Dow 11,000… Again?

The last time we talked about the Dow Jones Industrials "breaking through" the 11,000 level was back in April. After spending about 15 days above the 11,000 mark, the Dow sank back below 10,000 in June, and again in July, after which it began working higher, bringing us to 11,006 on Friday, a level which just barely held in Monday's trading, closing at 11,010.

So as the song says, are happy days here again? With all the talk of QE2, of inflation being too low for the Fed's liking, and their stated willingness to "do whatever it takes" to fix up the economy, it's hard to know what the USD price of anything means any more! Let's see what the Dow priced in gold is telling us.

Back in April, I pointed out that the Dow price of 300 grams of gold was about where it had been since the start of 2009, pretty much a flat-line, aside from a brief excursion down to 220 in March of 2009. Since then, the Dow has been working its way lower, and now sits at 253.4 grams, about 14% lower than the last time it traded above 11,000 in USD. As the chart below shows, the recovery of stock prices (as measured in USD) is an purely an illusion.

DIA ETF in gold and USD/10

The US Dollar itself is losing value about as rapidly as stocks and other assets are being inflated. In fact, the specter of rising taxes, increasing regulation, and the uncertainty of what crazy bailout, stimulus or pork-barrel program will be announced next has investors working their way to the exits.

That's something to keep in mind when reading the financial news priced in fiat currency! Don't let it ruin your investments. There are things that are rising in gold terms. That's where you want to be invested.

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