Gold to Dow Ratio: When is Gold Overvalued or Undervalued? 

When to Sell?

What is the fair price of gold at this point in time? One way to find out is to compare gold to other asset classes. Be it stocks, real estate, bonds or other major asset classes. Such a comparison will help you understand whether gold is overvalued or undervalued at a given point in time.

In the following article, we will look at one metric, which is the ratio of the US Dow Jones stock index to the price of an ounce of gold.

While the “fair prices” of stocks and bonds can be calculated using cash flow models created by economists, the situation is a little more complicated for gold. Since gold does not generate cash flows (such as dividends or interest) and is primarily a reserve asset that retains its value over the long term, other indicators must be used to analyze the price level.

The prices of various assets measured in gold are very suitable, because in this case, fluctuations in the value of the currency are excluded from the formula. In today’s monetary system, the prices of essentially all assets increase in the long term, because money creation works in such a way that currency loses its value consistently and over the long term.

Therefore, it is worth comparing the assets themselves. For example, how many ounces of gold did the average home cost 50 years ago? How much gold does the average home cost today? These indicators provide a better overview of changes in the purchasing power of gold.

Today we look at how the US stock markets have fluctuated, measured in ounces of gold. The chart below shows the relationship between the Dow Jones index, which is a composite of 30 large companies, and gold. The Dow Jones 30 is one of the oldest and most well-known stock market indices. It tracks the movements of the shares of 30 large US companies. The index includes companies such as Apple, Coca-Cola, and Microsoft, among others.

Investors who exchanged their stocks for gold at the right moment (and vice versa in the previous cycle) were able to grow their assets by several dozen times.

The Dow-to-gold ratio reached its absolute low in January 1980, reaching 0.99. Perhaps for the first time in history, an ounce of gold cost more than one Dow share. Over the next 20 years, stocks rose in price almost 50 times (!) in terms of gold. This ended in early 2000, when the technology bubble in the US stock markets burst and gold began a years-long rapid rise. Investors who exchanged their stocks for gold at the right moment (and vice versa in the previous cycle) were able to grow their assets by several dozen times.

The ratio reached 6 by 2011, but then started to rise again because the massive money printing by central banks did not bring the big price increase that many had expected. Rather, this money found its way into the stock markets and boosted the prices of stocks. Gold entered a bear phase.

Looking at recent history, the ratio peaked in 2019. At that time, one Dow Jones share cost 20.5 ounces of gold. Today, it has fallen to 10.0 – the historical median level. Over the past few years, the ratio has fallen sharply due to the rapid rise in gold prices.

Judging by the ratio, gold is currently at its mean relative to stocks. However, I expect the ratio to decline further. It is worth considering exchanging gold for stocks if the ratio drops below 5. However, it is wise to do this in parts, not all at once. It is not worth liquidating the entire gold position at this level.

While a drop to 5 would mean that gold is somewhat overvalued relative to stocks, the ratio is likely to fall significantly lower than that. 

I believe we are currently in the early to mid-stages of a major bull cycle in precious metals, which could see the Dow Jones - to Gold Ratio in the 0.5-3 range in the future.

The current bull run for precious metals will be similar in scope to the 1970s, as the world continues to face stagflation (stagnant economic growth but high inflation). The world’s debt burden has risen above World War II levels, and deteriorating budgets mean that debt relief is likely to be achieved through currency dilution. This, in turn, means low productivity and high inflation – two key factors that characterize stagflation. This is an extremely favorable environment for the price of gold, as it is a traditional reserve asset that cannot be printed.

What could be the peak price of gold based on the ratio?

One could expect the ratio to fall significantly lower. Since the currency problems are actually even more serious than in the 1970s, the ratio could fall below 1. Given the current level of the Dow, this suggests a peak in the cycle for gold prices of $40,000-50,000 per ounce (the Dow is currently trading at 50,000).

Such a price target sounds absurd at the moment, but it must be taken into account that in such a case the price of gold would also be in a total bubble and extremely overvalued relative to stocks. Since the ratio reached 1-2 in both 1932 and 1980, it is not at all excluded that this time it will be the same. With such a low ratio, it probably makes sense to exchange the lion’s share of gold for other asset classes.

 

Bull Market

For Declining Interest Rates

Ended on August 4, 2020

DYI:  Over the coming years we'll experience increasing interest rates during growth and declining rates during recessions.  This will be a saw tooth ever increasing rates with higher highs and higher lows as our government once again inflates away our massive debt to GDP just as they did after WWII with interest rate peaking at 15.84% (10 year T-bond) on 9-30-1981.  DYI’s model portfolio reflects this with a large commitment to short term notes (2 to 3 year duration).

