How the Dow Has Really Performed When Measured in Gold?
Courtesy of Elliott Wave International
"Your cheating chart will tell on you."
Hank Williams may not have known about Elliott waves, but he did know when a story doesn’t add up.
Such is the case with the nominal rise of the Dow Jones Industrials from 2000 to 2007. In the language of country music, this stock index has a "Cheatin’ Chart" — it doesn’t tell the real story.
A simple price chart of the Dow is, well, a bit too simple. Robert Prechter explains that pricing via fiat currency is not the same as pricing the Dow in terms of real money (namely gold). Then he shows the difference.
For six long years, we’ve had declining real values in stocks. Since the 2002 bottom, we’ve had rising values in nominal terms. This is the same set-up that we saw in the early ’70s except for one thing: it’s bigger. Ultimately, real prices are leading dollar prices, and we’re going to see a tremendous drop in the dollar price of the Dow as well, because I’m making a case that this is a much bigger top.Elliott Wave Theorist, December 2006
If gold were our money, the major stock market indexes would have declined relentlessly from 2000 to the present, with a muted bounce in 2003. There would be no arguing the point of whether a bull or bear market was in force.Elliott Wave Theorist, March 2006
This "oh-so-true" chart of the DJIA priced in gold showed the path that the "cheatin’" nominal Dow would eventually follow. Our forecast was that it’s just a matter of time. This analysis has played out as expected several times since the 1999 high in the Dow Jones Industrials.
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