Dow Gold Ratio

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Thu, Jun 16, 2011 - 6:39pm
Eric Original
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testing....

https://stockcharts.com/h-sc/ui?s=$indu:$gold

Hmmm. no luck

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Thu, Jun 16, 2011 - 6:52pm
Robert LeRoy Parker
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That's not an image file

You can tell it is if the url ends in .jpg or .png, etc.

So what you need to do is take a screenshot of the stock chart. Google the command for your computer.

Then upload it to the files server in the my account section. Next you click the image icon and select the "browse server" option. Choose your file, insert, and voila:

You only have 1 meg of server space so choose your images wisely and delete them when the thread is dead.

Thu, Jun 16, 2011 - 6:52pm Robert LeRoy Parker
Eric Original
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Robert re: Nikkei

Well, now you are diving off into purely contrarian sort of bottom fishing. The Dow has been outperforming the Nikkei for quite some time and there is nothing on the charts suggesting that's going to change any time soon. You might be right, but it's a completely different sort of bet than the DGR trade where (I think) we have a pretty firmly established trend and we are just piling on.

https://stockcharts.com/h-sc/ui

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Thu, Jun 16, 2011 - 7:05pm
Eric Original
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image upload

Yeah, I get it now. But I put one chart in there and it's taking like 200KB. That's a fifth of my space. If I want to keep this thread going for a while this is not really an option to do this very often. I think I'll just put up links. Thanks Robert for your help though.

This isn't a metals blog anymore. It's a right wing circle jerk, masquerading as a metals blog.
Thu, Jun 16, 2011 - 7:15pm
Robert LeRoy Parker
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Use .png format

The one I just did was 54 kb. So that gives about 20 images. I'll look for another solution as well.

Thu, Jun 16, 2011 - 7:18pm Robert LeRoy Parker
Eric Original
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How do I delete the one I put

How do I delete the one I put in there? I highlight it and hit delete and nothing happens.

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Thu, Jun 16, 2011 - 7:21pm Eric Original
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Let's just stop with this.

Let's just stop with this. We are junking up the thread with this technobabble.

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Fri, Jun 17, 2011 - 7:53am
JoeKa
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Eric O

This thread rocks buddy. I need to spend more time reading this weekend. Tks for starting this thread.

Fri, Jun 17, 2011 - 9:25am JoeKa
Eric Original
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Thanks JoeKa !!

Here are a couple more links to kick off the day. Hoping to keep this thread going for a while.

https://seekingalpha.com/article/141811-the-importance-of-the-dow-gold-r...

https://home.earthlink.net/~intelligentbear/com-dow-au.htm

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Sat, Jun 18, 2011 - 12:37am
Eric Original
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Let's crunch some numbers

Let's crunch some numbers and see how this is working. I'm going to arbitrarily say that the trade was put on at the end of NY trading on 5/31, and closed out today 6/17. Cut me some slack on the gold prices because I'm eyeballing the charts to get spot at 4:00 NY time. Raw data then, with prices for 5/31 and 6/17 and % change are as follows:

Dow 12569.79 12004.36 -4.498%

Gold 1534 1539 +0.326%

DGR 8.194 7.800 -4.808%

DGL 53.86 53.99 +0.24%

DOG 40.06 41.82 +4.39%

UGL 80.92 81.12 +0.25%

DXD 16.88 18.38 +8.89%

FSG 26.93 29.51 +9.58%

Well lets start with the Dow Gold Ratio (DGR) itself. If you could short it directly, you would have been up 4.808%. But you CAN'T really short it directly. You need to work it as a pair trade, short Dow and long Gold. Half your money on each side should give a return of HALF of the 4.808%, or 2.404%. And we can see that half short the Dow and half long Gold gives just that, within some rounding (+4.498+.326=4.824, divided by two=2.412%). ​So, if that's our target, lets see how some ETF pair trades held up.

