The Dow Jones and Gold are Counter-Cyclical to Each Other, or Were Before November 2023

This week, since entering scoring position in November 2023, in its BEV chart below (Red Rectangle), the Dow Jones made its fifty-seventh new all-time high.  That is almost two years since the Dow Jones began a series of all-time highs (BEV Zeros = 0.0%), that has taken the Dow Jones from 33,052 in October 2023, to 45,636 just this week.  

In dollars, those new all-time highs of the past twenty-two months, have advanced the Dow Jones by 12,584 points.  Let’s call it a two-year gain of 38%, which isn’t bad for a bunch of old fogy, dividend yielding blue-chip stocks.

So, why invest in these old fogies, if other types of stocks have done better?  For income is a reason that comes to mind. 

Since the 2007-09 sub-prime mortgage crisis, the Dow Jones’ dividend payout has increased from around $300, to over $860, as seen in the chart below.  Unlike fixed income, buying a bond, which never sees an increase in payout, dividend yielding stocks usually see increases in payout over time.  Though truth be told, sometimes dividend yielding stocks see a reduction in their payout, as the Dow Jones has recently seen in its dividend payout.  Sometimes, that is how it goes.

Still, that is a nice sixteen-year increase in dividend payouts.  So, for someone looking for income, is the Dow Jones a buy?  That depends on how much it costs to purchase all that cash the Dow Jones is sending its owners each year.

Looking at its current dividend yield, which this week was only 1.60%, far below the rate of consumer price inflation.  Currently, for someone looking for income, they can get over 4% in short-term Treasury bills.  I’d have to say that the Dow Jones, trading at 45,636, is overpriced; grossly so. 

As the Dow Jones, for well over a century, has been a very effective proxy for the general stock market, I’d say the entire stock market is also overpriced.  At this week’s close, the yield for the S&P500 was only 1.21%, making it even more overvalued than the Dow Jones.

When might the Dow Jones once again become an attractive market risk, a market risk that once again offered good prospects of much safer financial gains?  That isn’t going to happen until the stock market approaches its next bear market bottom.  I like the old rule-of-thumb for the Dow Jones, where a Dow Jones’ dividend yield of something over 6%, may not be the exact bottom of a bear market, but it is close enough to start buying.

What would the Dow Jones’s valuation be today with a 6% dividend yield?  To make this week’s dividend payout of $728, yield 6%, the Dow Jones’ valuation would have to deflate to 12,133.  That would be a massive 73.41% bear-market decline.  No, not a market decline, that would be a market crash not seen since the depressing 1930s. 

And that 73.41% market crash assumes the $728 payout from the Dow Jones wouldn’t be cut.  In such a massive bear market, big reductions in the dividend payouts should be assumed. 

During the Great Depression Market Crash, an 89% bear market crash, the Dow Jones dividends were cut by 75%.  Cutting the current $728 dividend payout for the Dow Jones by 75%, leaves a payout of only $182.  To make a dividend payout of $182 yield 6%, would require the Dow Jones’ valuation to deflate down to 3,033, a level the Dow Jones hasn’t traded at since the early 1990s.  This would be a 93.3% bear-market decline in the Dow Jones, that would strip thirty-four years of “growth” from the Dow Jones.

Am I predicting these massive bear-market declines?  Well, I’m predicting that in due time, something really bad will result from all these decades of monetary inflation flowing from the Federal Reserve System, into the stock market.  The declines I’ve given above are within historical norms, and so not outside the possibility of what could happen.

Below is a table using dividend payouts and yields to fix Dow Jones’ valuations.  Using a dividend yield of 6%, and a payout of $450, fixes the Dow Jones at 7,500.  The lower table, based on the Dow Jones at 45,014 is outdated, but close enough to the Dow Jones current all-time high at 45,636 to be useful.

What can I say?  If you’re looking for reasons to justify buying the general stock market, keep away from my articles.  What is so frustrating for me, is the “policy makers” in Washington, have for decades refused to allow the stock market to deflate to reasonable valuations; reasonable dividend yields. 

The Dow Jones last saw a 7% dividend yield in the early 1980s, and has traded with a yield below 3% since the 1990s.  And when the Dow Jones has attempted to increase its dividend yield to 6%, as it did during the 2007-09 Sub-Prime Mortgage Bear Market, and again during the March 2020 Flash Crash, the idiots at the FOMC implement a QE to “stabilize market valuations,” to get that damn dividend yield back below 3%.

