One way to measure gold is to compare an ounce of gold against the Dow Jones Industrials. The Dow vs Gold ratio is currently not at the highest. But it is above average. I would say that the inflexion point where gold starts to rally is around 16.55 back in Jul 1929, 25 in Jul 1965, 41.61 in Jul 1999. These are the points where stocks are expensive relative to gold. The average point is around 27.8x.
The periods where gold start their bear trend are: Feb 1933, 1.94x, Feb 1980 1.3. The average is around 1.62x. The median is probably around 14.7x. Right now the ratio is around 12.38x.. It is slightly on the expensive side.
Even though there was a rebound from 1180 to 1320 oz recently, the trend has not confirmed.
I'm neutral gold at the moment. Here are the reasons:
Positives for gold:
1. Chinese buying up 41% in Jan 14.
2. At 1180 oz, gold fell around 39% from 1931 back in Sep 2011. This drop is bigger than the last drop in 2008.
3. Inflation is likely to occur in the west from 2015 onwards, as unemployment rate continues to fall.
Negatives for gold:
1. Chart is neutral.
2. ETF selling still ongoing.
3. UST 10 years may rise above 3.5% by end 2014, making gold less attractive.
If your allocation to gold is a mere 10%, you can hold on to it. If you have > 10% exposure, then sell down to 10%. If you have < 10% gold, you can start adding until you hit the magical exposure.
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