Dust flux, Vostok ice core

Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Friday, February 14, 2020

The Gold-Silver Ratio

For Valentine's Day, a little something for you who love silver.

Or gold

A couple of weeks ago, Wheaton Precious Metals released a very useful study on the gold-silver ratio. Today I would like to take a look at some of its implications.

The most important implication is one that everyone needs a little time to absorb. That is that there is no characteristic value for the gold-silver ratio.

That means that there is no "true north", or no mythic value (16, for instance) to which it is attracted, and to which it would return if only the world stopped manipulating its price.

The Wheaton conclusions are quite definite. The gold-silver rises during deflationary periods and disinflationary periods (we'll look at this distinction shortly). The gold-silver ratio falls during inflationary periods.

What is unclear is whether a rising GSR causes deflation, or deflation causes a rising GSR. I know which one I believe.

Let's test this against some measures I've used for deflation/inflation. I'll use the weekly chart of USDX vs gold price, weekly, going back to the beginning of 2008.

It is a busy visual, but what we want to do is look at longer-scale variations. Intervals when both the USDX index and the gold price rise are considered deflationary. If gold rises and the US dollar index falls, we have inflation (hence inflation and deflation are not opposites). Gold falling and the dollar rising will be disinflation, and I suppose that if both gold and the US dollar fall, we must have disdeflation, although I have never seen that word anywhere. It's a little hard to say, so it might be best to leave it nameless, and remember that if it ever happens, you should be shorting gold stocks.

Through most of 2008, the graph above suggests we were experiencing disinflation, and over that interval, GSR rises from 55.7 to 77.1

Much of 2009 was characterized by inflation, and the GSR fell from 77.1 to 63.3.

Until the middle of 2010, we had disinflation, and the GSR rose slightly.

The big inflationary pulse into late 2011 saw the GSR falling to 40.8. The final blow-off in the gold price did not see any movement in the US dollar index, so it technically lies between inflation and deflation, but I don't know what to call it. The GSR actually rose during that interval, which makes some sense as the gold price rose over $200 in that time.

The following disinflationary episode that lasted through 2013 saw the GSR rise to 65.9.

Since then, the dominant trend has been deflationary, although realistically there have only been two deflationary pulses--through early 2015 (GSR 74.5) and over the past 18 months (GSR at 88.6). Most of the time has been consumed by short inflation-disinflation cycles, with slight rises and falls of the GSR without significant trend.

Over the entire chart (twelve years) the big picture is deflation, but most of that has been accommodated through cycles of inflation and disinflation.

So long as deflationary conditions persist, the GSR may rise without limit. As long as debts are created beyond any ability to repay them, deflationary conditions will rule. Under such conditions, despite the GSR being pretty much the highest in history, gold remains a better investment than silver.

However, as much of the actual deflationary effect is brought about by cycles of inflation and disinflation, there are  brief intervals where silver makes a better investment than gold. But rather than using the level of the GSR as your selection criterion, you need to look closely at monetary policy instead.

Wednesday, February 5, 2020

The colour is blue at the Aga Khan Museum

The Aga Khan is the head of a small, but wealthy, subset of Shia Islam.

He is known for charitable works around the world. Today's topic is about one of these, the Aga Khan Museum in Toronto. I had decided to visit late last year when I became aware of an exhibit based on trade in West Africa during the Medieval Era. I had been interested in this topic since the company I worked for at the time drew on the history of gold caravans in West Africa for promotional reasons back when it first began working in the area. During field work in different parts of Ghana, we discovered traces of the historical economic development of the region, some of which has been described previously.

I also took a tour of the museum, which detailed many of the architectural details which might otherwise go unappreciated. For instance, the theme of the museum was light, and the dominant colour for the exterior walls was to be white. Normally this would mean marble, but it was rejected because a study had shown that marble broke down too quickly for a building which is meant to last for hundreds of years. Instead, a white granite was located from a quarry in South America

White granite exterior walls, guaranteed to last

In keeping with the theme of light, most of the interior of the museum is bathed in light from various windows. Elaborate patterned shutters on the windows throw an ever-changing series of patterned shadows across the interior walls of the building as the day proceeds.