DGL+DOG (1X ETF's) comes close (.24+4.39=4.63, divided by two=2.315%) but there seems to be some decay in there.

UGL+DXD (2X ETF's) come close to double that, or nearly back to what the DGR itself did (.25+8.89=9.14, divided by two=4.57%), but again there seems to be some decay in there.

How about FSG? This is a dedicated ETF product that is a leveraged play on long Gold/Short S&P500. Now the S&P is not exactly the Dow, but close enough for our purposes. FSG was up 9.58% for the period. This appears to be 2X what we were getting by using 2X ETF's in a pair trade, or 4X what you would get using the 1X ETF's.

It's getting late, so I'm going to let this sink in overnight and see what I (or you) think about it in the morning.

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Sat, Jun 18, 2011 - 2:15am
JoeKa
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Cliff Droke: Gold, the Investor Safe Haven du Jour

Will post Gold related articles here in Eric O's thread instead of other folders. Just easier for me that way shuttling between this thread and my regular hangout on Pailin's. Sorry that its not necc DGR focused:

-----------------------

Throughout the duration of the 2008–2009 credit storm and the recovery that followed in 2010–2011, gold's performance relative to other asset classes has been superior. In this Gold Report exclusive, Gold & Silver Stock Report Editor Clif Droke charts gold's past and possible future.

The yellow metal has maintained its relative price strength during the most recent financial market correction, and gold is now closer to its all-time high than most stock market indices. As an illustration of gold's leadership, note the following chart. At no time in the last four years has the performance of the benchmark S&P 500 Index (SPX) outstripped that of gold. The following chart compares the relative percentage performance of the SPX versus the iShares Gold Trust (GLD), a popular and heavily traded gold ETF that tracks the gold price.

As you can see, gold has dramatically outstripped the stock market in terms of relative percentage gains over the last three years since the U.S. economy went into recession. Gold has been the major beneficiary of safe haven funds, as investors rushed to buy gold as a defensive investment. What many analysts are wondering, though, is how much of the gold bull market of recent years is due to safe haven-investment flows and how much is due to other factors, such as industrial and jewelry demand.

A Gold Demand Trends report released on May 19 by the World Gold Council (WGC) suggested that much of gold's gains in the first quarter of 2011 were driven by growing demand from China and India. Analysts have pointed out that the increasing prosperity of those two countries has made it easier for its citizens to purchase gold bullion, in coin and other forms, but primarily as jewelry, which in India serves the dual role of decoration and personal investment.

The WGC report estimated that Indian households own more than 18,000 tons (18 Kt.) gold, making the country the world's biggest holder of gold. By comparison, official gold reserves in the United States total about 8,100 tons. Commenting on these statistics, BusinessWeek magazine wrote: "Indian consumers aren't done buying: In this year's first quarter, they purchased an additional 206 tons of gold jewelry and 85 tons of gold bars and coins. And China's appetite is growing rapidly and could soon overtake India's."

BusinessWeek found that if Chinese and Indian demand is stripped away, "the rest of the world's hunger for gold isn't nearly so vibrant. Some new buyers have shown up; some prior speculators are cashing out. But a global flight to gold as a hedge against Armageddon doesn't appear to be taking shape."

There is reason to believe, however, that this conclusion is mistaken. To begin with, jewelry demand doesn't account for the bulk of the tremendous run-up in gold's price over the last few years. Gold's strong performance can be linked primarily to the following four classes of buyers:

  1. Individual investors
  2. Central banks
  3. Hedge funds
  4. ETF holdings

Individual investors in Western countries bought gold as a safe haven investment in the aftermath of the 2008 credit crisis, for obvious reasons. Fear was very high in 2009 and 2010, and demand for gold and silver bullion coins in many categories hit record levels. The extraordinary increase in gold's cost-per-ounce may have pushed many marginal players out of the market in the last year or two, but that demand was easily supplanted by institutions and hedge funds. Indeed, the appetite for gold displayed by these big money investors has been an oft-overlooked factor in gold's upside run since 2009, just as it was in the years preceding the 2008 financial collapse.

