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Analysts are misreading the Dow/Gold chart and what it means for ...

Analysts are misreading the Dow/<b>Gold chart</b> and what it means for <b>...</b>


Analysts are misreading the Dow/<b>Gold chart</b> and what it means for <b>...</b>

Posted: 23 Apr 2014 08:56 PM PDT

Posted on 24 April 2014 with no comments from readers

Take a look at the Chart of the Day below that shows the ratio between the Dow Jones Index and the price of gold. Analysts have drawn a rather distorted looking trend line channel showing a break-out to the upside. That would seem to indicate higher stock market prices and a lower gold price.

However, if instead you continue the downward trend line to the top of the recent high then you still get the classic bell-shaped curve beloved by hedge funds and other chartists. This would clearly indicate a long-term reversal to the mean will continue in the Dow/Gold, perhaps with quite a dramatic correction to the downside. So the Dow Jones would fall and gold prices rise.

Bell-curve or not?

Does this graph look like a bell-shape or it is broken? We see a distortion caused by an unsustainable spike in share prices last year and the impact of Indian taxes on the gold market.

If that is true then the clever thing to be doing would be to accumulate gold at current prices and sell stocks. That's the reverse of the consensus view now but when was the consensus ever a good guide?

Posted on 24 April 2014 Categories: Gold & Silver
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