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 2/1/26

Active Allocation Bands (excluding cash) 0% to 50%

48% - Cash -Short Term Bond Index - VBIRX

25% -Gold- Global Capital Cycles Fund - VGPMX **

 27% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

** Vanguard's Global Capital Cycles Fund maintains 25%+ in precious metal equities the remainder are domestic or international companies they believe will perform well during times of world wide stress or economic declines.  

 This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

 American’s

Shifting to Pro-Labor?

The U.S. oscillates between pro-business and pro-labor within a multi-generational time line.  Today IMO we are currently at the apex for the pro-business cycle grinding away at the top earners until incomes are once again flowing into the hands of the common man and women.  This change will happen, however it will become nasty and very possibly violent as the masses demand a greater amount of the national income pie.

This economic and social event is of historical level as the so called elites attempt to quell (from their point of view) this growing surge of discontent.  This was highlight by none other than the poster child of pro-business Larry Fink of Black Rock at Davos.  Lena Petrova of World Affairs her video is mislabeled stating CAPITALISM Is COLLAPSING — BlackRock CEO Larry Fink Just Said The Quiet Part Out Loud.  Capitalism is not collapsing it is simply a move by the masses for a more pro-labor stance.      

 Starting Early

Saving Consistently

Consistently Increasing Your Savings 

Now put some numbers behind the chart below. Suppose someone saves an extra $7,500 a year starting in their early 30s and invests it steadily. 

At a conservative 6 to 7 percent return, that alone compounds into roughly $600,000 to $700,000 over 30 years. On this table, that difference by itself is often enough to lift a household from around the median into the 75th percentile range by their late 50s or early 60s, assuming everything else is average. That shift does not require perfect timing or heroic returns. It just requires consistency and patience. 

Saving a little more, earlier, and letting compounding work quietly can move you into a very different percentile over time. The math is not dramatic, but the outcome is. The question for the reader is not where you are today, but whether you are feeding compounding enough to let it do its job.

 

When You Start Investing Matters More Than How Much You Invest

Time invested is so important that Jack can even stop adding to his investments and still have more than Jill at age 65.

If Jack were to contribute $200 per month from age 25 to 35 – contributing only $24,000 over 10 years – his investments would be worth almost $300,000 at age 65.

Jill continually invests $200 per month between ages 35 and 65 but still ends up with only $245,000 at 65. Even though she contributes three times as much as Jack over her lifetime ($72,000), because she missed those first 10 years of investing, Jack amasses more.

The following charts show why investing today is the key to retiring on your own terms. Each assumes a 7% annual rate of return based on the long-term average stock market return of 9% less average inflation of 2%.

The Secret to Financial Freedom Is Investing Over Time

Jack's earnings will grow so large, they'll exceed all of his contributions combined. After 20 years of investing, Jack contributed $48,000 total. That same year, his $48,000 earned over $56,000. By year 25, his earnings ($103,000) are over 70% larger than his total contributions ($60,000).

This is why time is so important in investing: Given enough time, your earnings can compound to take on a life of their own. Even better is they can become self-sustainable. When your money is earning enough money that you no longer need to work, you've achieved financial independence.

The Benefit of Increasing Your Contributions

You don't have to start investing $1,916 a month right away. It's OK to start small, as long as you start. You can always increase your contributions later.

Say you start with $200 a month. If you maintained those contributions for 40 years, you could accumulate about $500,000. But if you were able to increase your contributions by 5% each year, your portfolio could grow to more than $1 million in that same timeframe.

Just imagine how much you could accumulate starting with $200 per month and increasing your contributions by 10% each year? (Hint: It's more than $2.6 million in 40 years.)

lllllll

Just a Dip for the Metals?? Or a Cyclical Correction?? IMO Metals Remain in a Bull Market! Buckle up We're in for a Bumpy Ride!

How to Judge
the Dow to Gold Ratio

The Dow to Gold Ratio is calculated by dividing the Dow Jones Industrial Average by the price of one ounce of Gold.

The Dow-Gold ratio is a market indicator that helps investors decide where to put their money and when to do it. 

Be Ahead of the Herd

Since the Dow's inception in 1896, the markets have witnessed three peaks and valleys in the Dow to Gold Ratio.

Each peak and valley has been an example of over-exuberance in the markets, only to be squashed by reality.

