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On Wednesday, the U.S. Federal Reserve announced that it would be keeping its key interest rate range between 5.25 percent and 5.5 percent, along with a projection to lower interest rates in 2024.
The move signaled that the central bank believes inflation may finally be abating, sending stocks soaring on the news.
PBS reported:
A powerful rally across Wall Street sent the Dow Jones Industrial Average to a record on Wednesday after the Federal Reserve indicated that the cuts to interest rates investors crave so much may be coming next year.
The Dow jumped 512 points, or 1.4 percent, to top 37,000 and surpass its prior peak of 36,799.65 set at the start of last year.
Other, more widely followed indexes of U.S. stocks also leaped. The S&P 500 rose 1.4 percent and is within 2 percent of its own record. The Nasdaq composite also gained 1.4 percent.
Wall Street loves lower interest rates because they can relax the pressure on the economy and goose prices for all kinds of investments. Markets have been rallying since October amid rising hopes that cuts may be on the way.
Not everyone was feeling rosy, however. Peter Schiff, a legendary Wall Streeter, noted that when looking at the Dow Jones through the lens of gold prices, rather than dollars, the stock market is still wildly overinflated.
Today the #DowJones hit a record high, trading above $37K for the first time. But that's priced in dollars. At 18.5 ounces of #gold, priced in real money the Dow is still less than half the price it hit in 1999. The Dow is over-valued. I expect the gold price of the Dow to crash.
— Peter Schiff (@PeterSchiff) December 13, 2023
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Longterm Trends has explained what Schiff means: “The Dow to Gold ratio measures the relative value of the Dow Jones Industrial Average (Dow) compared to gold. It indicates the number of ounces of gold it takes to buy the shares in the Dow Jones Industrial Average index.”
“The Dow Jones is a stock index that includes 30 large publicly traded companies based in the United States. It is one of the oldest and most-watched indices in the world. Gold, on the other hand, is a precious metal that has been used as a store of value and medium of exchange for centuries. It is often seen as a safe haven investment during times of economic uncertainty and is considered an alternative to traditional fiat currencies.”
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The Dow to Gold Ratio provides insight into the relative performance of stocks (represented by the Dow) compared to gold. When the ratio is high, it suggests that stocks are performing well compared to gold, indicating a strong stock market.
Conversely, a low ratio indicates that gold is outperforming stocks, which could be a sign of market weakness or economic instability.
Turning points in the Dow to Gold ratio have coincided with turning points in market history: The stock market reached historic highs in 1929, 1966 and 1999 as the ratio did the same. Likewise, the market sat near historic lows in 1932 and 1980 as the ratio hit bottom.”
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Schiff has long been a goldbug. In 2010, for example, he predicted that the Dow Jones and gold would eventually reach a 1 to 1 ratio and this month, he said that we should expect a bearish stock market crash based on the price of the world’s oldest precious commodity.
