Written by Michael Clark
Gold/Dow Ratio – How a Picture is Worth a Thousand Words
The most important chart in the world of finance, in my view, is the DOW/GOLD RATIO, which measure the price of Gold in terms of the price of the Dow Jones Industrial Average.
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The DOW/GOLD RATIO has influenced my way of thinking about stocks, gold and the economy over the last 30 years is the GOLD/DOW RATIO. Look at the chart below. This chart appreciates in value when the Dow rises and/or the price of Gold falls. When the Dow falls and/or the Gold price advances, this chart declines. As this chart suggests, the DOW and GOLD are mortal enemies. When the DOW rises, almost always GOLD falls. When GOLD is in a BULL MARKET, the DOW is almost always in a BEAR MARKET.
Let’s look first at the DOW/GOLD RATIO in 2010. It was very clear to me that this chart was a “picture of financial reality”.
The DOW/GOLD RATIO bottomed in 1911 (roughly), topped in 1929, bottomed in 1947, topped in 1965, bottomed in 1983, topped in 2001, and was going to bottom in 2019.
This chart was a revelation. The Dow (and stocks) had topped in 2001 and would decline until about 2019.
Suddenly everything began to make sense. 18 years up; 18 years down. Was nature and history that logical? Was that possible?
After 2001 I loaded up on gold stocks and did very well with them.
A note about cycles.
Everything in nature cycles. The Right Brain understands cycles and imagery. The Night-Cycle brain,. The Left Brain does not see this. The Left Brain (the Day-Cycle Brain) operates through cause-and-effect.
The oldest book in the history of the world, the Chinese masterpiece, the I-Ching, the Book of Changes, gave us an image and an understanding of the fundamental cycle in life on Earth: Day and Night.
Two beasts or forces flowing into and out of each other. Mirror-images. The White Day-Cycle; and the Black Night-Cycle. In the Bible the two beasts are Behemoth (DAY) and Leviathan (Night). These are also Man and Woman; East and West; Republican and Democrat; Sun and Moon; LEFT BRAIN and RIGHT BRAIN. Also, Stocks and Gold.
Of course, the LEFT BRAIN will deny the importance of cycles. His mind works according to causality. This CAUSES that to happen. In the RIGHT BRAIN what is the causal agent? Well, TIME is. Time runs out. There are seasons in everything; one season becomes another season; and this is what keeps things changing. Orbital causality.
The RIGHT BRAIN loves to remove everything from its natural rhythms and patterns, put them in a laboratory setting, and study them. This clearly allows for the study of the OUTSIDE of things. But what about the study of the rhythms and patterns themselves? Well, these rhythms and patterns are not that important. Right?
It would be easy to keep exploring these ideas — but then I might lose my focus. This article is about cycles in Gold and in Stocks.
I have been engaged is discussion on Seeking Alpha and I have been surprised at the basic misunderstanding of ideas on cycles. I write that “gold is in a BULL CYCLE from 2001-2019” — some people reply that from 2011-2012 told declines, proving it was not a Bull Cycle. Thinking is not optional here; it is required.
When I write that Gold (or Stocks) was in a Bull Market from 2001 to 2019, one must understand that the calculation begins on 2001 and ends on 2019 and does not include every year in between.
For instance, from June 21, 2001 when gold was priced at 272.8, to today’s gold price 1510.30. That is the BULL CYCLE, a gain of 455%. This DOES NOT MEAN that gold has gained every year from 2001-2019.
The LEFT BRAIN loves to break things into smaller and smaller parts. The RIGHT BRAIN loves to magnify things into larger and larger parts. The LEFT BRAIN is contractive, and is symbolized by the microscope. The RIGHT BRAIN is expansive, and is symbolized by the telescope.
In 1965, GOLD was trading at $36 — in 1983, GOLD traded hands @ $389.36, with a high price of in 1980
Our claim is that Gold and Stocks are opposites. When Gold goes up Stocks go down. The Gold Bull runs opposite the Stock Bull.