Gold Fields Mineral Services (GFMS) recently published the 44th edition of its annual survey of the world gold market, Gold Survey 2011. According to GFMS, gold investment demand last year continued to drive the gold price higher; it rose nearly 26% in 2010 on an annual-average basis. GFMS noted that global gold investment in 2010 was the second highest on record, while world gold investment set a new high last year, in value terms. ETF holdings, notably, experienced the second highest annual gain in 2010 according to GFMS.

In more recent times, added to the list of key drivers behind the metal is a fifth major player—academic institutions—which have been increasingly looked to the yellow metal as a long-term investment. It was reported in April that the University of Texas Investment Management Co., which also handles Texas A&M, had 5% of its $19.9-billion endowment in physical gold bullion. The endowment took delivery of 6,643 bars of gold (664,300 oz.) in what is widely regarded as an extremely unusual move for a typically conservative university endowment.

This may not be the "flight to gold as a hedge against Armageddon" thatBusinesWeek talked about, but it makes you wonder what exactly the folks at Texas Investment Management Co. are so concerned about that they would take delivery of physical gold. Perhaps, they know something the rest of us don't.

If not Armageddon, what reason(s) could there be for owning gold in the years ahead? When it comes to evaluating gold's long-term prospects, two factors must be considered. Within the typical lifespan of an investor, there are two major periods to buy gold. The first is in the face of hyperinflation, due to its proven performance as the ultimate hedge against an erosion of purchasing power. For example, in the hyperinflation that began in the late 1960s and lasted until about 1980, gold went from $35/oz. to around $800/oz.—proving its utility as an inflation hedge.

The second time to buy gold for the long term is in the face of economic collapse or financial market volatility, as gold has a proven record as the ultimate storehouse of value. For instance, after peaking in 1980 when hyperinflation ended anddisinflation began, gold bottomed in 1999 at about $250/oz. at the beginning of economic winter. It has been going up since then, notwithstanding temporary setbacks. If history repeats, gold should begin to accelerate when economic collapse comes to bear, as we approach the fateful year 2014, when the 60-year long-wave, or Kondratiev wave, cycle is scheduled to bottom.

As Cycle Analyst Samuel J. Kress has observed, any portion of the similar increase from 1966–1981 bodes for astronomic prices in gold from here. In recent decades, the buy-and-hold mentality for conventional equities worked until revolutionary changes at the turn of the century retired this strategy along with the buggy whip. "Consequently," he said, "replacing that gold will be the contemporary equivalent [of equities] and investors should retain long-term positions in gold and add to positions on interim corrections."

Regardless of whether the economic-Armageddon scenario comes to fruition, there are several reasons gold will maintain its long-term bull market, which began at the turn of this century. If you believe the government will continue debasing the U.S. dollar, the gold price will benefit from this debasement policy. If, on the other hand, you believe the economic, Kondratiev winter of the 60-year cycle will accelerate in the next few years, history has proven conclusively that gold should once again be the safe haven du jour for investors seeking asset protection. Armageddon or not, gold's long-term prospects are still promising.

Sat, Jun 18, 2011 - 6:42am
JoeKa
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From India: India gold eases with world markets, demand poor

Reuters / Mumbai June 17, 2011, 16:05 IST

India's gold futures eased on Friday afternoon on a drop in the overseas market, but a weak rupee limited the downside, though spot demand was weak, and dealers said.

* At 2:45 pm, the most-active gold for August delivery on the Multi Commodity Exchange (MCX) was down 0.2% to Rs 22,451 per 10 grams.

* "For the past few days demand has been very weak. Wedding season demand is over, there is no festival this month to attract people to buy gold," SL Jain, a Delhi-based jeweller, said.

