Maria’s note: Maria Bonaventura here, managing editor of the Diary. For longtime readers, Tom Dyson needs no introduction. He’s the guy who went “all in” on gold after Bill shared his Dow-to-Gold trading model with him.

Below, Tom shares some insights on how the trade has fared since he first started tracking it for readers. And he shows why he believes it could be the secret to securing intergenerational wealth…


My ex-wife and I are on sabbatical. We’re traveling around the world with our three kids, having an epic adventure.

I’m not supposed to be working, but when I saw what was happening in the equity and gold markets late last year, I drained my savings accounts and converted everything to gold.

Then I started nagging my family members to do the same…

Simple Strategy

First, look at this chart. It shows the great wave of stock market valuations, oscillating between cheap and expensive every generation or so.

Chart

This pattern has held for 120 years. And I expect it’ll always hold (because the emotional wiring of investors never changes).

As you can see above, the stock market is currently at “expensive.” You can tell because we’re above the black line at the 0% marker.

Now look at the chart below. It shows the ratio of the Dow Jones stock index to the gold price per ounce. We call this the Dow-to-Gold ratio.

Look how accurately the Dow-to-Gold ratio syncs up with the great valuation wave above.

Chart

When valuations are in a bear market, as they have been since the year 2000, you hold gold until the great wave bottoms out. Then, when valuations are in a bull market, you hold stocks until the wave peaks.

I intend to use these charts to manage my retirement savings – rotating between stocks and gold at the tops and bottoms of the great valuation wave – for the rest of my life. And I’ll try to drum it into my kids’ heads too, if they’ll listen.

All In

As I mentioned in my new Postcards From the Fringe e-letter, the last valuation extreme (a high) occurred in 1999. The Dow-to-Gold ratio hit 41. That was the time to rotate from stocks to gold.

The next extreme (a low) will occur soon – probably in the next five or 10 years. And that will be a time to rotate from gold to stocks.

We’ll know it’s time to rotate when valuations match the previous wave bottoms of 1933, 1950, and 1980. And when the Dow-to-Gold ratio has gone below 5.

Here’s the thing… Even though the valuation bear market is 20 years old, there’s been a big countertrend rebound over the last seven years. Stock market valuations almost returned to their 1999 peak, and the Dow-to-Gold ratio bounced back up above 20.

That countertrend rally ended in October 2018 at 22.36 when the Dow-to-Gold ratio dramatically reversed and started heading lower again. I noticed this reversal when we were in Rwanda, and that’s what got me so excited.

So earlier this year, I approached Bill and Bonner-Denning Letter coauthor Dan Denning in London.

“This is the most excited I’ve been about an idea in years,” I told them. “I’ve bet all my savings on it, and I’m pushing my parents and brothers to follow me.”

Then I asked them if I could share my insight with readers of The Bonner-Denning Letter. They agreed.

Three months ago, I became an official contributor. And if you read our Letter, you know I’ve been tracking this trend as it plays out.

In the last three weeks, the Dow has risen, gold has fallen, and the ratio has been creeping back up again. As we go to publication, it’s just below 18.

This could be the last time we see the Dow-to-Gold ratio near 18 for many years to come… and your last chance to get on the train before it leaves the station for good.

Regards,

Tom Dyson
Contributor, The Bonner-Denning Letter