1911-1929 is a Stock Bull and a Gold Bear.
1929-1947 is a Stock Bear and a Gold Bull.
1947-1965: Stock Bull and Gold Bear.
1965-1983: Stock Bear, Gold Bull.
1983-2001: Stock Bull; Gold Bear.
2001-2019: Stock Bear; Gold Bull.
2019-2037: Stock Bull; Gold Bear.
Here is a record of Gold put in this cyclical harness. It is not perfect. Gold appreciated a bit from 1911-1929. It was not supposed to. Other than that the pattern harness looks pretty good.
200 years of prices – Only Gold
The STOCK BEAR 1929-1947 acted as it should. The Dow lost 161 points, 47.82%. The STOCK BEAR from 1965-1983 was mostly a sideways correction. A 22% gain or 1.22% per year over 18 years. The STOCK BEAR 2001-2019 was what we expected through 2009, down 38%.
Then the FED took over. Has the FED permanently preempted these natural cycles? That is the question. I think the answer is NO. Who can be sure?
How do our purported market tops correspond to the PE tops above?
BUT SOMETHING HAPPENED in 2012. Let’s look at a picture of something happening.
What happened in 2012? The FED began its QE market manipulation. FED manipulation was designed to weaken the US Dollar and take pressure off debtors by driving down interest rates. This is also, apparently, the same year the FED began To naked shortsell paper gold in order to keep the price of gold down.
Naked Gold Shorts: The Inside Story of Gold Price Manipulation – Global Research
The DOW was supposed to collapse, in terms of my understanding of the DOW/GOLD RATIO through 2019. I drew this on to the chart below, my expectations through 2019. Gold, in contrast, was supposed to SOAR though 2019.
This would pave the way for the next 18-year Business Cycle and STOCK BULL MARKET from 2019-2037, which, of course, in our line of reasoning, would also be a GOLD BEAR MARKET AGAIN.
That disrupted this clear pattern in 2012? FED SPENDING.
The FED spent all this money ($3.5 TRILLION?) buying treasury bonds and mortgage bonds to keep interest rates from climbing. Repression of interest rates in this way seemed to keep the DEFLATION CYCLE at bay. Except it did not keep the DEBT BUBBLE at bay.
Here is the other side of the coin:
DEFLATION CYCLES, what I call Night-Cycles, have historically been good for GOLD and bad for STOCKS and necessary for an unwinding of debt as the first step toward an economic reboot. Night-Cycles unwind debt; Day-Cycles re-wind debt back up as the fueld of economic expansion.
IN 2001 (this is Michael Clark Economic Theory) the FED. SHOULD have begun raising interest rates. Why? Aren’t low interest rates good to encourage borrowing and economic expansion and higher interest rates bad, because they encourage SAVING instead of spending, which leads to economic contraction?
That is the common economic understanding. It is correct only in so far as it goes. The mistake arises from the LEFT BRAIN understanding that thinks causality and human will alone move the material world. The LEFT BRAIN, we remember, cannot read the language of cycles and patterns.
If PERPETUAL GROWTH were possible then one might say that borrowing and spending is ALWAYS good. Perpetual Growth is NOT possible. Lowering interest rate during a NON-GROWTH REST CYCLE (1929-1947; 1965-1983; 2001-29019.,.) does not spur growth (GROWTH is periodical) but, instead, spurs increased debt (which eventually destroys growth) and, as we learned in 2001-2019, grows asset bubbles (which is like taxpayers being forced by the government to give free money to the rich, to those only with unlimited collateral.
Repression of interest rates clearly delays DEFLATION but it does not destroy debt, which is a necessary step to restart economic growth.; it increases debt; further delay of DEFLATION requires further repression of interest rates, which results in NEGATIVE INTEREST RATES, which, if pursued long enough will destroy the banking system.