To wonder if, or when the FOMC will once again implement another QE, one only has to wonder if, or when the Dow Jones’ dividend yield will once again increase to something over 3%.  A quick glance of the chart below confirms that.

So, now in 2025 here we are, with the Dow Jones yielding a pitiful 1.60%.  I admit, allowing it to once again yield 6%, or more would result in a massive bear market, a market crash not seen since the Great Depression.  So, the idiots at the FOMC continue “stabilizing market valuations,” as stock-market valuations only inflate to more grotesque levels.  Dow Jones at 50,000, or 55,000?  Sure, why not even higher?  Well, lots of things can happen between here to there, that just might make that impossible. 

This too shall pass.  When it does, you’ll be very happy not to see your investment funds in the stock and bond markets.  Hey!  Did you note the XAU made three new all-time highs this week?

Next is my chart for the Dow Jones in daily bars.  If you look really hard, you can see Thursday’s teeny-weeny bar, where the Dow Jones inflated to a new all-time high.  For a bull market advance, this week’s action had a total lack of enthusiasm. 

For the Dow Jones to be soaring into market history, I would prefer to see the Dow Jones advance as it did in late April, in the chart below.  That wasn’t to be this week, the last week of August 2025.  But then, there is always next week.

Let’s look at the banking stocks below.  The top chart is in dollars, from 1938 to this week’s close.  Looking at these banks in the dollars this data was published in, nothing much happened until 1993, which we know isn’t true.

Above, we see the same data, but in Bear’s Eye View (BEV) format, where each new all-time high register as a 0.0%, and never more.  All data points not a new all-time high, register as a negative percentage claw-back from their last all-time high.

Looking at these banks in BEV format reveals information not obvious when looking at this data in dollars.  One thing, A BIG THING, is how from 1938 to 1971, volatility for these banks never saw a greater than a 35% market decline.  After 1971, after the US Government took the dollar off its $35 gold peg, volatility in these banks greatly increased. 

Which makes sense, as freeing the dollar from the $35 gold peg, allowed these banks to expand their credit creation, encouraging these banks to make loans to less than sterling credits, whose ability to service their debts to these banks were not all they should be.

In May of 2023 (Red Circle), these banks saw a 50% decline from their last all-time high of November 2021, as some banks in Silicon Valley saw runs on their deposits.  This index has yet to recover from this big decline, making me think we’ll see more surprises to come for these banks in the months, and years to come.  Mortgages, credit card debt, and auto loans are potential problems to come.  Though we may see these banks at a new all-time high before any of those problems come into public’s attention.

As seen in my table for the major market indexes I follow below, the XAU (#1), saw three new all-time highs this week.  Here is the chart plotting every daily closing price for the XAU going back to 1983.  The gold and silver miners look really good. 

That this advance is mostly ignored by “market experts,” is actually a very attractive feature of this advance.  But one day “market experts” are going to have to follow these miners rise into market history; that is when things should become exciting for the miners of gold and silver.

Lots of new all-time highs (0.00% = BEV Zero) for the major market indexes seen below.  That plus fifteen of these indexes closed the week in scoring position; within 5% of their last all-time high.  I guess that is good, if someone is selling.  But we are approaching a market top, and that is never a good time to be a buyer in the stock market.

Gold, silver and the XAU remain in the top three spots in this week’s performance table above.  The XAU and silver saw some nice gains this week, better than gold.  It’s only a matter of time before gold slips from the #1 spot, to be replaced by the XAU or silver.

The NASDAQ Insurance index (#9), used to be #2 on a regular basis earlier this year.  But not anymore.

Here is gold’s BEV chart.  This week gold closed at a new all-time high $3,447.84.  One oddity of this market, is that both gold and the Dow Jones entered into scoring position in November 2023.  This is odd as gold and the Dow Jones (my proxy for the broad stock market) are typically counter-cyclical to each other. 

Yet since November 2023, the Dow Jones has made fifty-seven new all-time highs, as gold in these same twenty-two months has made sixty-seven new all-time highs.  This isn’t going to go on forever.  One day either gold, or the Dow Jones is going to decline below scoring position (below their BEV -5% Lines), and keep going down, as the other does something completely different.  My money is on gold, silver, and their miners.

