Friday , 28 October 2016

Goldrunner: “DJIA:Gold Ratio Ready To Bust Lower As Gold Price Rises Aggressively” – Here’s Why

Gold is set in the “cycle” to rise very aggressively to start to price in the real extent of Dollar Supplygold rise increases to date, along with more that is coming. Thus, the DJIA:Gold Ratio is ready to bust lower as Gold busts up and out of the historic flag. Below is my rationale for such pricing action with supporting charts.

Written by: Goldrunner

Periodically through history (1930’s, 1970’s) the DJIA:Gold ratio has returned to an approximate 1:1 ratio at a steep bottom. The ratio topped in 2000, has completed its first wave down, and now has made a secondary top which we expect will lead to a long drop down toward the bottom of the long-term DJIA:Gold chart as seen below.

We can see in the chart below that the ratio chart topped at the two red dotted lines in late 2015 as Gold bottomed. The ratio has now fallen below the thicker red dotted line and re-tested from the bottom. At that same re-test level, the Ratio met stiff moving average resistance. Thus, we expect the next move for the Ratio will be for price to fall away to the 1 area on the chart over the coming years- probably into 2024/ 2025.  


We expect the DJIA to fall sharply in price like the 70’s, yet for much of the move down to be attributable to a very sharp rise in Gold. For instance, if Gold runs up to ~ $2,100 into 2017, that would be about a 56% rise for Gold. That would contribute heavily to the DJIA:Gold ratio chart fall.

The next chart is the same as the one above, but I have added angled lines to create a channel.


We can see that:

  1. The bounce in price back to “II in blue” caused the RSI to return to the “green zone.”
  2. Yet, just like before INDU:GOLD started its decline back in 2001, the RSI has been bouncing at the 50 line.
  3. I suspect that the price action at “2 and II” will resolve the same way, with price declining sharply off of a left shoulder.
  4. In the red chart of Gold, just above the main chart, we can see that Gold has found resistance just below the major historic flag top. Gold should bust through that line to start the next move down in DJIA:GOLD.
  5. The DJIA will likely start a decline, yet it doesn’t even need to in order to create a sharp fall in the Ratio if Gold busts through the flag and rises ~ 56% up to the 2100 area as we expect per the 70’s chart of Gold.
  6. A lot of things become self- fulfilling if that plays out. A break-down on the DJIA:GOLD chart would likely send traders running to buy the PM Sector versus the DJIA, sending Gold to 1525 to 1575 or higher, Silver to 23.5 to 24 and then 26, and the HUI to 400 to 500. Timing would likely be around the time of the election, but anything can happen once we get this close. I think GS wanted the DJIA up into the election, but we are basically “there.”

Swatch of above chart blown up.

Why does the above DJIA:Gold chart form an expanding triangle? I think the answer is pretty simple: “The US Dollar is the driver of the markets.” Basically, the DJIA to Gold chart is pulled up and down by two forces, the price of the DJIA and the price of Gold. Both are priced in the US Dollar, but their charts are affected by aggressive Dollar Supply creation in different ways at different parts of each up and down cycle. (Bottom line is that the expanding triangle is the effect of the increasing Dollar Supply leading to the increased Dollar Devaluation effect on the price of Gold and then the DJIA, as the effect on “intrinsic value” is seen first.)

A bottom in this cycle is created by Gold having soared parabolic after an aggressive historic round of Dollar Printing/Dollar Devaluation which aggressively lifts the prices of all things with “intrinsic value”- the top of the heap being Gold and Silver, but also affecting oil, historically, as well as all commodities. Thus, the DJIA-type companies are pressured by the rising costs of “materials”, and the Financial Companies of the DJIA are under pressure as well.

A rising price in the DJIA to Gold ratio starts once Gold and commodities have topped. Lower pricing of commodities make their way to the bottom line of companies and dividends to investors start to return.A historic top comes in with the companies of the DJIA priced in the stratosphere while Gold bottoms in price against the Dollar. In reality, the markets start to discount as Dollar supply increases to come to aid in fighting a troubled economy. Thus, at a top, the DJIA generally has not topped in price in Dollars but is deflected lower against Gold which is rising as investors anticipate Dollar Supply increases.

The DJIA to Gold price topped in 2000 with the DJIA in the 11,000s while Gold bottomed, yet the DJIA is up over 18,000, today- over 50% higher. The blue angled line in the middle of the chart above shows that the DJIA to Gold Ratio has now made a secondary top like in the 70’s. The move down from here will be much faster for DJIA:GOLD because Gold moves up in true parabolic fashion as noted on the Norcini Gold chart. Why?

Why is Gold really a true “momentum market?” The answer is that the marketplace itself is set up to create this phenomenon.A high Gold price hurts paper everything, thus the system is set up to talk down Gold to investors. It is also set up with whimsical rules (like “Gold must re-test its last high before you factor the current price of Gold into Gold company value for its reserves in the ground”) to delay the rise of Gold in response to paper Dollar printing.  There is a whole set of these types of things including false reporting of inflation, etc. At this current point, it makes no difference.

Gold is set in the “cycle” to rise very aggressively to start to price in the real extent of Dollar Supply increases to date, along with more that is coming. Thus, the chart of DJIA to Gold is ready to bust lower below the red line as Gold busts up and out of the historic flag, just a few tens of Dollars higher on the Gold Chart. From that breakout down, DJIA to Gold will fall more aggressively as noted in the sequence below the blue circle drawn at the similar recent top in the 70’s.  

This is not good for DJIA investments. We will see a parabolic rise start with investors moving into the PM investments…- just a trickle at first. We will not see the start of the “Oh, Shit!” stage until Gold completes the current rise, corrects mostly sideways, AND THEN starts its next run sharply higher.

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