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While Wall Street pundits
extol the virtues of the stock market, and its promise of assured riches,
they consistently denigrate gold, and its value as an investment alternative.
Gold, they chide, is an arcane relic, as out of fashion as the leisure suits
worn during the decade they naively perceive as the metal’s last
hurrah.
However, as fashions come
and go, gold is once again back in style. This week gold’s successive
run of eighteen-year highs occurred in sharp contrast to a slumping stock
market. Since the Dow ‘s 11,722 peak (which at the time equaled 41.3 ounces of gold)
reached on January 14, 2000, the index has now lost almost half of its value
relative to gold. As I write this the Dow Jones is currently worth about 21.6 ounces of gold.
If we go back to the peak of the preceding bull market, in which the Dow
topped out at 1,000 in
1966 (which at the time was 28.6 ounces of gold,) the index has actually
declined in value by 25% when priced in gold. Finally, if we go all the way
back the peak of the bull market prior to that one, when the Dow Jones stood
at 381.2 in
1929 (19.06 ounces
of gold) the Dow has only managed a 13.3% gain. Not much considering
it’s taken almost seventy years!
However, this is only part
of the story. The current bear market in stocks and bull market in gold are
relatively new. If history is any guide, before these cycles turn, the Dow
will lose a far greater percentage of its value relative to gold. For example,
at its low in 1932, the Dow Jones was worth just 2.06 ounces of gold.
(The Dow was 41.20 and gold was $20 per ounce) However, as Roosevelt
confiscated gold and devalued the dollar the following year, using a $35 gold
price, the 1932 low actually represented just 1.18 ounces of gold.
In 1966, with Apollo
astronauts reaching toward the moon, and stock prices headed there as well,
no one would have imagined that the Dow’s 1932 gold-price low would
ever be taken out. However, by January of 1980, when gold traded at its
all-time high price of $870 per ounce, eclipsing the value of the Dow, that
is precisely what happened. That year marked the all-time record low for the
Dow priced in gold, 96.5% below its 1966 peak and 95% below its 1929 peak
reached 50 years earlier!
Twice during the last
century the Dow lost over 90% of its value relative to gold. If such declines
could occur in an America
with a strong industrial economy, ample domestic savings, and a favorable
balance of payments, imagine what could happen today. History clearly
demonstrates the danger inherent in over-paying for stocks, both relatively
to their intrinsic values and the price of gold. Those who bought into the
new era nonsense of the 1990’s will fare no better than those who
judgments were similarly impaired during the 1920’s and the
1960’s.
My guess is that in the
years ahead the Dow will once again retest its gold-price lows. If we can put
in a solid, long-term triple bottom at approximately 1 to 1, (which might be
Dow 4,000, gold $4,000 per ounce) stocks would likely be a great buy. Until
then the smart money is increasingly moving to gold.
Don’t ride this bear
market out. Get out of U.S.
stocks and out of the dollar. Start by downloading my free research report
“The Collapsing Dollar: The
Powerful Case for Investing in Foreign Equities” at www.researchreport1.com and while you are at it
buy some gold! Visit www.goldyoucanfold.com to discover the best way
to acquire it.
Peter D.
Schiff
President/Chief Global Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach, CA
92660
Toll-free:
888-377-3722 / Direct:
203-972-9300 Fax: 949-863-7100
www.europac.net
pschiff@europac.net
For those of you still holding dollars, time is running
out to protect the wealth to which those dollars current represent
claims. A good first step is to
down load my free research report “The Collapsing Dollar: The Powerful
Case for Investing in Foreign Equities” available at www.researchreport1.com
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