Forecasting the gold price

There are various tools one can use to help determine the future price of gold. One method is the Dow Jones versus Gold ratio. This ratio looks at how many ounces of gold it takes to purchase the Dow, assuming every point in the index represents a dollar. This ratio also reflects the market's confidence in paper versus physical assets like gold. There is a historical relationship where at certain points in time the gold and the Dow trade at a 1:1 or a 2:1 ratio, where one or two ounces of gold can purchase the Dow. When this happens gold has reached its peak in terms of purchasing power relative to other financial assets. These are periods where investors have lost confidence in paper assets. It occurred in 1896, 1929 and 1980 and we could be approaching this ratio again.