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Keeping Perspective: The Dow Is Nowhere Near a Record High in Gold

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The Dow Jones Industrial Average broke through another record high yesterday, closing at about 18,030. A record high in United States dollar value, that is. When valued in ounces of gold, the Dow is nowhere near its historical high, which we saw in 1999. Take a look at this chart, showing the Dow to gold price ratio:

14-12-25-dow-gold-ratio


When valued in ounces of gold, the Dow hit its record high in August of 1999, at a little more than 42 ounces of gold. During that month, the Dow was rising from 10,000 to 11,000, while gold was in the $250 to $260 range. Today, you’d need only 15.35 ounces of gold to buy the Dow at 18,030 and gold at about $1,174.

This is just a reminder of where real value lies in this world. Gold has been a monetary asset for thousands of years. On the other hand, the current US dollar has existed in its modern fiat form with no gold backing for just a handful of decades. Looking at the dow to gold ratio in 1999 versus today shows us how much value the dollar has lost in just 15 years.

An editorial from the New York Sun on this topic sums up our sentiment about the condition of the US dollar in these modern times:

Whether we will have in respect of the Dow the kind of reversal we saw in the real estate markets, it’s not our place to say. But we do think the question would not be so mysterious were our monetary system based on the constitutional dollar, a dollar defined as a legislated amount of specie. These were dollars as the word dollars was used in the Constitution itself. If we had such dollars today, then headlines such as the one at the top of the Drudge Report this afternoon would be speaking in a universal language, one requiring less deciphering by mandarins of our hedge funds and economics departments. Then the 18,000 Dow would really mean something.”

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