When to Sell Gold and Buy the Dow Jones

Reddit

Everyone thinks the stock market is doing well…but look what it has done in terms of real money – gold. Richard Russell reminds us that you could have bought an ounce of gold on January 18th, 1980, for US$835. On that same day, the Dow was only a little higher, at 867. In other words, you could have bought almost the entire Dow for one ounce of gold.

Oh, if only we had been around then to give you a Trade of the Decade – sell gold, buy the Dow. You could have watched your stocks go over 13,000…while gold fell below US$270, at which point you could have traded your Dow stocks for 43 ounces of gold! What a trade!

Unfortunately, the Internet hadn’t been invented…The Daily Reckoning hadn’t been imagined…and your editor hadn’t the sense to make the call anyway. He was convinced, along with the rest of the gold bugs, that gold would keep going up. He was, of course, dead wrong. Gold fell and the Dow rose…not just for one decade…but for two!

But 20 years is a long time to suffer a bear market in your favourite commodity. It gives a man a reason to think…and time to do it. If he is still solvent…and still compus mentis…at the end of it, he has a great advantage over other mortals. He has made such a huge mistake for such a long time that the law of averages begins to work for him. Nobody can be that stupid forever.

Finally, the porch light comes on. ‘Hey…’ he says to himself. ‘Markets go up…and down.’

And so, with the confidence of the recently humiliated, your editor gave his legendary Trade of the Decade signal in January 2000: sell the Dow, buy gold. Since then, price of gold has more than doubled…and the Dow has edged up a tiny bit. Instead of getting 43 ounces of gold for the Dow, today, you will not even get 18.

We are only about half way through this cycle, we reckon. The Dow and gold will meet again, somewhere in the future. Probably somewhere in the middle – around 7,000…when investors have been turned off to US stocks, and the Dow has sunk…and when speculators have bid up the price of gold to dizzy heights.

Then, trust us this time, dear reader, we will remember to give the ‘sell gold, buy the Dow’ signal. At least, we hope so.

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Reddit

Leave a Reply

7 Comments on "When to Sell Gold and Buy the Dow Jones"

Notify of
avatar
Sort by:   newest | oldest | most voted
Hugh Burgett
Guest
Why do people want to own something that gives them nothing, stocks may be over valued, over priced , but they do give a dividend usually. Even when stock prices turn to dust if the world turns there may be some income. Gold on the other hand has value if somebody else wants it, when times get bad would you prefer to trade something of practical value, food or fuel, can you swipe a gold bullion in a atm, when you need to access this asset how will you do it travel to Perth, Switzland to chisel some off to… Read more »
Pete
Guest

Hugh I can understand and partly agree with the first part of your rant, but as for ‘life without money’ … screw that!!

fazsha
Guest
I always like it when a guy like Hugh Burgett shows up and reassures me that not only is most of the public not IN gold, they don’t UNDERSTAND gold. He doesn’t understand how a company can make money and yet effectively drain all the profits out to the top executives though option grants combined with stock buybacks. Dell has been a profitable company the last 5 years but is selling 20% lower than 5 years ago even though they never paid a dividend. It wasn’t because it was overvalued 5 years ago (remember, that was 2003, near the bottom… Read more »
John
Guest

Hugh,

People desire gold for the same reason they desire any currency — because they can trade it for goods and services later. The only difference with gold is that they can’t be robbed by a bunch of politicians and bankers that are constantly printing more of it to keep themselves in power.

SlowLearner from Briz
Guest

Hi All,

Pardon my ignorance here, but are we talking about buying into gold stocks or physically purchasing bars of gold (to stash under the bed, or wherever?)

Ben
Guest
Hey SlowLearner They are talking about investing in physical gold, but without having to hold it. Companies exist who enable you to buy gold bullion and they will store it – I believe you receive a cert of ownereship or similar (like shares), so that you can then sell it back to the market when the price has changed (hopefully in your favour). Back in September if you invested around US$700 you would have owned an ounce of Gold. Today that ounce would be worth approx US$990. Gold is seen as more stable long term than phyical money because governments… Read more »
Paul
Guest

having someone else hold a valuable item for you when alls you have is a piece of paper is retarded beyond belief. even currency becomes worthless when like in russia a barrow load of rubles would buy a loaf of bread. held gold is only useful when the economy rights itself after a long period of the poseidon adventure. if you want to know whats valuable in a time or depression read “the road” by cormac mccarthy, and of course have a weapon at your disposal.

wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au