Gold Is Still the Better Choice

Oct 4, 2006 - The Dow Jones Industrial Average yesterday closed at a new record high. In stark contrast, gold was whacked, closing down $21.40 on the day. Therefore, what would you rather own? The DJIA or gold?

At first blush, one would think the Dow was the better choice, given its new record high. One would probably choose the Dow even allowing for the fact that the S&P 500 and many other indices have not (at least so far) followed the Dow into new high ground. After all, the Dow is the world's most watched stock index, and it made a new record. So clearly stocks must be the better choice, right? Wouldn't you rather own stocks than gold?

We all know that appearances can be deceiving, and the following chart provides a good example of why there is a lot of truth in that simple adage.

Dow Jones Ind - Wkly in Gold (Jan 79 to Sept 06)

Even though the Dow Industrials Average has reached a new high when viewed in dollar terms, we can see from the above chart that an entirely different picture emerges when that venerated average is viewed in terms of gold. The Dow is far below its July 1999 high of 1,369.10gg (goldgrams).

On Friday September 29th the DJIA closed at 606.85gg. And even though the DJIA closed October 3rd at a new record high in dollar terms, its price in gold was only 632.93gg, which is a price not much different from the previous bear market rally high of 623.84gg reached only three weeks ago.

Importantly, when viewed in terms of gold, the DJIA remains well within the downtrend channel (the parallel red lines in the chart above) that started over seven years ago. So the conclusion is obvious, and is one I have made before in my article Hold Gold, Not the Dow. You are still better off holding gold instead of the Dow Industrials. And I expect that you will continue to be better off holding gold in preference to the Dow for years to come.

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