In every bull market, some investors have mentioned "The Good Times are Never Going to End," but eventually, they do.

DYI Comment:  An almost vertical price increase for gold and especially silver that increases significantly a shakeout correction for the metals.  As this massive overvaluation for U.S. stocks eventually plays out to the downside in the meantime we’ll experience a see saw ride upward for precious metals.  Again expect a shakeout correction for the metals.

Massive stock market overvaluation; Bonds near their mean; Dow to Gold Ratio at its mean; Heavy in cash!

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 2/1/26

Active Allocation Bands (excluding cash) 0% to 50%

48% - Cash -Short Term Bond Index - VBIRX

25% -Gold- Global Capital Cycles Fund - VGPMX **

 27% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

** Vanguard's Global Capital Cycles Fund maintains 25%+ in precious metal equities the remainder are domestic or international companies they believe will perform well during times of world wide stress or economic declines.

 

Margin of Safety!

Central Concept of Investment for the purchase of Common Stocks.

"The danger to investors lies in concentrating their purchases in the upper levels of the market..."

Stocks compared to bonds:

Earnings Yield Coverage Ratio - [EYC Ratio]

Lump Sum any amount greater than yearly salary.

PE10  .........40.81
Bond Rate...5.27%

EYC Ratio = 1/PE10 x 100 x 1.1 / Bond Rate

2.00+ Stocks on the give-away-table!

1.75+ Safe for large lump sums & DCA

1.30+ Safe for DCA

1.29 or less: Mid-Point - Hold stocks and purchase bonds.

1.00 or less: Sell stocks - Purchase Bonds

0.50 or less:  Stock Market Crash Alert!  

Purchase 30 year Treasury Bonds! 

Current EYC Ratio: 0.51(rounded)

As of  2-1-2026
Updated Monthly

PE10 as report by Multpl.com

Bond Rate is the rate as reported by

Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX)

DCA is Dollar Cost Averaging.

Lump Sum is any dollar amount greater than one year salary.

Over a ten-year period the typical excess of stock earnings power over bond interest may aggregate 4/3 of the price paid. This figure is sufficient to provide a very real margin of safety--which, under favorable conditions, will prevent or minimize a loss...If the purchases are made at the average level of the market over a span of years, the prices paid should carry with them assurance of an adequate margin of safety.  The danger to investors lies in concentrating their purchases in the upper levels of the market.....

Common Sense Investing:
The Papers of Benjamin Graham
Benjamin Graham

%
Stocks & Bonds

Allocation Formula

2-1-2026
Updated Monthly

% Allocation = 100 x (Current PE10 – Avg. PE10 / 4)  /  (Avg.PE10 x 2 – Avg. PE10 / 2)]

Formula's answer determines bond allocation.

Current PE10.....40.81

Avg. PE10...........17.33

Core Bond Allocation:  140% 

% Stock Allocation     0% (rounded)
% Bond Allocation  100% (rounded)

Current Asset: Vanguard Short-Term Investment Grade Bond Fund   

Logic behind this approach:

--As the stock market becomes more expensive, a conservative investor's stock allocation should go down. The rationale recognizes the reduced expected future returns for stocks, and the increasing risk. 

--The formula acknowledges the increased likelihood of the market falling from current levels based on historical valuation levels and regression to the mean, rather than from volatility. Many agree this is the key to value investing.  

Please note there is controversy regarding the divisor (Avg. PE10).  The average since 1881 as reported by Multpl.com is 16.70.  However, Larry Swedroe and others believe that using a revised Shiller P/E mean of 19.6 , the number since 1960 ( a 53-year period), reflects more modern accounting procedures.

DYI adheres to the long view where over time the legacy (prior 1959) values will be absorbed into the average.  Also it can be said with just as much vigor the last 25 years corporate America has been noted for accounting irregularities.  So....If you use the higher or lower number, or average them, you'll be within the guide posts of value.

Please note:  I changed the formula when the Shiller PE10 is trading at it's mean - stocks and bonds will be at 50% - 50% representing Ben Graham's Defensive investor starting point; only deviating from that norm as valuations rise or fall.

Current Allocation:

Vanguard Short Term Investment Grade Bond Fund

Possible Allocations to Bonds vs Stocks:

Bonds %

100%+  Vanguard Short Term Investment Grade Bond Fund 

99% to 65% Wellesley Income Fund

64% to 35% 1/2 Wellesley Income Fund - 1/2 Wellington Fund

34% to 20%  Equity Income Fund

19% to 0%  Vanguard Small-Cap Value Index Fund

  

DYI

This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

The Formula.

