Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (28870)	2/18/2003 4:30:19 PM
From: yard_man	Respond to of 74559

it's not so much faith in gold, but a lack of faith in additional piles of paper claims and promises for me -- but thanks for the link.

To: TobagoJack who wrote (28870)	2/18/2003 8:07:48 PM
From: EL KABONG!!!	Read Replies (1) \| Respond to of 74559

Hi Jay, I have some problems with Mr. Lenzner's thesis... Second, as the chart shows, the value of the Dow Jones Industrial Average to gold suggests that gold has a long way to go on the upside. Back in 1980, when gold peaked at $850 an ounce, the Dow 30 was only 872.8 or almost in parity. But today the Dow industrials sell at over 20 times the price of gold. If the ratio of stocks to gold were to be five times--a common occurrence at other market troughs--gold would have to rise to $1,600 an ounce. To start with, his example (gold at $1600 per ounce, computed as an $8000 DJIA divided by 5) is only valid presuming that the DJIA stays static at or around 8000. As most of us on this thread believe that the DJIA is grossly overvalued at 8000, then perhaps we should try to compute the value of gold based upon a more realistic value for the Dow. Which more realistic value do you favor? Robert Prechter (the Elliot Wave proponent) has consistently maintained that the DJIA goes to below 1000 ("triple digits" was his exact terminology). Using Mr. Lenzner's 5:1 ratio, that would make gold worth only $200 an ounce, or significantly overpriced already at around $350 per ounce, should Mr. Prechter's prediction ultimately come to fruition. Perhaps we might favor the Dow at 2500? Perhaps at 4000? 5000? As we see, we can "compute" any value for gold that we want simply by adjusting the perceived value of the Dow average. It is a simple arithmetic problem, with a numerator and denominator. Adjust either one, and a different value is derived. But, it's actually worse than simply picking a random perceived value for the DJIA. Mr. Lenzner has plucked the magic ratio of "5:1" seemingly out of thin air, justifying it by mentioning that that particular ratio was "a common occurrence at other market troughs". Suppose the "correct" ratio is actually 3:1. Or 20:1. Or 10:1... What then? While I understand Mr. Lenzner's point of view, and that he was attempting to make a rough correlation between the value of stocks (as represented by the DJIA) and the value of gold, it would be my contention that such a static comparison is likely incorrect, and that the correlated value of gold and equities will vary widely over time, affected indiscriminately by geopolitical crisis, and individual perception of what is/is not valued at any given point in time. Thusly, any such comparison is likely doomed to be incorrect. KJC