Pattern on most of the windows. Material is cast zinc

A Persian symbol for nothingness

Symbology is important in the museum. Apart from the above symbol for nothingess (as everything was created out of nothing, there must be a little bit of "nothing" in everything), there are hexagonal and more complex repeating motifs in the windows and vents, and even the drain in the centre of the courtyard.

Blue seems to be another common theme in the museum. Especially lapis.

The Dancer. A mosaic of lapis

Hexagonal staircase to the auditorium. Terrazzo from Italy

Looking straight up the centre of the spiral stair

Bar made from matching slabs of lapis

The auditorium. It's actually bluer than this

The dome of the auditorium

Shutter for the Bellerive Room in the museum

The principal symmetry element for the interior is a 1 m x 1 m square. All of the major features in the building line  up with the edge of the squares, or else with 2 m x 2 m squares. All of the double doorways are 2 m across, and the edge of the doorway lines up with the edges of the floor tiles (which are 1 m x 1 m). Even the tiling in the courtyard lines up with the outer edges of 2 m x 2 m squares (the straight segments in the tiles below)

Stone floor of the central courtyard, composed of the same white 
granite as the exterior walls, pink limestone from France, and 
blue lapis

A look at the surrounding grounds (the dark squares are reflecting 
pools in the summer) and the Ismaili Centre.

Nearby, the Toronto skyline says "Hello" 

Monday, January 20, 2020

Another exciting adventure in the US medical system

Well, perhaps not so exciting.

I was in Washington a couple of weeks ago for the AGU Chapman conference on the East Asian Monsoon. My trip there was long enough that I needed a dialysis session, which I had tentatively arranged through Fresenius. I had identified a clinic near the conference, and had received word that they would schedule me in for either the Tuesday or the Wednesday that I was there. Unfortunately, my phone was not working properly, so I needed to have them contact me via the hotel. There was also a brief hang-up over the transfer of necessary medical records from Canada, but everything seemed to be in order by lunchtime Tuesday--I had been introduced to my coordinator and was advised to wait for their call.

This meant that I had to run back to the hotel lobby during every break (of which there were several) to see if the clinic had called. Making matters worse, I was never given any direct number to call the clinic directly, so I had to go through the company's national switchboard each time, and deal with a different operator who had to locate my file and see how things were going. Every time I was advised to await their call.

It was the same thing on Wednesday. Await their call. And by evening, it seemed clear I was not going to get dialysis--I was flying back on Thursday afternoon, and would have a session in Toronto on the Friday. No explanation, or indeed any attempt a communication, seems to have been made. I have to add that the situation at the hotel was mildly chaotic as well, as the hotel had just been bought by a new operator and was undergoing transformation to a European-style hostel, and their phone system was a little bit erratic. It was impossible to call out, for instance. I thought it possible that a call from the clinic might have been missed . . . except whenever I called, they told me they hadn't called yet.

By Thursday, the fluid levels were high enough that I had a little trouble breathing, but luckily my potassium levels stayed below the point where it triggers heart attacks (the main worry of the nurses back home) and I was able to survive until Friday.

I don't officially know the reason I was ultimately rejected for dialysis. I suspect it was that I may have triggered a poverty alert--no phone, and staying at a hostel (it wasn't actually a hostel yet, but the hotel was listing itself as such). I gather that under the US rules, if a poor person somehow tricks a medical clinic into providing some medical care, and then can't afford to pay, the clinic has no real recourse. Having a national operator is one more way of heading off poor people before they get in the door. They were willing to let me die because they thought I might not be able to pay a $200 bill.

It's a mad, mad, mad world

Saturday, January 18, 2020

The History of the East Asia Monsoon

So I went to Washington DC last week for the AGU Chapman Conference on the East Asian monsoon. I found it to be a very rewarding conference, and even learned a bit about navigating around Washington on transit, as I was on a limited budget.

The conference was in AGU headquarters, which is near to Dupont Circle.

Not all that far from the Mall, although I didn't visit this time.

Speaking of scientists . . .

I was speaking during the opening session, which was about climate dynamics (and its role on the changes in monsoonal strengths through geologic history). A major dynamic role has been the rise of the Himalayan mountains and the Tibetan Plateau during the period of interest, and there is still a lot of debate about the importance of these tectonic events on the development of the monsoon. Some of the modeling studies suggest that the mountains only change the specific location of the rainfall, and that monsoon behaviour may occur even if there were no continents at all.