For every economic expansion there is an equal and opposite contraction.
That is a law of nature. A metaphysical law, if you will. A metaphysical law of economics. Plato wrote: “The Laws of Nature are the thoughts of God.”
Basic principles: heat expands; cold contracts. Day is hot; Night is cold. Fire is hot; Water is cold. Fire rises; Water falls. The Metaphorical Mind (the RIGHT BRAIN) will understand this; the RIGHT BRAIN is metaphorical, draws connections between everything; everything is connected and equal in importance. The Literal Mind (LEFT BRAIN) does not understand Metaphor and insists that the world of separated facts is reality. And this is true in the Day-Cycle reality, the Scientific Perspective. The Night-Cycle perspective (RIGHT BRAIN) is not a literal reality, but a dream-like symbolic reality.
The Day-Cycle (LEFT BRAIN) sees the world very much like (warning to the literalists, this is a metaphor) the jigsaw puzzle all broken apart and in separate pieces on the table, still to be studied as individual parts. The Night-Cycle (RIGHT BRAIN) sees the world very much like the jigsaw puzzle in its completed picture state; the whole picture is there, not all the scattered parts.
When we say Day-Cycles are Solar it is because Day-Cycles are expansive exemplified by GROWTH, verticality; rising energy; fire rises. The Day, in a very literal sense, is rule by the Sun, as the Night is governed by the Moon. Night-Cycles are Lunar in the sense that they are cold, contractive, horizontal (the flatline of death); water falls; the Female Principle is Water (Night) as the Male Principle is Fire. The Night Cycle is not a time of verticality, growth, it is a time of horizontality, sleep, rest, decline, death, darkness, dreams, depression, default, deflation,debt, disease, decay, dementia, demonology, defeat.
Day-Cycles are about Order of Earth and Disorder in Heaven; Night-Cycles are about Order in Heaven and Disorder on Earth. Paradox is a governing mechanism of this system.
For every economic inflation (growth season) there is an equal and opposite deflation. This is an immutable law of nature. You can argue that it is not of course. I see something that others do not see. Perhaps my vision is faulty. And perhaps it is not. Every new vision of reality is a truth held by very few peoople and resisted by the mass, even the mass of educated people. Every new truth is scorned and humiliated by the majority, then resisted and oppr3essed, finally accepted. By the time everyone sees this truth and accepts it, if life-cycle is almost over; and it will soon need to be overthrown. The Earth is flat until its not.
The literal mind like the belittle adversaries by insisting they play according to the literal rules of causality. I had one reader ask: “So the Day-Cycle is caused by the Sun.” Causality is the Literal Mind’s view of reality. The Figurative Mind works differently, according to analogy or metaphor. The Day-Cycle is caused by Time, by a change of season. The Day-Cycle is “caused”, if you insist of this terminology, by the Winter changing into Spring, by the Night flowing into the Day. A whole set of sequences are set in motion by this change of season. One cannot isolate the single cause in the laboratory. It is a myriad of cause3s, in a myriad of sequences.
In the Poetic Mind, the Metaphorical Mind, in contradistinction to the Literal Day-Cycle Mind, poetry occurs, wherein all things occur together and all things reflect (by analogy) everything else. One side does not make sense to the other side. One mind is describing Night Reality; and the other side is describing Day Reality. One mind describes the material world; the other mind describes the immaterial world, the dream world, the world of anti-matter.
The TRUTH according to Clark.
Getting back to our picture.
Either the FED successfully circumvented a BEAR MARKET IN STOCKS (and a BULL MARKET IN GOLD) by flooding the markets with money through QE and its esoteric offshoots; or, as in 1973 (see false bottom in the chart, followed by more STOCK SELLING and GOLD BUYING, they manufactured a false bottom with all their trickery. If so, then the DOWGOLD RATIO would have to fall like a rock — which could only happen by a combination of STOCK SELLING and GOLD BUYING. The trouble with that scenario is they are running out of time. It is 2019 already.