* International gold edged lower on Friday, but jitters about whether Greece was edging closer to default and economic spillover from the country's debt crisis could still spur safe haven buying.

* The Indian rupee, which has a bearing on the landed cost of dollar-quoted gold, was at 44.9500/9550, weaker from the previous 44.90/91 per dollar dragged by weak local shares, with dollar purchases by oil companies as well as a large telecom company also weighing, dealers said.

Sat, Jun 18, 2011 - 6:46am
JoeKa
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India Wedding Seasons - FYI

There are spikes in gold demands both January and September, months when Indian manufacturers typically restock inventories to meet the demands of the two Indian wedding seasons.

The first, mentioned above, starts in November and ends in December.

The second starts in late March and runs through into early May.

Sat, Jun 18, 2011 - 6:57am
JoeKa
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The Currency That's Up 200,000%

Bitcoins are the top-performing money in the world - but what are they?

https://www.smartmoney.com/invest/stocks/the-currency-thats-up-200000-1307029053200/?link=sm_newsticker

By Jack Hough

Mon, Jun 20, 2011 - 10:06am
Eric Original
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This is about all I've got to

This is about all I've got to say about the general theory behind the DGR, and about basic implementation. My posts here going forward will likely be limited to periodic updates about where the ratio is, and also any questions/discussions with other commenters.

I remain long UGL and DXD at this time.

Thanks to all readers and commenters who have helped me sort out my thoughts on this issue.

This isn't a metals blog anymore. It's a right wing circle jerk, masquerading as a metals blog.
Mon, Jun 20, 2011 - 10:07am
Eric Original
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ETF problems

The more I look at things, the more concerned I get about decay and tracking issues with the ETF's. Especially the short ETF's.

Over the past 1 year I'm seeing the following:

Dow +15%

DOG -17%

DXD -32%

That seems pretty much as expected. They are performing inversely, as they should, with a little decay in there. I be fine with this if I only looked back one year. But what about the volatile 2008-2009 timeframe? Turns out it was a disaster for these ETF's. Tracking was horrendous. Actually getting proper performance over the period is tricky. Both DOG and DXD paid some big distributions late in 2008. Most stock charting sites either don't reflect that, or don't reflect it accurately. But here's what I was able to come up with for 1/1/2008 to 12/31/2009:

Dow -22%

DOG +5%

DXD +1%

OUCH. This performance is bad enough to throw possibly throw this entire thesis out the window. I'm not going to pretend to know precisely why these ETF's performed so horribly in the hyper volatile period. You can google the issue yourself regarding ETF tracking problems. But it for sure is real. Here's an interesting point though. If you are not in an IRA, and can short things, simply shorting DDM (2X long Dow ETF) over the period would have done quite nicely, returning +47%, less your margin interest costs of course. So maybe the real problem is with inverse ETF's, not so much with long ETF's.

Summary

​If you are in an IRA, such as I am, and can't short, this is a problem. The inverse ETF's such as DOG and DXD cannot ​be relied upon to perform as expected through volatile times. And we certainly expect volatile times. What about FSG?? No track record there, it's too new. Is there any reason to expect that the short components of FSG will do any better? Doubt it, but you pays your money and you takes your chances. So what to do? Well, here are some alternatives:

1) Proceed as planned with DXD and UGL. But be ready. When you get a decent profit in DXD you must ​take it.​ Don't be greedy. Now you've moved away from something you thought you could set and forget for a while, and you're back into more of a trading mindset. So be it.

2) Don't trade directly on this. Use the Dow Gold Ratio as just one more indicator in your tool bag to guide some of your other trades. It might help you know when to be long or short gold, when to be long or short a variety of sectors. But again, you've now gone back to being a trader, not an asset allocator.

What if I'm not in an IRA?

Seems like long UGL and short DDM might work just fine. Plus there are all kind of other ways to play that I can't begin to analyze. Options, futures, etc. I still think there are plenty of ways to profit from tracking the Dow Gold Ratio, as long as you are not in the IRA straightjacket.

