Many financial advisors talk about the Dow to gold ratio in these turbulent market times. If the Dow Jones Industrial Average closes at 10,817.65 and the price of an ounce of gold closes at $1,851.71, then an investor needs about 5.84 ounces of gold to purchase the "paper" securities market (one share of each of the 30 DJIA stocks). The current ratio of the price of gold and the DJIA is considered a bearish signal for investors.
In comparison, the late 1990s gold-to-market ratio was quite different. At that time, investors needed about 45 ounces of gold to buy the DJIA.
Financial advisors everywhere want to know how to advise clients for the next one, three, and five year period. If you've been waiting for a precious metals market correction, continue reading:
Gold performance. As of this writing, the price of gold has appreciated approximately 50% in the past twelve months. During that period, the broad securities market has dipped approximately 10%. Few analysts continue to hawk gold at current price levels, although financial advisors routinely explain that a $2,000 per ounce price is anticipated.
Some financial advisors in our network predict a 3.0 gold-to-market ratio over the next 12 months. The prediction is based upon an anticipated decline in the securities market and a stable to increasing price of gold.
Silver performance. During the past 12 months, the price of silver has also soared. Many financial advisors have recommended silver over the past two years. At almost $43 an ounce, silver has climbed an impressive 54% since December 2010. Many financial advisors urge caution at current levels, because volatility and price consolidation are almost certain after-effects of silver's rapid rise.
The price of silver started to climb in September 2005, when silver traded at about $7 per ounce. Silver doubled in value by April 2006. The price of silver reached almost $16 by late 2007. By March 2008, silver rose to about $20 an ounce. In late 2008, during the beginning of the global financial crisis, silver declined. In April 2011, silver reached a high of $49 an ounce.
Unlike gold, industrial demand from high tech companies continues to underscore the demand for silver. From the 1990s decade to the present, silver mines haven't been able to keep up with the world's demand for this precious metal.
Citizens in China and India, comprising almost half of the earth's population, are buying precious metals, including silver. Chinese television (CCTV) offers direct purchase of silver to consumers.
The Gold-to-Silver Ratio. Recent market activity shows that gold and silver maintain a kind of price relationship. In recent months, silver has outpaced the price of gold in percentage and volatility.
Precious metals as part of a balanced portfolio. Financial advisors have long considered the importance of gold and silver in an investment portfolio. However, buying too much of any asset, including gold and silver, can have a negative impact on the portfolio's performance over time.
For that reason, many financial advisors recommend a maximum of 10% in gold, silver, or other so-called hard assets.