The most important chart in the world?

Author Steve Saville says:

The main message of this chart is that the current trend of under-performance by the Dow relative to gold is still in its infancy.

I would like to discuss charts and this chart in more detail.

Because there is a lot of ground to cover, I am going to present it in question and answer form, in the style of “The Oral Tradition”.

Do I think that you can predict the future from charts?

No, I do not. Believing you can is like believing in The Gambler’s Fallacy. We can only guess at the future!

Why do I bother with charts at all?

A picture is worth a thousand words. For instance, the share price chart of a listed company is like a pictorial record of a “price duel” between buyers and weak holders (sellers). Charts present past statistics in an easy to assimilate form; sometimes called Technical Analysis. I prefer to lump tables, ratings and charts together and just call it Statistical Analysis.

In my opinion is any Technical Analysis DOGMA valid?

Yes. “The Trend is your Friend”. I think this probably means momentum is your friend.

How would I read this chart?

Lengthy measured up moves by the Dow relative to gold peaked in the late 20s and mid 60s. Now, because of the Tech Bust and a rising gold price, it looks like this event could be repeated.

I know that things do come from left field, so it is not possible to say how things will play out, but this chart is warning me to be vigilant for any accelerating trends in either direction because a period of change may be upon us.

From a gambling point of view, I guess there are 3 chances in 6 – even money – that over the next decade (not a long time) we will experience a period where relative fortunes will be made and lost!

What do I mean by relative here?

Everything in this world is relative and not always fair.

What current trends, in order, do I think are important?

1. A changing trade demographic. Capital flows are heading mainly east.
2. Energy demand is outstripping supply.
3. Raw materials producers like BHP & RIO are becoming so large that they are able to act more like an OPEC style cartel.
4. Human Science & Technology (innovation) is progressing at a fantastic rate.
5. Wealthy households worldwide are holding and borrowing against expensive Real Estate.
6. After a period of calm, market volatility is coming back.