Questions about the DOW / Gold ratio

[pug]

For those of you who follow and understand the DOW / Gold ratio, I have few questions I hope you can help with:

1) What caused that 1980 high in gold price to happen? How likely is the 1980 high in gold price to happen again? The Dow /Gold theory people often point to the 1:1 ratio from 1980 and suggest we are returning there. What makes them say this is likely?

2) Other charts of the Dow / Gold ratio show a large trend of parallel highs and lows and suggest we are likely to see a DOW/Gold ratio that bottoms out at around 5. What I wonder about this is that the bottom two points used to mark the bottom trend line is 1933 and 1980. Two points don't make a trend line. Isn't this just another guess like when people say it's going to reach 1?

3) Considering that we don't really know the bottom, isn't it likely that we already have been there at 6 in September 2011 and now we are more likely to return to a Dow / Gold ratio of 20, considering that seems to be the average of the trend going back to 1800?

4) It seems accurate to say that what the Dow/Gold ratio really tells us was that the year 2000 was a great time to get into Gold when the Dow/Gold ratio was 43:1 when gold was cheap and stocks were expensive. However considering my 3 previous points, wouldn't this suggest that 'the run' is now over and this is the low end of the trend and a poor time to get into gold?

I appreciate your insights regarding the 200+ year history of the DOW / Gold ratio, and what we can learn from it.

 

[Atomic79]

This is an educational post. Where are all the chartists????

How high will stocks go... ? I'm anticipating a much higher DOW... Maybe past 20,000. Expensive stocks, cheap gold and silver.
ATM, 15,000. It took no time to get to that level with all the $ printing.
At around 20,000, I'm expecting a huge crash....spectacular. The pendulum swings the other way...
Will it go as low as 1:1? Wait and see.

In any case, this may take many years to play out. I've got about 30 years to wait and see.
(Not that I don't regret selling a bit of silver at $45 ... That was greed on my part and a lesson for the future!)

 

[Clawhammer]

1) What caused that 1980 high in gold price to happen?

Russian Invasion of Afghanistan, Iran hostage crisis, Inflation in the US, high oil prices, US boycot of the Olympics, Hunt Bros. cornering the silver market, Punsktawny Phil stayed in his box late that year, the Dodgers had a bad innings, there was a foot less snow in Maryland... you name it someone has claimed it as the causal reality of the 1980 spike.

However, none of these events are REALLY that significant compared to other geopolitical events. Gold didn't spike with the later invasion(s) of Iraq, 9/11, the current middle east tensions or the current fiscal problems in the US that dwarf the Volker years.

Truth is, no one really knows for sure what drove the price so high in 1980, nor why it retreated.

How likely is the 1980 high in gold price to happen again?

It's just as likely to happen as it did the first time. All you have to do is identify the cause of the 1980 spike.

The Dow /Gold theory people often point to the 1:1 ratio from 1980 and suggest we are returning there. What makes them say this is likely?

Ignorance...and vanity...and ego... and...wishful thinking.