Don’t believe the naysayers. This gold bull market is for real. The most important psychological aspect of a bull market is this: Bull markets climb a wall of worry.
What was interesting about gold’s climb to over $1,000 dollars an ounce over the past week is that instead of being met with jubilation it is being meet with skepticism. One well-known commodities writer wrote that the $1,000 dollar mark looked liked the top, with a lot of selling coming in. Mark Hulbert, who tracks sentiment, showed that positive gold sentiment was under 30 percent despite the recent move higher.
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A key long-term indicator for gold is the Dow Jones Industrial Average to gold ratio. This simply divides the prices of the Dow by the price of an ounce of gold. When it takes more than 25 ounces of gold to buy the Dow, gold is cheap and the Dow is expensive.
This happened in the mid 1960s and late 1990s, two timeframes when gold bottomed and the Dow topped. When it takes less than two ounces of gold to buy the Dow, the Dow is cheap and gold is expensive. This occurred at two key market bottoms in 1932 and the early 1980s.
Right now the Dow to Gold ratio is about 9.6 to one. This tells us that gold is nowhere near a major top.
Forget the naysayers. Gold may have short-term resistance at $1,000 dollars an ounce, but sooner or later it will continue to climb the wall of worry and break out.
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