How far will gold prices go? By any stretch of imagination can it go to $5000 per ounce? Let’s face it: Anyone can pick a number for where they think the price of gold will be so many years down the road.
But here’s a time-tested way to figure out how far the bull market in gold has yet to go: It’s called the Dow Jones / Gold ratio: It’s simple to calculate. Take the price or value level of the Dow Jones and divide it by the price of gold.
That is what Richard Russel's chart shows us. Whenever the ratio has slipped below $5 (meaning stocks are priced low compared to gold), a major bull market in stocks typically followed.
This was true at the beginning of the 20th century, during the thirties and during the late Seventies. But when the ratio turned down sharply after a protracted rise (meaning stocks became expensive compared to gold), it was time to buy gold.
If you bought gold in 1965 at $35 an ounce and held on to your investment, you would have seen gold rise to $800 an ounce—an return of 2,185%! Right now, the ratio is at $13. As you can see it has a long way to go before it falls below $5 again. That means gold has plenty of room to roam to the upside. Plenty…
In fact, Richard Russell reckons that the Dow Jones / Gold ratio might trade as low as 1:1 before the bull market in gold and the bear market in stocks is over.
If that is true and the Dow declines to less than half of what is now, from 12,800 to— let’s say—5,000, then gold could conceivably trade at $5,000 an ounce before the bull market in gold is over. (Dow Jones 5,000 divided by $5,000 per ounce of gold equals a1:1 ratio)
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