Inflection Point

Data on housing in Canada is telling:

From Breakfast with Dave (September 16)

"All bond yields have to do is inch up for a couple of weeks and all hell breaks loose in the mortgage application data; down 8.9% last week onto of a 1.5% falloff the prior week".

Consider this chart from Calculated Risk:

Note is CR's chart that almost every time since 1970 that the Philly Fed index has dropped substantially below zero, a recession followed.

Now consider the Dow to Gold Ratio:

We notice several things in this chart:

1) This ratio has failed to breach the 200 day MA in the past 6 months

2) Currently the ratio is struggling to even touch the 50 day MA

3) A death cross formed at the end of May

4) It now takes only slightly over 8 ounces of gold to "buy the Dow" today. It took nearly 42 ounces of gold to buy the Dow in 2000.

Certainly gold has outperformed the Dow by a substantial margin for 10 years. It has, as we saw in yesterday's post, also outperformed bonds for the last 10 years.

This leads to my question.

Is gold well on its journey, after 80 plus years of central banking, to replace the US dollar as the global reserve currency and store of value?

Have we reached the Inflection Point?


  1. I sure hope gold isn't in that position... There is a limited supply of gold in the world. By 2050 the world population is going to be around 9 billion. If gold was the main currency, then more people in the world would demand more gold, gold's value would go up like nuts, and we'd create a sort of permanent underclass that have to do more and more work to get the same amount of gold... and you'd have wealthy people sitting on that gold and seeing their real purchasing power increase with the population growth.

    It would create the incentive to sit on your wealth instead of investing it. It would create hoarding and an upper class that can keep their position without making any investments or taking any risks. At least with an expectation of a steady low level of inflation, people make investments and create jobs in order to keep and grow their purchasing power.

    I understand that are scared of their dollars going down in value, but taking away the benefits of an elastic currency... getting rid of our monetary tools... resembles a sort of anti-modernism and embodies an old folkish view that economic success is about morals and not pragmatics.

  2. @previous Anonymous

    Some people are brain washed.

    Elastic currency is the main reason why wealthy people (banksters) can print money and still from hard working people their wealth. Gold will retains its value and make sure that hard work of people will not dissipate when stored in gold.

    I store my wealth in physical gold/silver and can enjoy a good sleep at night. I do not care about short term ups and downs and I hope precious metals will not go too high so I can accumulate more.

    Learn some of the Austrian economics and you will be able enjoy the fruits of you labour.


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