Looking at the DJIA Vs Gold and Silver Long Term
$DIA, $GLD, $SLV, $MTAFF
It is time to reduce exposure to Wall Street and shift the proceeds into Gold, Silver, the precious metals mining companies and the royalty streamers.
Let us have a look at the 21st Century Bear markets.
- The high-tech dot.com bubble ultimately deflated the Dow Jones by 38%.
- The sub-prime mortgage debacle ultimately deflated the Dow Jones by 54%.
Now those of us who know the ways of Fibonacci know how far the DJIA could fall from its current high marks.
Should it surrender all of its gains since 9 March 2009, the bottom of the last Bear market, the DJIA would see a 75% Fibo retracement back to the line.
The Big Q: Is such a fall possible?
The Big A: Yes, so what is an investor to do?
Savvy investors and professionals recognize the hazards of risking wealth in over inflated assets, and especially at a market Top.
So, they invest in assets whose valuations are currently fully or almost deflated.
Gold, Silver and the precious metals miners look to us like fully deflated assets, assets offering minimal risks while offering tremendous potential rewards.
The table below lists valuations for Gold, Silver and the BGMI going back to January 1920 in both nominal terms; the prices a person of the time would see in the newspapers, and in constant 1920 USD terms.
Ok, what are constant 1920 USDs?
US valuations adjusted for the past Century’s inflationary increases in CinC, USDs that recognize that $20 to father and grandfather is not the same $20 I spend at the Organic coffee shop today.
These USDs are deflated by taking the nominal USD values seen on the below table’s left side, and dividing them by the CinC Divisor listed on the right side.
The CinC Divisor is simply the indexed value of CinC from Y 1920, seen in the blue plot in the chart above, which as of last week was 370.43.
Simply, for every $1.00 issued by the US Government in January 1920, CinC has increased by a factor of 370.43 as of Barron’s 4 June 2018 issue.
Pricing today’s market values in 1920 USDs terms is not the ideal, but far preferred to pretending a USD today is as valuable as it was in the 1920’s or even in the last decade of the 20th Century.
Precious metals assets are really cheap today, especially Silver.
So, how do these deflated assets compare to say the DJIA (DIA)?
Look at the comparative performance of the indexed value of the BGMI (Blue Plot) to the Dow Jones (Red Plot) and CinC below.
Looking at the BGMI, 2X in the 21st Century (Ys 2008 & 2011) it attempted to break above the ever rising CinC plot, a position where it has spent much of its time since the 1920’s. From its April 2011 high, the “policy makers” pushed hard enough to drive the BGMI down 84% in December 2015.
Since the Summer of 2016 (circle), the BGMI has been ranged bound; not going up, but then not going down either. I believe the BGMI is currently as deflated as the “policy makers” can possibly make it, meaning the Gold and Silver miners offer minimum risks to invested funds, while offering maximum rewards to patient investors.
In the chart above the DJIA illustrates maximum risks, while offering minimum rewards to investors.
So, if an investor is or going to look to invest long term money in the general stock market or the BGMI for the next 5 to 10 years, then from the technical shown in the above chart the the BGMI appears to be the best bet.
And should the BGMI its performance will appear light when compared to what successful mineral exploration companies will do in a historic Bull market in Gold and Silver.
So how does one go about investing for a Bull market in Gold and Silver?
Some experts recommend that funds be split up into 4 equal parts:
- Gold Bullion in your personal possession
- Silver Bullion in your personal possession
- Gold and Silver mining shares
- Shares in Royalty Streamers offer the best leverage with the least risk.
I speaking with my friend Brett Heath CEO of Metalla at the weekend, he declares that, “Metalla Royalty & Streaming Ltd. is one of the purest ways to get exposure to #silver on the TSXV. Smart money has been positioning and this precious Grey metal will likely leave most investors behind to chase that are distracted with the FAANGs and general markets.”
I agree with him as the Bull market for Gold and Silver and here are some of the Key reasons, as follows:
HeffX-LTN has been Bearish on USD since December 2015. While USD has enjoyed a period of strength during the past 2 months, we believe this is a temporary bounce and that the Buck is in a multi-year Bear market that began 2.5 years ago.
US nominal rates have risen while the ECB has remained on hold, but we see ECB’s bond-buying era is coming to a close at years end, which should drive European bond yields higher.
Meanwhile, we are seeing a resurgence in US inflation which we expect to accelerate in the coming months.
The inflation-adjusted central bank rate differentials should begin to weigh on USD. Services inflation is at cycle highs, while prices in other areas have been creeping up including: energy, housing, and food.
Because the USD is the benchmark pricing mechanism for Gold, there is a special relationship between them.
As a rule, when the value of USD increases relative to other currencies around the world, the price of Gold, and to some extent Silver, tends to fall in USD terms.
Part of the reason is that these precious metals becomes more expensive in those other currencies, causing demand to recede.
Conversely, as USD falls, Gold tends to appreciate. So, if the value of USD declines, as we expect it to, the price of Gold and Silver should move due North.
By Paul Ebeling with Mark Lundeen
Latest posts by Paul Ebeling (see all)
- F1: Leclerc’s Pole at Sing. GP Show the Power of Ferrari - September 22, 2019
- There is More than 1 Way to Buy Gold and Silver - September 22, 2019
- President Trump Heads to UN With Long ‘To Do’ List - September 21, 2019