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Will Dow-gold ratio hit one-to-one again? PIERRE LASSONDE Newmont vice-chair Pierre Lassonde looks back at where the price of gold was, and how high it might rise, in this interview with business reporter Lisa Wright. Q. What do you make of this correction of gold prices? A. Hey, a year ago it was at $600-and-something (U.S.), so it's still pretty good. We're just getting a bit of a pullback, which is healthy. But I do believe that over the next year or two we'll break right through the $850 (barrier). At some point in the next five years you'll see gold with three zeroes after the first number, we just don't know what number that's going to be. Q. So where is gold headed? A. I'll bring out my crystal ball (laughs). But everything is pretty well unfolding the way that we had anticipated and gold is responding primarily to the devaluation of the U.S. dollar. That correlation is the most important in terms of the gold price. We had foreseen that we were going to chase the old highs, the $850 (range), and just almost touched it last week.
Q. What's your theory on the price? A. Something I've been pointing out since 1999 in our Franco-Nevada annual report is the Dow Jones industrial average divided by gold price. It will blow you away. The Dow represents financial assets while gold represents hard assets. And, over a 100-year period from 1920 to today, there are cycles. There are times to own financial assets, when the ratio goes up, and then there are times to own hard assets, when the ratio goes down because it's one against the other. So from 1920 to 1929, you wanted to be in financial assets. From 1929 to 1935 you really wanted to be in gold. This is a very interesting thing because the financial asset peak was in 1966. And then the hard asset peak was 1980, so this was a 14-year bull market in hard assets. When you think about it gold went from $35 to $850. If I told you in 1966 that gold is going to $800, you'd say `Lassonde you're completely out of your mind. You're wacko.' But oil went from $2.50 to $50 in that same time. And you know what happened to real estate prices in Toronto in the '70s. Now here's the real kicker. At the top of the hard-asset bull market, (1933), the Dow, which had been 370 at the top, bottomed at 37, and gold peaked at (about) $35. The ratio was essentially one-to-one. In 1980, the Dow was (about) 800 and gold was $800. One-to-one. You know where the Dow is today – (just over) 13,000. Gold is $800. In every bull market in the last 100 years the ratio came down to essentially one-to-one.
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