Gold And The DJIA
by Richard C. Forest
Gold has its own cycles. How best to interpret them? STOCKS & COMMODITIES contributor Richard
Forest illustrates that gold cycles can be best understood when analyzed and compared to the DOW
Jones Industrial Average (DJIA). Here's why.
Gold cycles have their own unique rhythm, sometimes not immediately recognizable. They can,
however, be understood when analyzed and compared with the Dow Jones Industrial Average (DJIA).
Gold can sometimes forewarn of a market rally or correction and gold cycles are influenced by cycles of
the DJIA, perhaps because of the relationship between gold and the equity market; when the economy is
generally bullish for the market, it is bearish for gold and vice versa. Therefore, it is imperative for an
investor to look closely at gold prices' fluctuations, as they may indicate market turning points or strength
in the equity market.
To monitor the price of gold in relation to the value of the DJIA, daily gold prices are plotted using an
inverse scale (scale increasing downward along the y-axis) along with the daily DJIA values. This type of
graph demonstrates the inverse relationship between gold prices and the DJIA (Figures 1, 2 and 3).