I left my job two years ago. My ex-wife Kate and I sold all our things. We hit the road with our three kids. We don’t have anywhere to live.

We left “the matrix” in another important way, too.

When we left America, we drained our bank accounts and retirement accounts of cash and converted all our savings into gold and silver.

Why did we do this? We don’t want to be “in the system” anymore. It’s unbalanced and unstable.

When we made our move, I saw a total rejection of saving in favor of debt. I saw efforts to prop up the markets using unsound money and financial engineering… things like quantitative easing (“QE”). And artificially lowered interest rates.

And huge government deficits.

That’s why for the past two years, we’ve been sitting on the sidelines in precious metals, until it’s safe to return to the financial system.

When it is finally safe, we’ll sell all our gold and invest in a select group of stocks. Our money will stay there – I hope – generating bigger and bigger dividends for the rest of our lives.

How will we know when it’s safe, though?

Simple. We’ll follow the Dow-to-Gold ratio…

The Dow-to-Gold ratio is the ultimate barometer of the financial system’s “health.”

The Dow Jones Industrial Average is the aggregated stock price of 30 of the largest, most iconic businesses in the world. Gold is an inert metal. It’s the investment equivalent of hiding your money under the floorboards.

By presenting these two as a ratio, I get a barometer.

I’ve looked through 100 years of stock market history. The last times the system “reset,” depending on how bad things got, the ratio went below 5.

On the flip side, when things were ripping – as they were in the late 1990s, for example – the ratio got as high as 41.

Our Dow-to-Gold trade is based on a simple premise…

  • You buy stocks when they are cheap relative to gold. That is, when the Dow-to-Gold ratio is below 5.
  • You sell stocks when they become expensive – when the Dow-to-Gold ratio rises above 15. At that point, you return to gold.

Over the course of the last 100 years, you would have made only six trades. But you would have also handily beaten a “buy and hold” approach.

The chart below shows it all. And if you look carefully, you’ll see a recent reversal…

When we started our travels and arrived in Africa in November 2018, the barometer was above 22. As I write, it’s at 13.9.

It’s falling again.

I believe this is the start of a longer trend… a signal that the system is going to break soon. Maybe it’s starting to break already?

The ratio likes to move in big, clear trends. And once it’s in motion, it tends to stay in motion. I speculate that it’s about to head much lower…

My hypothesis is that the Dow-to-Gold ratio is now back on its way down… to a level somewhere below 5.

I will hold my gold until then – at which point I’ll sell it all and invest the proceeds into the stock market.

But for now, while we wait for the Dow-to-Gold ratio’s rendezvous with destiny (as Agora Financial founder Bill Bonner calls it), we remain in our financial “cabin in the woods.”

The system still looks to me like the Titanic speeding through an ice field.

Since the outbreak of the coronavirus pandemic, the government has gone into hyperdrive trying to “manage” the economy – with more financial engineering, more unsound money, bigger deficits, and more soothing words… except it’s unraveling even faster now.

We’re sticking with gold and silver.

Regards,

— Tom Dyson

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Source: Daily Wealth