Treasure map - the secrets of the Dow to Silver ratio

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When we were kids, we used to play a game called “treasure map”. In this game we imagined ourselves as pirates, looking for a treasure of gold and silver coins, which was hidden on a desert island. Today, the greatest pirates in the world no longer sail the high seas. They wear suits and have offices on Wall Street. They don’t care too much for gold and silver. Instead, they trade digital assets such as stocks and bonds, trying to skim a few percentage points off of your retirement savings. But what if I told you that there are still treasure maps out there? They may not be scribbled on a piece of parchment, but they can still help you make a fortune. These maps are financial charts. They don’t look as exciting as the treasure maps of old, but if you study them carefully, there is a great deal of knowledge that can be gleaned from them.

The treasure map which I would like to present to you today is the Dow to Silver ratio, over the past 120 years. This is not a chart which is often discussed. Most analysts prefer to look at the Dow to gold ratio, which is equally interesting. But since the Dow Jones is an index of industrial companies, and since silver nowadays is primarily an industrial metal, the ratio between the two has its own story to tell. It stands to reason that the price of silver should be linked to the Dow Jones, because silver has a limited supply, and the higher the shares of these companies rise, the more resources they have in order to bid up the price of silver. As we will see, in recent decades this ratio has gone completely haywire, and therefore it is likely to experience a reversion to the mean.

Music: Allegro by Emmit Fenn
Available from the YouTube Audio Library

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