Is time flexible in this scenario? I am not sure. If my calculations are right, 2019 begins another Business Cycle, another Day-Cycle, which is characterized by economic growth. Economic growth will negate GOLD appreciation. GOLD appreciation is a LUNAR mechanism; it occurs in time of fear, darkness, economic and social dislocation. This is all part of the LUNAR perspective, the darkness of Night, the END OF THE WORLD scenario.
The Day-Cycle is the return of the Life perspective; the Night-Cycle is the return of the Death perspective. Hoarding is a LUNAR activity.
Trump’s victory in 2016 is very much like Reagan’s victory in 1980 (36 years earlier) — it marked the return of the Day-Cycle, Patriarchal Warmth and rationality. Night-Cycles are LUNAR, madness, dark, filled with strife, fear, craziness. War is a lunar activity. World War II was LUNAR. 1929-1947, over which FDR reigned in America, a Democratic, matriarchal (socialist) figure. The RIGHT BRAIN is socialistic, idealizing social and economic equality; the LEFT BRAIN is capitalistic, idealizing individualistic destiny and social Darwinism.
I am writing this article because I have warned GOLD BUGS on SA threads about what could be (might be, is) the coming END OF THE GOLD BULL. I have been accused of being a BEAR on Gold. My position is much more complicated than that. I have an elaborate reasoning I wish to share with these (sometimes quite hostile) readers.
My brother had a Hawaiian-American friend who got into the GOLD BULL FRENZY in the early 1980s., He bought some gold; and then he became so convinced that the world we knew was dying and that we were going to sink as a people into a barbaric dark age, where banks would fail and currencies would be worthless and where gold would rise to $1500/ounce. Where we are today, in fact, in terms of the price of gold.
We were on the verge of world war with Russia. It was the END OF THE WORLD. Russia had just shot down a South Korean passenger airline and was lying about it.
There were assassination attempts on the pope and President Reagan.
Qeen Elizabeth 2 even had a speech written and ready to go announcing the start of World War III.
So my brother’s friend sold everything he could and stockpiled gold for his son, beginning in 1980, right at the top of the market. Gold could only go higher, right? Well, gold topped in 1980 and then sank for the next 18 years, right on target.
My brother’s friend was a very sane man with a very dark view of the future, which was widespread in 1981. A black view. A Night-Cycle view. But then the Day-Cycle, the Sun, returned, warming up the world, and generating a new perspective, one that was toxic for death and depression and for GOLD-BUGS. The Night went away, only to begin returning in 2001 (High Noon, the apex of light, and the beginning of the GROWTH OF THE SHADOW). In this view 2019 is MIDNIGHT. The darkest moment.
The attempt to MURDER THE PATRIARCH seems so clearly the case in 1981. Both Reagan and Pope John Paul were Sun Heroes returning after 18 years of LUNAR RULE (LEFT WING, Dominance of the East, Eastern Activity, Western Rest).
The current HYSTERIA against the leader of the Patriarchal Party, Trump, is a kind of attempt at character assassination, akin to the very real (literal) assassination attempts in 1981. Nothing is quite so impressive as the unstoppable GROWTH IMPULSE of the Day-Cycle as evinced by the 1983-2001 Day-Cycle when two leaders of the WEST, both more than 70 years old, (the Patriarchal West) were shot multiple times and recovered. Reagan was shot once; Paper John Paul four times — both men recovered; and the East fell in to darkness, with the Russian Soviet empire collapsing.
I have not talked much about East-and-West. When it is Day in the West it is Night in the East. What does this mean metaphysically? Metaphysically, when the East is active it usually makes war on the West. Japan and Germany, 1929-1947. Eastern Communism, 1965-1983. Islam and China (economic war), 2001-2019.
