Dow-gold ratio is quickly moving towards target

The gold price moved over $906/oz again in Monday's trading, giving more credence to the belief that gold is going to rally. Its rather timely that this is happening when bank (broad equities) are reaching an important support level. The Dow-gold ratio is currently 8.91, still well short of the ratio of 4-5 which we would associate with fully priced gold. You might wonder why gold should be fully priced when no other asset class is? The reason is that when its rallying its the only asset class people will have confidence in. Everyone likes a bargain. At this point gold is cheap, and it will remain cheap until it gets dumped.

I expect equities to rally soon. Its the new year, and stocks generally rally at this point, and more importantly stocks have fallen to an important support level. The rally in equities will likely offer good profit potential, but nothing like gold. Already gold equities have been strong for some time now. If you want to know how to pick gold equities - I will refer you to here. As indicated about 6 months ago, based on the expectation of a rally in the Dow to between 8,500-10,000, the gold price could rise as high as $2125-2500/oz. The rise will partly reflect weakness in the USD, but it will also reflect real price gains for gold, so you will benefit in any currency.
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Andrew Sheldon www.sheldonthinks.com