A Most Interesting Dow/Gold Ratio “Jaws of Death” Formation

200-years

The Dow/Gold chart on your left immediately caught my eye when I read David Chapman’s article that was circulating on the Internet this past week. The reason it caught my eye is because it looks exactly like the gigantic megaphone formation that Dr. Robert McHugh displays in his newsletter on an ongoing basis and discusses in his book, The Coming Economic Ice Age.

Recognizing this formation, I sent it off to Dr. McHugh for his comment. He responded by email to me this morning with this: “Jay, the way I read that interesting chart is the Megaphone pattern is complete, the fifth wave did touch the upper boundary, so it is in the process of declining now. This confirms stocks fall and gold rallies. That’s very interesting.” I added the Elliott Wave labels to this chart, which was produced by www.GoldChartsRUs.com. Clearly this long-term Jaws of Death Chart for the Dow/Gold ratio displays a typical, clear-cut Elliott Wave pattern since the Fed was created in 1913.

As for the gold bear market since 2011, looking back over the 102 years of Federal Reserve Bank destruction of American capitalism, the counter trend of stocks falling relative to gold (from C to D) represented about a 50% decline in the price of gold from around $200/oz. to $100/oz. That move served to shake the vast majority of gold bulls out of gold, just as the current move up in stocks relative to gold is currently doing. That move looks comparable to the current rise in stocks. On a day-to-day basis, it seems as though gold will never be a good place to put your money again. Best to play the Wall Street casino game, which is, through artificial means, forcing people to take on more and more risk.

But as we can see, the Fed has indeed caused a “Jaws of Death” in the market, such that the lower jaw on this Jaws of Death suggests that at the bottom of the next stock market crash and gold bull market peak, the ratio of the Dow to gold will be considerably less than 1:1; it could very well reach Ian Gordon’s prediction of Dow 1,000 and gold $4,000.

Of course a long-term chart like this does little good for those of us who are in the markets, trading every day. Whether a major tectonic shift in this Dow/gold ratio begins to take place this year or a year or two in the future is hard to say. At the same time, it would be foolish to take our eyes off the longer-term picture. From both a technical as well as a fundamental Austrian school perspective, there is every reason to expect the total demolition of American capitalism because in fact constant QE is doing nothing less than depriving the life blood of capitalism—capital—price discovery. How can our capitalist system continue to exist if in fact, over the barrel of a gun, our government does not permit price discovery of capital?

As a result of this constant meddling in the markets starting with the partial bastardization of the dollar in 1913 with the creation of the Fed, then the further illegitimacy of our money by Roosevelt in 1933 and by Nixon in 1971, global markets are becoming far less efficient and far less stable. Is it any wonder that both the Jaws of Death for the Dow and for the Dow/gold ratio are painting a picture of doom for stocks and the formation of a massive bull market for gold? Indeed a tectonic market shift for the ages does seem to be in the making. Now we must try to prepare for it as best we can.

gold

A monthly average price for gold serves to smooth out volatility and provides a better picture of what gold mining companies are likely to receive for the sale of their product. Time will tell whether we are seeing a double-bottom, reverse-head-and-shoulders formation over the year, but it seems to be a distinct possibility. Of course, as I noted recently, as long as the American Empire can trash the price of gold it will do so. My view is that the ruling elite provide a cap over the price of gold to the extent it keeps Wall Street believing one of their many big lies, namely that the dollar without gold backing is better than a dollar with gold backing. And as I noted in a recent article, price suppression of gold is a first step in perpetuating the dollar lie. But that needs to be carried out in conjunction with the ongoing wars in the Middle East and elsewhere to try to ensure America’s Military Industrial Complex backed by the neocons and the CFR are able to control the oil markets to force countries to pay for oil in dollars, thus placing a bid under what would otherwise be an increasingly worthless currency.

The increasing willingness of America’s closest allies to form closer relationships with Russia and China is entirely understandable if you believe in the right of sovereignty, which David Rockefeller and his CFR clearly do not. Naturally, every community, every state and province, and every nation want and need to look after their own interests. And so when a small ruling elite of Americans and Europeans enslave greater and greater numbers of people there is a popular backlash, which we are seeing now in Europe en masse. But clearly, there are geopolitical tectonic forces in play more than ever now that threaten the petrodollar. It would not surprise me in the least to see a major rise in the price of gold and a massive decline in the dollar correlated with some major geopolitical changes that realign the existing world order. And in my view that world order would drastically reduce or perhaps entirely eliminate the petrodollar and, with that, the control the American Empire has exercised and used to enslaved millions of our world’s population through massive indebtedness. Indeed the petrodollar seems to me to be the major theme in the growing rift between the U.S. on the one hand and the BRICS on the other. A cataclysmic nation-changing event that coincides with Dr. Robert McHugh’s Jaws of Death formation in the equity markets seems totally logical to me.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.