ratio has worked through history.

Throughout history, the gold-to-Dow ratio has experienced significant fluctuations, ranging from a low of 1.0 during the stock market crash of 1980 to above 40 during the dot-com bubble of 2000.

Wallstreet bull and bear on stock chart background representing a positive outlook for gold

, which means that those who use the ratio might interpret these fluctuations as a reason to be 

A historic Dow to Gold ratio chart running from 1930 to 2023.

As you can see, in June 2022, the Dow to gold ratio experienced a significant decline. Analysts have noted that following financial crises, the ratio tends to decrease rapidly. For instance, in 2010, the ratio dropped to approximately 7, and in 1980, it fell to as low as 1.

However, in January 2023, the ratio went 

territory, according to Bill Bonner’s take on the Dow to gold ratio.

So, are you planning to follow the ratio and ditch some of your stocks to get yourself some 

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