Knowledgeable correspondent Brendan O. recently sent me this long-term chart of the Dow-Gold ratio. I have reduced the chart a bit and marked it up with what I see: a stupendous megaphone (pennant) pattern, which if extended targets a Dow-Gold ratio of less than one.

The ratio is simple: divide the Dow by the price of gold per ounce: 12,130 divided by $1,409 = 8.6.

THis is already already outside the channel--not surprising, as gold has quadrupled from its lows around $300, and tripled from the $400 level of just a few short years ago.

This chart suggests two possibilities to me:

1. The ratio could spike back up into the channel, meaning gold could briefly fall in price and/or the Dow could briefly rise. Just such a retrace spike occurred in 1970s.

2. If the megaphone pattern extension plays out, then either gold must rise significantly from current levels, or the Dow must lose much of its value, or some combination of the two.

The Dow could fall to 2,000 while gold rises to $2,200/ounce, for example.

Nobody knows if that extension will pan out, or what will happen with either gold or stocks, but this chart suggests the ultimate extremes may well be ahead.

As always, please review the HUGE GIANT BIG FAT DISCLAIMER below, which explains that this is not investment advice, it is only the freely offered random notes of an amateur observer.

HUGE GIANT BIG FAT DISCLAIMER: Nothing on this site should be construed as investment advice or guidance. It is not intended as investment advice or guidance, nor is it offered as such. It is solely the opinion of the writer, who is NOT an investment counselor/professional. All the content of this website is solely an expression of his personal interests and is posted as free-of-charge opinion and commentary. If you seek investment advice, consult a registered, qualified investment counselor (As with any other professional service, confirm their track record and referrals).


If you would like to post a comment, please go to DailyJava.net.



Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.

Of Two Minds is also available via Kindle: Of Two Minds blog-Kindle

---

"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--Walt Howard, commenting about CHS on another blog.

---

NOTE: contributions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Scott S. ($100), for your ongoing stupendous generosity to this site-- I am greatly honored by your support and readership.

Thank you, Raymond R. ($25), for your wondrously generous contribution to this site-- I am greatly honored by your support and readership.

---

Or send him coins, stamps or quatloos via mail--please request P.O. Box address.

Subscribers ($5/mo) and contributors of $50 or more this year will receive a weekly email of exclusive (though not necessarily coherent) musings and amusings, and an offer of a small token of my appreciation: a signed copy of a novel or Survival+ (either work admirably as doorstops).

At readers' request, there is also a $10/month option.

The "unsubscribe" link is for when you find the usual drivel here insufferable.

Your readership is greatly appreciated with or without a donation.

---

For more on this subject and a wide array of other topics, please visit my weblog.

                                                           

All content, HTML coding, format design, design elements and images copyright © 2011 Charles Hugh Smith, All rights reserved in all media, unless otherwise credited or noted.

I would be honored if you linked this essay to your site, or printed a copy for your own use.