Thoughts?

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Mon, Jun 20, 2011 - 11:51am Eric Original
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It's a pair trade...

Eric Original wrote:

But here's what I was able to come up with for 1/1/2008 to 12/31/2009:

Dow -22%

DOG +5%

DXD +1%

OUCH. This performance is bad enough to throw possibly throw this entire thesis out the window. I'm not going to pretend to know precisely why these ETF's performed so horribly in the hyper volatile period. You can google the issue yourself regarding ETF tracking problems. But it for sure is real.

1/1/2008 to 12/31/2009 covers the crash and a good part of the recovery. From 1/2/08 thru 3/9/09 the Dow Ind's lost ~50% while DXD gained ~137%. From 3/9/09 thru 12/31/09 the Dow Ind's gained ~59% while DXD only lost ~67%. Dow -50% then +60% gives the net loss of ~20% you noted. Based only on that you're expect DXD to have gained ~40% (2x 20 = 40, duh...), but since that occurred over time decay factors in. Based on the major swings DXD should have doubled (Dow -50%) and then gone negative (Dow +60% = DXD -120%!), but again, volatility and daily rebalancing alters that.

But don't forget, this is a pair trade. UGL and DGP don't go back to 1/1/08, so I can't run their numbers for the period you noted. $INDU:$GOLD did go from ~16.5 down to ~9.5 from 1/1/08 thru 12/31/09, so a DGR play was still a winner overall. I do agree with ya that leveraging both sides of the pair could bite you if you simply hold long term. Unleveraged may be a better buy-n-hold-and-fuggedaboudit play, while holding UGL(or DGP) and swing trading DXD could make sense if you're game for some trading...

Mon, Jun 20, 2011 - 2:32pm
Old Major
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Nominal price of DOW could go up

Glad you posted this topic Eric Original. I agree and think the Dow/Gold ratio will go much lower before the end of this decade, 1 is a realistic target. I like UGL & AGQ as a way to get a little leverage. I agree that the Dow will lose value when compared to gold/silver, but my concern is that it might not lose value in terms of fiat dollars. So I worry that DXD could perform poorly if QE3, QE4, etc. pump up the nominal price of the Dow. I’m currently long AGQ, but do not own any UGL or DXD.

Tue, Jun 21, 2011 - 10:59pm
CookieMonster
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@ eric original re: 2 late for miners?

https://thetsitrader.blogspot.com/2011/06/looks-like-bulls-are-going-to-w...

smart money is aggressively selling all rallies.

CookieMonster
Tue, Jun 21, 2011 - 11:42pm
Eric Original
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I hear ya Cookie

I hear ya Cookie.

I assume you are responding to my bullish comment regarding the miners on the front page? Or are you supporting my UGL/DXD trade here on this thread? Either way, I appreciate your interest and very much respect your opinions.

What about the apparent conflict between feeling bullish on miners while being bearish on the Dow? It's a puzzler, but that's how I feel. In the shorter run, which I think you generally are trading, yes if the Dow tanks it takes the miners with it. I'm not kidding myself about that. That's why on the miner comment I said "in the short run anything can happen". But I like to think I'm looking a little further down the road.

The Dow is still fairly close to it's recent highs, while the miners have been bombed mercilessly. I think there is value in the sector now, and I just don't see all that much more downside in them. I'm thinking that given some time ( I mentioned 6-9 months), this area we are in right now, 34 on the GDXJ, will turn out to have been a good buy.

Am I a nervous nellie about all of this? Hell yes. Big macro crosscurrents everywhere that can blow away the best laid plans of mice and men. And of course I reserve the right to change my mind at the drop of a hat. Don't we all?

Good Luck and be careful out there.

This isn't a metals blog anymore. It's a right wing circle jerk, masquerading as a metals blog.

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