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).

Wednesday, May 4, 2011

Bifurcation in gold-silver ratio! Where are we headed?

Is the recent exciting rise in the price of silver telling us something? Let's investigate.

The World Complex presents a two-dimensional reconstructed phase space portrait (using the time delay method) for monthly average gold and silver prices from January 1996 to April 2011. The time delay is twelve months, meaning that this plot shows the gold/silver ratio plotted against the ratio one year earlier.

Silver pricing data comes from here. Gold price monthly data from the World Gold Council website.

Don't get lost in the details. The important thing isn't every loop and swirl in the trajectory, nor is it even the trajectory itself. It is the space. For almost the entire data set, the system has cycled within a large area, which may have been an area of Lyapunov stability. The only exceptions are the excursion to the lower right area of the graph (an unusually high ratio coupled with an unusually high rate of increase in the gold/silver ratio, which happened in late 2008 to early 2009--I'm sure we all remember that one); and two excursions to the far left of the graph (in which the ratio is low and had also declined rapidly in the previous year)--these being the "Warren Buffett event" of 1998, and our present excursion.

Notice that the Warren Buffet excursion was short-lived. Indeed, the sudden reversal of the trajectory looks a little unnatural. We eagerly await to see whether our current excursion will be similarly short-lived, and marked by a similar reversal. Unfortunately, although we are eager, the time taken for such an event to play out is months to years, so patience is the order of the day.

The next several months will be crucial. If there are truly problems in silver supplies, it would be logical to expect to see the trajectory of our dynamic system leap into a new area of phase space--probably one beyond the boundaries of the graph.

One idea currently circulating is that bifurcations are preceded by a period of extreme stability (what we might term low volatility). It is not clear if the period of low volatility is dynamically necessary (clearing the road, as it were), or is merely an empirical observation. The volatility of the gold/silver ratio over the past couple of years has been breathtaking, so if a bifurcation is occurring, it would provide a counterargument to the extreme stability hypothesis.

No comments:

Post a Comment