From 2019-2037, the East will go back to sleep; and the West will wake up. Here is a model of history, based on my understandings of the Day-Night cycles of history. The shows the microcosmic division, based on the Day, and its division into four seasons: DAWN, NOON, DUSK, MIDNIGHT. The Macrocosmic division, based on the year, is, of course, SPRING (OTC:DAWN), SUMMER (Noon), AUTUMN (Dusk), and WINTER (Midnight).
I realize I have been all over the map in this discussion. I should finish my first thought.
Here is today’s picture of the DOW/GOLD RATIO. It looks like it made a bottom in July 2011. This is clearly not what we expected. We expected a bottom in 2019.
Could the DOW still fall through the floor and GOLD rocket to the stars? Yes. Is it likely, with the FED still pursuing policies to protect stocks? Not likely.
The historical GOLD CHART suggests a TOP in 2011.
If my Time Theory is correct, the BUSINESS CYCLE has already re-begun. STOCKS are in a BULL MARKET through 2037 — if my system has any validity.
Look at the gold stock above and see what it did from 1965-1983. That is a GOLD BULL and a STOCK BEAR.
There is a caveat — a HUGE CAVEAT. DEBT. Can DEBT cause a NIGHT-CYCLE; or does TIME cause a Night-Cycle? And have we just passed through a NIGHT-CYCLE? Can we have a second NIGHT-CYCLE out of sequence?
When we sleep we have no sense of TIME. TIME is a Day-Cycle phenomena. Does TIME CAUSE the Day-Cycle? I have suggested that.
We become aware of TIME only when we wake up. TIME disappears when we sleep — suggesting TIME is a Day-Cycle god and SPACE is a Night-Cycle god.
When we dream we are very aware of SPACE and spatial harmonies and dis-harmonies but we have no awareness of TIME.
I am of two minds quite literally. I have been harping on our need to DEFLATE THE DEBT BUBBLE since 2001. The FED has taken the opposite path. The FED was created in 1913 with one (REAL) charge: to avoid depressions, deflations, at all costs. Why? Because depressions come regulary, like clockwork, every 36 years.
Some readers will scoff at this. Do your own research.
Do we decry the FED for trying to do their job, to eliminate depressions? No. Do we decry their lack of wisdom in trying to eliminate a natural and necessary part of the economic process? Yes, we do. We remember that their mind debunks the pattern-recognition side of the brain.
By choosing to protect debt in 2001 instead of destroy it, the FED has said that they do not think DEBT hinders economic growth. I think it does. I think the job of the Night-Cycle DEFLATION is to reduce debt by raising interest rates — to decrease debt, to strengthen the local currency, and to reward the SAVING CULTURE in the same/reverse way the Day-Cycle rewards the SPECULATION CULTURE. Both cultures are necessary and vital to the life of the society.
FED repression on interest rates punishes savers, punishes the local currency, and multip0lies debt — it is an insane policy in my mind, and completely fails to understand the silver lining of painful DEFLATION seasons.
Now we must live with low or even negative interest rates for the rest of time, because of this FED decision? That is the New Normal? We have painted ourselves into an untenable corner.
I was FOR the FED’s Quantative Tightening; and I am a STRONG DOLLAR man. Not perpetually. But until we have reduced our debt and recovered our moral bearing.
The FED has apparently lost its nerve again. Still the Global Economy is now beginning to grow again. Right on time. We don’t hear much about the good things in the economy. The media wants a revolution; so they tell us things that will make us think we are still in the Night-Cycle. But we aren’t.
By my thinking, the West will grow from 2019-2037. The East will sleep, and will experience the Growth nightmares the West experienced from 2001-2019.
Don’t invest in Asia again until 2037.
***
The FED has a New Plan; or is it an Old Plan?
The Fed is looking at a new program that could be another version of ‘quantitative easing’
GOLD BULLS BEWARE.
Disclosure: I am/we are short DOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
This article was adapted from a post on Seeking Alpha 06 October 2019.
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