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…Markets and Money 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.
Markets and Money