On February 19, 2024, Luke Gromen presented a chart of the Dow/Gold ratio from 1800 to 2024.
Because we know that the price of gold didn’t freely trade until after 1971, we know that the period prior to 1971 invalidates the Dow/Gold ratio before that time. However, Luke later comments in the same thread on the question of the QQQ or Nasdaq 100.
As most people should know, we really like the comparison of the price of gold to the Nasdaq Composite because they both started trading in the same year, 1971. This is where we can get the most knowledge from a comparison of a stock index and the price of gold.
First, we look at the percentage change between gold and the Nasdaq Composite since March 1971.
There should be no question about the long term winner in the performance of the two indicators. The Nasdaq Composite, excluding the compounding of dividends, has trounced the price of gold. Unfortunately, this typically brings out claims of gold suppression by gold specialists. Our view is to take the data at face value and move forward.
Looking at the quote by Luke Gromen about the Nasdaq, we find that if his claim is correct, that since March 200o, the price of gold has increased approximately +614.28% while the Nasdaq has increased +211%, then we as market observers need to look at a period when the price of gold last experienced a similar increase and contrast that against the Nasdaq Composite.
A good starting point for comparable periods would be from 1971-1979 when the price of gold increased approximately 670.17% while the Nasdaq Composite increased approximately as much as +41.96%. With this data in mind, we then ask ourselves, what was the performance of both indexes after August 1979 (+670.17% increase in gold)?
The performance of gold from 1979-2000 was approximately –20.25% while the Nasdaq Composite increased approximately +2,527.25%. Of course we know the choice of Luke Gromen selecting the March 2000 peak of the Nasdaq is an attempt at goosing the numbers in favor of gold and against the Nasdaq Composite. However, this is an ideal point at which we can base our conclusion about what we shouldn’t be surprised in seeing next for both gold and the Nasdaq Composite.
We know that the Nasdaq Composite collapsed and has subsequently recovered to the current level of approximately +283.41%. This is in contrast to the approximate +699.71% increase in the price of gold.
Understanding that all of our data is approximate and that we have considered the periods under question in the most favorable light, we can see that if the current period of overperformance of the price of gold is indicative of history, then we should not be surprised by seeing the Nasdaq increasing approximately +1,115% versus the price of gold increase approximately +485%.
-
all data is approximate.
-
differences in data is due to using monthly price of gold and Nasdaq Composite.
-
2024-2041 estimate is based on the average of 1971-1979, 1979-2000, and 2000-2024 period using monthly price data.