More Dark and Dank

Reader DaveB left a useful link to Peter Schiff's January visit to CNBC where he delivered a similar message to his message this morning about the dollar and buying power. If you have highspeed, check it out.

The video clip gives a little more background to Schiff's thought process. He talks about measuring wealth in gold. Ok that is worth thinking about. He then says that in 2000 it cost 45 ounces of gold to buy the Dow and now it costs only 25 ounces of gold. Gold hasn't moved, he says, the dollar has. The Dow would need to be at 25000 to balance this out. I think I have his numbers correct, but I am close if not exact.

I have trouble, conceptually, with the idea that it makes sense to measure the Dow by its relationship to gold and what that relationship was in the past. I think it is too simplistic. I do not know enough about gold to know how coming off the gold standard distorted gold's value (and if gold was distorted, did equities also distort somehow?).

I have read a couple of things over the years that try to make the Dow vs. gold analysis stand up but I think there are too many moving parts to cloud this issue. One issue is that gold's only value is what people place on it. Before you jump all over me, what I mean is that there is very little industrial use for gold compared to other metals.

None of this makes me any less constructive on gold's role in a diversified portfolio.