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The Dow Gold Ratio

By August 21, 2011

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Dow Gold Ratio

Photo Credit: Sven0

The past few weeks have tried the souls of many financial advisors. If you've championed precious metals as part of the investment portfolio, your clients are happy. If you've cautioned clients against acquiring gold, silver, or precious metals in some form--mutual fund, ETF, options, coins, or bullion--you're probably asking a lot of questions about how high precious metals can soar in an uncertain financial market.

You're hearing more about the market-to-gold ratio, or Dow Gold Ratio, every day. Simply stated, the Dow Gold ratio measures how much gold is needed to purchase a share of each of the 30 Dow Jones Industrial Average blue chip stocks.

Precious metals have shown dramatic results over the past five years. The price of gold, as of this writing, has risen about 15.52% in the past 30 days, 33.26% in the past six months, 50.79% in the past year, and 196.72% in the past five years. These numbers, when compared to most investors' securities portfolio returns, continue to drive new investors to consider gold as an investment.

Similarly, silver investors have seen almost incredible returns. In September 2009, silver sold for less than $15 an ounce. By year-end 2010, silver almost doubled. In April 2011, silver crested to almost $50 an ounce. Today, silver is trading at about $43. That's about 200% in two years!

Over the past 10 years, silver rose from about $5 an ounce, or appreciated an astounding 900.75%.

Owning precious metals isn't for every investor, so discuss the suitability of owning volatile investments like precious metals with clients.


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