My work was based on analysis of global to regional proxy data sets, and has been summarized in all these places. Unfortunately, due to limited time, after working through the phase space reconstructions, I had to rush through the statistical computation part, and wasn't certain whether any of the message made it to the audience ungarbled. Fortunately, I was able to learn that at least some members of the audience understood the message.

The afternoon sessions were all about paleoceanographic records of the monsoon. Over the past decade, the International Ocean Discovery Program (IODP, formerly ODP and DSDP) has put down a number of boreholes in the Indus and Bengal Fans, and other boreholes in the Huang He fan and the Sea of Japan also provide useful records of at least some parts of the monsoon. The records I studied were generally global in scope--these other records allow for regional variations to be studied.

The next day's sessions dealt with continental environments (a common issue was the change in photosynthetic pathways of plants in response to environmental change during the Miocene) and records of continental erosion. Erosion is important because either rising mountains or increased rainfall will lead to increased erosion.

The last session was on modeling the effects of tectonic uplift as well as changes in the timing of the uplift, because there is still some disagreement about when the Tibetan Plateau was formed. I mean disagreement between it being less than 10 million years ago to more than 40 million years ago, which is a significant difference of opinion for something so recent.

The last portion of the conference was to break up into groups for focussed discussions on topics of interest leading to the testing of several hypotheses proposed at the start of the conference. I started off in the wrong room, so I was  with the tectonic modeling people rather than the climate modeling people, but was still able to ask about whether anyone had successfully had chaos appear in their model output. Results were inconclusive.

For the second group meeting I joined the combined discussion between the climate modelers and the paleoceanographic records group. Over the course of the discussion I eventually managed to come up with a proposal. See if the modelers observe chaos, and see if they can tell which style of chaos they have. Such chaos will be manifested as spatial variability in some climate effects, such as the location of the maximum rainfall. The models may have the type of spatial variability modeled correctly, but the specific timing of variations will be incorrect. That spatial variability will be recorded in the widely spaced paleoceanographic records which already exist. They type of chaos observed in the models will tell us what to look for in the cores; from the cores we can obtain the correct timing of the modeled chaotic spatial variations of the monsoon system.

Exiting the Metro Station at Dupont Circle

I wasn't sure how the last part of the conference would go--early on, many of the old hands were of the opinion that nothing ever comes from these things. But I thought it was pretty rewarding, particularly as it was during these sessions that I came to realize that people felt that whatever I was doing was worthwhile.

Alone in my corner of the world, I had never been sure.

Night flight back to Toronto

Wednesday, December 11, 2019

A year of deflation was pretty good for gold miners

I have been showing the long-term graph of US dollar index vs gold for some time, arguing that the last twelve years have, on average, been deflationary.

Since early 2008, the gold price has risen from ~900USD per oz to nearly 1500 USD/oz, whereas the US dollar index has risen from about 72 to nearly 98. Richard Russell seems to have been right, with his bet of 50% gold and 50% US dollars.

Now, here's a thought. If the graph trending upward and to the right is deflation, how does inflation plot?

Down and to the right (rising gold, falling dollar). Deflation and inflation are not opposites . . . they are perpendicular.

In the above graph, even though the trend has been deflationary, there are inflationary and disinflationary intervals as well.

From about mid September last year until the end of August, we had pretty steady deflation. But on much shorter timescales, individual actions are on the inflation-disinflation axis. (I have not decided what to call the opposite of deflation - perhaps #$!?@!?).

My thesis of the past several years is that deflation is good for the price of gold companies. So let's see how one did.

Franco Nevada is a royalty streaming company with about 80% of its revenues coming from precious metals production. This company is a good one to test the hypothesis as it is more likely to be affected by economic factors such as the price of gold and less affected by company-specific factors as would be the case for a mid-tier producer.

From late September 2018 to about the end of August of this year, Franco Nevada embarked on a powerful price advance from about $80/share to $130/share--a 62% gain. This gain corresponded with the period of deflation, where both gold and the US dollar index were rising.

Similarly, a quick look at other companies including SSR Mining, Wheaton Precious Metals, Wesdome, Semafo, and even a small exploration company like Bravada showed strong gains over the same period.