Next is the chart plotting the indexed value of gold and silver, where January 1969 is equal to 1.00.  Using the indexed values of gold and silver, allows us to actually compare the performance of the two over time.  The last time silver overperformed gold was during the 1970s precious metals bull market.  But in the years to come, I expect that will change, making silver bullion going for less than $40 an ounce, a real bargain.  I like the gold and silver miners, but buy some silver rounds or silver eagles from the US Mint.  They are pretty to look at, and nice to hold in your hand. 

I like junk silver too, pre 1964 US coinage with 90% silver content.  Walking Liberty and Franklin half dollars are beautiful coins.  There is something about holding a silver coin from the 1930s or 1950s, a time when money was still something precious, nothing like the zinc or copper slugs that pass for money today. 

Giving children (from 13 to 50) a few junk half dollars from decades ago for Christmas, is always a special, and surprising gift for the holidays.

Gold in its step sum table is looking good.  This week gold advanced in four of its five trading days, resulting in a new all-time high on Friday’s close.  If gold is entering a period where advancing days outnumber daily declines, we may see a nice run up in the price of gold in the weeks to come.

For the Dow Jones on its side of the step sum table, it’s looking good too.  So, I’m expecting additional new all-time highs in the weeks to come.  But historically, seeing gold and the Dow Jones advancing, hand to hand into market history is a historical oddity, as seen in the Dow Jones to Gold Ratio chart below.

This is an easy chart to understand.  I take the indexed values of the Dow Jones and gold, with January 1970 = 1.00.  The Indexed value of the Dow Jones goes into the numerator of the ratio, the indexed value of gold into the ratio’s denominator.

When this ratio is rising, investors enjoyed superior gains by being in the stock market, as from box #2 to box #3.  When this ratio was declining, investors did better holding gold, as from box #3 to box #4.  That isn’t saying the Dow Jones didn’t advance from 2000 to 2012, as it did.  It is just that the returns on gold from 2000 to 2012, were superior to the Dow Jones.

But then came box #5 in 2019, marking the start of the Red Box I inserted in the chart.  And since November 2023, the Dow Jones and gold both entered scoring positions in their BEV charts, with the Dow Jones making 57 new all-time highs in the past twenty-two months, with gold seeing 67 new all-time highs.

This is very odd, something not likely to have a long shelf life in the market.  That may all be true, but for right now, both the Dow Jones and gold are making many new new all-time highs.  Still, I think the smart money is making money holding gold, not in the stock market.

There is a lot of concern about China’s military expansion in the South China Sea, as well as its stated intension to invade Taiwan.  All this takes a navy.  As a retired US Navy Chief Petty Officer, I believe my opinions on naval matters have some weight.

As I was an Electrician Mate, always assigned to my ship’s Engineering Department.  I know exactly what a ship is; a ship is a hunk of steel floating in an ocean of saltwater.  From the first day a ship is floating in this hostile environment, something in it is broken, or in constant need of a little loving care, or it won’t be working for long.

The key word in naval engineering, and shipboard weapon systems is; maintenance, both corrective and preventive maintenance.  If a naval ship isn’t maintained properly, it will become worthless in very short order.  That the US Navy can, and does operate ships at sea for decades is astounding!  

Civilians, and other members of the US Armed Forces have no appreciation of hard work, and attention to detail it took to have, for example the USS Midway (CV-41), the ship I served on during Desert Storm, to remain an effective instrument-of-war, from 1945 to its decommissioning in 1992.

The Midway is now a museum in San Diego.  If you’re visiting Southern California, take the time to visit the “pride of AirPac” while you’re there.

The reason I’m bringing all this up, is I don’t believe China has what it takes to have a true, world class, blue-water navy.  Should they ever take their naval ships into “harm’s way,” I believe it will be a bad day for the Chinese Navy.

Case in point, is the shameful construction the CCP oversees in its cities.  Here is a twenty-minute video, by two guys who lived for ten years in China.  They both speak, and write Mandrin Chinese, and have lived the Chinese experience personally.

https://www.youtube.com/watch?v=1UtBUFbgktA

Take a look at it, it’s actually very entertaining.  If China can’t build a bridge or building that isn’t falling down shortly after completion, I have to wonder what their ships are like?

Mark J. Lundeen

[email protected]

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