A value based allocation strategy

February 19, 2010 by John Kingham

 

Points of ‘secular’ undervaluation such as 1922, 1932, 1949, 1974 and 1982 typically occurred about 50% below historical mean valuations, and were associated with subsequent 10-year nominal total returns approaching 20% annually. 

By contrast, valuations similar to 1929, 1965 and 2000 were followed by weak or negative total returns over the following decade. 

That’s the range where we find ourselves today.

John P. Hussman

Is the U.S. Stock Market

Overvalued?

Yes; Significantly!

To Arrive at the Mean

Stocks need to Decline

60%!

When will the the bear show it self??  

I don't know?  

When the bear does show it self IMO we'll be in a multi-cycle bear market simliar to the 1970's with nominal declines and rebounds as the purchasing power is ravaged by non stop inflation.  So don't go losing your head when everyone else is losing theirs!

 Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 1/1/26

Active Allocation Bands (excluding cash) 0% to 50%

49% - Cash -Short Term Bond Index - VBIRX

29% -Gold- Global Capital Cycles Fund - VGPMX **

 22% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

** Vanguard's Global Capital Cycles Fund maintains 25%+ in precious metal equities the remainder are domestic or international companies they believe will perform well during times of world wide stress or economic declines.  

 This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

 

Ken Cao's: 

Why China’s Crash Will Be Worse — Point by Point

1. The Bubble is Bigger

At its peak, China has devoted far more of its economy to real estate than Japan ever did as Chinese households are also far more exposed:

~70% of household wealth tied to property

Japan in 1990: ~50%

A 5% drop in home prices in China wipes out trillions with many cities prices already down 30% or more.

Consumers don’t “wait it out” after that.  They stop spending — entirely.

2. Overbuilding on an Unprecedented Scale

China has an estimated 65–70 million empty apartments — enough to house the population of France.

And unlike Japan, millions of Chinese families are stuck paying mortgages on homes that don’t exist yet.

That destroys something priceless: Trust

The belief that property always goes up is the cornerstone of China’s growth model and it’s gone; once that belief dies, it doesn’t come back.

3. China Is Getting Old Before It Gets Rich

Japan aged after it became wealthy.

China is aging while still middle-income.

China’s population peaked around 2021 and is already shrinking.

Japan didn’t peak until 2010 — nearly 20 years after its bubble burst.

China’s fertility rate has collapsed to around 1.1 — even lower than Japan’s.  There is no second wave of young homebuyers coming.

The number of people in their 20s — the lifeblood of growth — is about to plunge.  That makes every economic problem harder to fix.

4. Debt + Deflation + Weak Currency = A Trap

Japan faced deflation — but the yen strengthened, preserving purchasing power. 

China faces something worse:  Deflation and a weakening yuan; that’s toxic if they stimulate too much then capital flees and if they hold back, deflation deepens.   Meanwhile, debt is everywhere.

China’s total debt is nearing 300% of GDP.

Household debt alone is about 70% of GDP — double Japan’s level in 1990.

People drowning in debt don’t spend.  They deleverage — and drag growth down with them.

5. Social Stability Is Far More Fragile

Japan bought social peace by spending over 20% of GDP on social security China manages to spend under 8%.

Youth unemployment officially topped 20% — before Beijing stopped publishing the data.  Unofficial estimates run far higher.

A popular saying inside of China is vibrant old people, lifeless young people, with exhausted middle-aged people.

The unspoken deal of the CCP era was simple: growth in exchange for obedience.  What happens when growth disappears?

6. China Faces a Hostile World

Japan in the 1990s had allies, open markets, and global goodwill.

China faces:

Trade wars; Sanctions; Capital flight; Strategic distrust.

When Japan stumbled, capital stayed.

When China stumbles, capital runs.

The Bottom Line

Japan’s lost decades was a controlled burn.

China’s reckoning looks more like a wildfire with a bigger bubble, poorer population and worse demographics.  More debt and far weaker safety nets creating a far more dangerous political backdrop.

This isn’t about cheering for collapse.

It’s about being honest.

For years, optimists said China would “learn from Japan.”  Instead, Beijing doubled down on the same playbook —more debt, more construction, more control.

If Japan’s stagnation was a slow bleed, then China’s will be a hemorrhage.  Fasten your seatbelts China’s reckoning won’t just reshape its own future — it will rewrite the global economic map for the next decade.  We’re only at the beginning.