The Dow peaked at 44 ounces in late 1999, up from 1 ounce in 1980, and has since been in a steady “silent crash,” to borrow a phrase from Robert Prechter. It has so far bottomed out earlier this year at around 12 ounces, but with the decline in gold to under $800* and the bounce in the Dow to around 11,700, the ratio is back up to almost 15 (still a dangerously high level–take a look below at where the Dow peaked in 1929).

Since deflation took hold in force last year, the crash has been making some noise, as the nominal Dow has finally turned lower. If you think this trend will continue, the Dow’s bounce since mid-July appears as a shorting opportunity in both nominal and gold-priced charts. We might be experiencing the last chance in decades to get 15 ounces for the Dow, since this cycle has a very long period.

Click chart for sharper view. Source: chartsrus.com

But maybe the bounce in Dow:Gold will go further, if gold continues down towards the technically important level of $600 (see chart below for a sense of how much air is left to come out of this market after its premature dash to $1000) before the Dow has a chance to catch up. Commodities do crash faster than stocks, but one other thing is for sure: the Dow has a lot further to fall than gold, since in a financial crisis, whether inflationary or deflationary, nobody thinks of stocks as a safe haven.

Source: kitco.com

[*Bragging rights claimed: I sold half of my puts on gold this morning for about a 160% profit, since we could bounce from here.]