How high will the price of gold go? I always say that is the wrong question. Rather, you should ask, “How much will an ounce of gold buy?” As you can see from the chart on your left, in terms of stocks, at the peak of the bull market in 2000 you had to give up 43 ounces of gold to buy one unit of the Dow. Now you can buy one unit of the Dow Industrials for just 8.75 ounces of gold!
Notice that in 1980 when the gold price hit $850, the Dow came close to a 1:1 relationship with gold. Indeed, in the last 100 years there were at least three times when the gold/Dow ratio approached 1:1 when major secular bear market lows were seen. In part because of the severity of debt that is now hanging over the global economy, Ian Gordon thinks we will see a 0.25:1.0 ratio. In his discussion with Bob Prechter on my radio show, Ian suggested a target of Dow 1,000 and gold $4,000. All that seems normal to me and if it occurs, gold mining will be by far and away the most amazing investment class in the universe.
Jay Taylor
Gold Investor
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